2011 (11) TMI 439 - HC - Income Tax

Taxability of the amounts received by the assessee on account of offshore supplies - single contract for supply of equipments and services offshore/onshore - Held That - If the composite contract specifically records the quantum of goods to be supplied outside India and even the payment is made outside India, then no fault can be found with the decision of ITAT in holding that the income arising from offshore supplies are not taxable in India. Once it is held that the amounts in question are not taxable in India, then the question of applying the DTAA between India and Australia does not arise at all. See Ishikawajima-Harima Heavy Industries Ltd. v. DIT (2007 (1) TMI 91 (SC)) - Decided against Revenue. TDS - Interest u/s 234B - Revenue contending liability of the payee to pay advance tax even on the amount which had not been deducted at source u/s 195 - Held that - When a duty is cast on the payer to pay the tax at source, on failure, no interest can be imposed on the payee-assessee. See DIT v. NGC Network Asia LLC (2009 (1) TMI 174 (HC)) - Decided against Revenue.

Summary

Issues:
1. Taxability of amounts received by the assessee on account of offshore supplies.
2. Imposition of interest u/s 234B on the payee assessee for failure to pay advance tax.

Analysis:

Issue 1: Taxability of offshore supplies
The case involved the taxability of amounts received by the assessee, a resident of Australia, on account of offshore supplies under a contract with Metro Railways for both onshore and offshore supply of equipment and services. The Assessing Officer contended that the amounts received for offshore supplies were taxable in India due to a single contract for both onshore and offshore supplies. However, the ITAT, referring to the judgment in Ishikawajima-Harima Heavy Industries Ltd. v. DIT, held that if a composite contract clearly delineates the offshore supplies and payments made outside India, then the income from offshore supplies is not taxable in India. The ITAT's decision was upheld as the contract specified the quantum of goods to be supplied outside India and payments to be received outside India, leading to the conclusion that the income from offshore supplies was not taxable in India. Consequently, the application of the Double Taxation Avoidance Agreement between India and Australia was deemed unnecessary, and the first question raised by the revenue was dismissed.

Issue 2: Imposition of interest u/s 234B
The second issue pertained to the imposition of interest u/s 234B on the payee assessee for failure to pay advance tax when the duty to deduct tax at source was on the payer. The Court noted that the question had been addressed in a previous decision of the Court in the case of DIT v. NGC Network Asia LLC. As the said question had been resolved against the Revenue in the earlier case, it was concluded that the second question raised could not be entertained. Subsequently, the appeal was dismissed based on the findings related to both issues, thereby upholding the decisions made by the ITAT and the previous court ruling.

Therefore, the High Court of Bombay dismissed the appeal, affirming that the income from offshore supplies was not taxable in India and that the imposition of interest u/s 234B on the payee assessee was not warranted based on the specific circumstances and legal precedents cited in the judgment.