2024 (3) TMI 307 - AT - Income Tax

Taxability of receipts from offshore supply of equipments - offshore supply made to Indian PSU s which the assessee had claimed to be not chargeable to tax under Indian Taxation - Assessee company is tax resident of China - DRP bifurcated the said receipt into business income and Fee for technical services FTS (in ratio of 60% 40%) taxable in India - HELD THAT - In the light of view taken by the Co-ordinate Bench 2023 (12) TMI 540 - ITAT DELHI the receipt from offshore supply of goods cannot be regarded as taxable in India. Also, the bifurcation of receipts between business income and FTS is not permissible in the light of view taken in earlier years as expressed above. In sync with view taken in the earlier years as noted above, the Assessing Officer is directed to delete the addition in question. Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Taxability of receipts from offshore supply of equipment.
2. Bifurcation of receipts into 'business income' and 'Fee for Technical Service' (FTS).

Summary:

1. Taxability of Receipts from Offshore Supply of Equipment:
The assessee, Jiangdong Fittings, a tax resident of China, engaged in the manufacture and supply of composite long rod insulators and other hardware fittings, received Rs. 14,28,30,433/- from offshore supplies to Indian PSUs. The assessee claimed this amount as non-taxable in India. The Assessing Officer (AO) followed the same approach as in previous years (A.Ys. 2018-19 & 2019-20), treating 60% of the receipt as 'business income' and 40% as FTS, resulting in an addition of Rs. 6,79,10,056/- to the income. The assessee argued that the offshore consideration was received from contracts with Indian public sector companies for the supply of goods outside India and should not be taxable in India. The Tribunal, referring to its previous decisions and the terms of the contracts, concluded that the transfer of title over the goods occurred outside India, and thus, the receipts from offshore supply of goods could not be regarded as taxable in India.

2. Bifurcation of Receipts into 'Business Income' and 'Fee for Technical Service' (FTS):
The AO's bifurcation of receipts into 60% 'business income' and 40% FTS was challenged. The Tribunal noted that the AO had relied on the DRP's directions from previous years without any rational basis or evidence. The Tribunal emphasized that the price paid for the supply of goods, design, and testing is part of the manufacturing activities and cannot be considered separately as FTS. The artificial segregation of receipts was deemed unacceptable. The Tribunal directed the AO to delete the addition, aligning with the view taken in earlier years.

Conclusion:
In light of the Co-ordinate Bench's view, the receipt from offshore supply of goods is not taxable in India, and the bifurcation of receipts between business income and FTS is impermissible. The AO was directed to delete the addition in question, and the appeal of the assessee was allowed.