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2010 (9) TMI 624 - AT - Income TaxDTAA between India and Italy - Carry forward and set off of business loss - Turn key contract - assessee company which is a company incorporated in Italy was awarded a turn key contract by IOCL in November 1999 for the designing construction and commissioning of a Hydro-treater and Hydrogen facility at IOCL s Guwahati Refinery - whether a contract is a composite/turn-key contract is not of much significance for determining the taxability of off-shore supply under the provisions of the Income-tax Act - off-shore supply revenue was taxable in India as per clause (1)(b) of Article 7 of the DTAA between India and Italy - in the case of Ishikawajima-Harima Heavy Industries Co. Ltd. In re 2004 (10) TMI 87 - AUTHORITY FOR ADVANCE RULINGS) - Held that the offshore supply transaction was not taxable in India - Decided in the fvour of assessee
Issues Involved:
1. Taxability of revenue from offshore supply of equipment to IOCL in India. 2. Applicability of the Double Taxation Avoidance Agreement (DTAA) between India and Italy. 3. Attribution of income to the project office in India. 4. Levy of interest under sections 234B and 234D of the Income-tax Act. Issue-wise Detailed Analysis: 1. Taxability of Revenue from Offshore Supply of Equipment to IOCL in India: The primary issue was whether the revenue from the offshore supply of equipment to IOCL was taxable in India. The assessee argued that the revenue neither accrued nor arose in India, and thus, was not taxable. The Tribunal previously remitted this issue to the CIT(A) for reconsideration in light of the Supreme Court's decision in "Ishikawajima-Harima Heavy Industries Ltd. v. Director of Income-tax, Mumbai" and the Madras High Court's decision in "M/s. Ansaldo Energia Spa v. ITAT & Others." The CIT(A) upheld the taxability, reasoning that the contract was a composite one, and the delivery terms were 'CIF Jobsite,' implying that the title passed in India. However, the Tribunal found that the CIT(A) erred in applying the decision in "Ansaldo Energia Spa," which was factually distinct. The Tribunal emphasized that in "Ishikawajima-Harima," the Supreme Court held that for offshore supplies, if the transaction is completed outside India, it is not taxable in India. The Tribunal noted that the bill of lading was prepared in the name of IOCL and handed over in Rome, indicating that the title passed outside India. Thus, the Tribunal concluded that the revenue from offshore supply did not accrue or arise in India and was not taxable. 2. Applicability of the Double Taxation Avoidance Agreement (DTAA) between India and Italy: The Assessing Officer invoked Article 7(2) of the DTAA between India and Italy, asserting that the offshore supply revenue was taxable in India. The Tribunal, however, noted that the DTAA provisions must be read in light of the Supreme Court's decision in "Ishikawajima-Harima," which clarified that only income attributable to operations carried out in India is taxable. Since the offshore supply transaction occurred entirely outside India, it was not taxable under the DTAA. 3. Attribution of Income to the Project Office in India: The CIT(A) and the Assessing Officer attributed the entire revenue from offshore supply to the project office in India, arguing that the project office constituted a Permanent Establishment (PE). The Tribunal disagreed, citing "Ishikawajima-Harima," which distinguished between a business connection and a PE. The Tribunal clarified that the PE must be involved in the transaction for the income to be attributable to it. Since the offshore supply was completed outside India and the PE had no role in it, the income could not be attributed to the project office. 4. Levy of Interest under Sections 234B and 234D of the Income-tax Act: The issue of interest under sections 234B and 234D was taken without prejudice to the main issue of taxability. The Tribunal remitted this issue to the CIT(A) as a sequel to the decision on the main issue. Since the Tribunal concluded that the offshore supply revenue was not taxable in India, the question of interest under these sections became moot. Conclusion: The Tribunal allowed the appeal, holding that the revenue from the offshore supply of equipment to IOCL neither accrued nor arose in India and was not attributable to the activities of the assessee's project office in India. Consequently, this revenue was not taxable in India. The Tribunal emphasized the applicability of the Supreme Court's decision in "Ishikawajima-Harima" over the Madras High Court's decision in "Ansaldo Energia Spa," given the factual distinctions. The appeal was thus allowed in favor of the assessee.
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