2024 (12) TMI 763 - AT - Income Tax

Taxability of income in India - existence of PE in India - offshore supplies have been made by the assessee on the Indian port on disembarkation basis and the delivery of the goods is to be taken as having been made in India - profits from supplies made by the assessee on CIF basis are liable to be taxed in India on the ground that the sale is completed in India - HELD THAT - The assessee has been taxed individually not and as Association of Person (AOP) with its consortium partner. The arguments of the Ld. AR advanced on behalf of the assessee are cogent and convincing to show that the SIPL is not the permanent establishment of the assessee and nothing has been brought on record by the revenue which may controvert the argument advanced and the material relied by the assessee in that regard. On the basis of the above discussion, we are of the considered opinion that the issue raised before the Tribunal in this relevant year is similar to the issue for A.Ys. 2018-19, 2019-20 2023 (3) TMI 319 - ITAT MUMBAI and 2020-21 2024 (4) TMI 796 - ITAT MUMBAI . Since the identical issue has been decided by the Ld. Coordinate Bench in earlier years in favour of the assessee as referred (supra) in the assessee s own case, therefore, we direct the Ld. AO to delete the impugned additions for the A.Y. 2021-22 also.

Issues Involved:

1. Taxability of receipts from offshore supplies of escalators and elevators in India.
2. Consideration of net loss incurred by the assessee on offshore supplies.
3. Treatment of the consortium as an Association of Persons (AOP) for tax purposes.

Issue-wise Detailed Analysis:

1. Taxability of Receipts from Offshore Supplies:

The primary issue was whether the receipts from offshore supplies of escalators and elevators to Delhi Metro Rail Corporation Limited (DMRCL) and Maharashtra Metro Rail Corporation Limited (MMRCL) are taxable in India. The assessee, a non-resident company incorporated in China, argued that the supplies were made on a Cost, Insurance, and Freight (CIF) basis, with the title and risk passing outside India, thus not taxable under Article 7 of the Indo-China Double Taxation Avoidance Agreement (DTAA) due to the absence of a Permanent Establishment (PE) in India. The Assessing Officer (AO), however, contended that the income was taxable under Section 9(1)(i) of the Income Tax Act, considering the contract as composite and indivisible, with significant onshore elements, and treated the consortium with Schindler India Private Limited (SIPL) as an AOP, thus denying DTAA benefits. The Dispute Resolution Panel (DRP) upheld the AO's view, emphasizing the indivisibility of the contract and the artificial segregation to avoid tax. The Tribunal, however, relying on its previous rulings in the assessee's favor for earlier years, held that the offshore supplies were not taxable in India, as the contract delineated separate responsibilities for the consortium members, and the title passed outside India.

2. Consideration of Net Loss Incurred:

The second issue was the AO's addition of 5% of the total receipts as taxable income, ignoring the net loss claimed by the assessee on the offshore supply of escalators and elevators. The assessee argued that it had incurred a net loss of 2.38% on the supplies and had requested additional time to submit an India-specific Audited Profitability Statement. The AO's reliance on Rule 10 of the Income-tax Rules, 1962, to estimate profits was challenged by the assessee, which argued that the AO's presumptions were baseless and not supported by evidence. The Tribunal, following its decision on the first issue, deemed the ground regarding net loss consideration as academic and dismissed it as infructuous, given the offshore supplies were not taxable.

3. Treatment as an Association of Persons (AOP):

The AO treated the consortium of the assessee and SIPL as an AOP, arguing that the contract with DMRCL and MMRCL was composite and indivisible, thus taxable in India. The DRP supported this view, suggesting the arrangement aimed to avoid tax liabilities. The assessee contended that SIPL was not its permanent establishment and that the consortium was merely for administrative convenience, with each party bearing its own profits and losses. The Tribunal found the AO's approach inconsistent, as no separate assessment was made for the AOP, and upheld the assessee's argument, emphasizing the distinct scope of work and responsibilities outlined in the Memorandum of Understanding (MOU) between the consortium members. Consequently, the Tribunal directed the deletion of additions made on this basis.

In conclusion, the Tribunal ruled in favor of the assessee, directing the deletion of additions made by the AO for the assessment year 2021-22, consistent with its earlier decisions for previous years, and dismissed the grounds related to net loss and AOP treatment as infructuous.

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