2012 (2) TMI 74 - AAR - Income Tax

Off- shore supply contract India-China Double Taxation Avoidance Convention - applicant being company of China contract for supply of equipment to Indian company - Indian company, defined as the owner in the contract - passing of the title to the equipment outside the country - title passed at the port of loading Shanghai - Bill of Lading, Bill of Entry shows owner to be Indian company Transit insurance in name of owner - taxability of the payment received under the contract Revenue contending that pre-commissioning and commissioning activities must be taken as one and indivisible and the liability to tax should be determined on that basis - Held that - On perusal of aforesaid, it is found that this would be an offshore sale in the light of the decision in case of Ishikawajima-Harima Heavy Industries Ltd (2007 - TMI - 3467 - Supreme Court ) and hence not liable to tax in India. We clarify that the ruling relates only to off-shore supplies Decided in favor of assessee.

Summary

Issues:
Taxability of payment received under offshore supply contract.

Analysis:
1. The applicant, a Chinese company, entered into a contract with an Indian company for supplying equipment for a power project. The applicant claimed that the payment received for the equipment supplied under the contract was not taxable in India as the supply was outside Indian territory. The applicant sought an advance ruling on the taxability of the payment.

2. The Revenue objected to the advance ruling application, citing pending assessment proceedings. However, the objection was overruled, and the application was allowed. The question framed for ruling was whether the amounts received for offshore supply of equipment were liable to tax in India under the Income-tax Act.

3. The terms of the contract were elaborately discussed, highlighting that the title to the equipment passed outside India, as per the contract clauses. Various aspects of the contract, such as payment terms, port of loading, and insurance details, indicated that the transaction was an offshore sale.

4. The applicant's counsel referred to a Supreme Court decision and a ruling of the Authority in support of the contention that the payment for offshore supply should not be taxed in India.

5. The Revenue argued that significant portions of the contract involved activities in India, indicating a permanent establishment in India. However, the Authority noted that the question was specifically on offshore supply of equipment and not other activities.

6. Despite the Revenue's arguments, the Authority stated that it was bound by the Supreme Court decision referenced by the applicant. The Authority emphasized that the transaction should be considered an offshore sale based on the contract terms and related documents.

7. The Authority concluded that the payment received for offshore supply of equipment was not liable to tax in India, following the Supreme Court decision. The objection raised by the Revenue was overruled based on the legal precedent.

8. The ruling clarified that it pertained only to offshore supplies and not other activities under the contract. The decision was based on the specific circumstances of the case and the legal principles established by the Supreme Court.

9. The ruling was pronounced on January 31, 2012, providing a definitive answer on the taxability of the payment received by the applicant for offshore supply of equipment under the contract.

This comprehensive analysis of the judgment addresses the issues involved and the detailed reasoning behind the Authority's ruling on the taxability of the payment received under the offshore supply contract.