2020 (6) TMI 52 - AT - Income Tax

Income from offshore supply of products - income taxable in India - income of assessee as computed in accordance with provisions of section 44BB - activity of the PE in India - revenue from repair activities rendered by the assessee to ONGC - HELD THAT - As decided in own case 2018 (8) TMI 52 - ITAT MUMBAI revenue received by the assessee from offshore supply of goods to ONGC could not be taxed in India. We thus finding no infirmity in the order of the CIT(A) in context of the issue under consideration uphold the same to the said extent. If the service provider does not make available the technical knowledge, experience, skill know how or process etc., then the consideration received for rendering of such services cannot be characterised as royalty for the purpose of Article XII(3)(g) of India-Australia DTAA. Finding no infirmity in the order of the CIT(A) holding that the revenue received by the assessee from rendering of the repair services to ONGC cannot be brought within the sweep of FTS or Royalty, uphold the same. Before parting, we may further observe that as the repair works are undertaken at the overseas work stations of the assessee, therefore, the question of taxability of such receipts from rendering of the repair work as attributable to PE of the assessee in India does not arise. We thus, in terms of our aforesaid observations conclude that the A.O had erred in holding that the revenue from repair activities rendered by the assessee to ONGC was taxable in India under Sec. 44DA - Decided against revenue.

Issues Involved:
1. Taxability of income from offshore supply of products.
2. Applicability of Supreme Court decision in Ishikawajma Harima to the case at hand.
3. Taxability of income from repair work performed overseas.
4. Request to set aside the CIT(A) order and restore the Assessing Officer's order.

Detailed Analysis:

1. Taxability of Income from Offshore Supply of Products:
The primary issue was whether the income from offshore supply of products is taxable in India. The Assessing Officer contended that the contract was composite and indivisible, thus making the income taxable in India. However, the CIT(A) held that the income from offshore supply of products is not taxable in India. The Tribunal upheld the CIT(A)'s decision, referencing the Supreme Court judgment in Ishikawajma Harima Heavy Industries Ltd. vs. DIT, which established that different parts of a composite contract performed in different jurisdictions should be taxed independently. The Tribunal agreed that the offshore supply of products, being executed entirely outside India, could not be taxed in India.

2. Applicability of Supreme Court Decision in Ishikawajma Harima:
The Assessing Officer argued that the CIT(A) wrongly relied on the Ishikawajma Harima decision, as the current contract was indivisible, unlike in Ishikawajma Harima where the contract was divisible. The Tribunal, however, upheld the CIT(A)'s reliance on the Supreme Court's decision, reiterating that the principle of apportionment applies to determine the taxability of different parts of a composite contract performed in various jurisdictions. The Tribunal also referenced the CIT vs. Hyundai Heavy Industries Ltd. decision, which supported the view that profits from offshore supplies could not be attributed to an Indian PE if the PE had no role in the supply.

3. Taxability of Income from Repair Work Performed Overseas:
The issue was whether the income from repair work conducted overseas was taxable in India. The CIT(A) held that since the repair work was performed outside India, the income was not taxable in India. The Tribunal upheld this view, noting that the repair work did not fall under "Fees for Technical Services" (FTS) as defined in Explanation 2 to Sec. 9(1)(vii) of the Income Tax Act. Additionally, the Tribunal concluded that the income from repair work did not qualify as "Royalty" under Article XII(3) of the India-Australia DTAA, as the services did not "make available" technical knowledge, skill, or expertise to ONGC. The Tribunal also noted that since the repair work was performed overseas, it could not be attributed to the assessee's PE in India.

4. Request to Set Aside the CIT(A) Order and Restore the Assessing Officer's Order:
The appellant requested that the CIT(A)'s order be set aside and the Assessing Officer's order be restored. However, the Tribunal found no reason to deviate from the CIT(A)'s decision, which was consistent with previous rulings on similar issues in the assessee's own case. The Tribunal emphasized that the CIT(A)'s decisions were based on established legal principles and supported by relevant judicial precedents.

Conclusion:
The Tribunal upheld the CIT(A)'s order, dismissing the appeal and affirming that the income from offshore supply of products and repair work performed overseas is not taxable in India. The Tribunal's decision was consistent with previous rulings and supported by Supreme Court judgments, particularly Ishikawajma Harima and Hyundai Heavy Industries. The Tribunal found no merit in the appellant's arguments and declined to interfere with the CIT(A)'s conclusions.

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