2024 (3) TMI 609 - AT - Income Tax

Taxability in India - amount received by the assessee from offshore supplies of plants and equipments - PE in India or not? - assessee, a non-resident corporate entity, is incorporated in Federal Republic of Germany - DRP held that the assessee had a PE in India and assessee is involved in building production unit in relation to air gas separation and renewable and low-carbon hydrogen process solutions. Therefore, it would be covered u/s 44BB - HELD THAT - The terms of payment as per Article 5 of the agreement says that 10% of the price has to be paid as advance and 80% of the price has to be paid upon delivery FOB/FCA Japanese Seaport/Airport/Warehouse out of an unconditional irrevocable and documentary Letter of Crodit which shall be opened within 30 days of the issuance of company s purchase order. Whereas, balance 10% will be paid upon successful completion of test run. The bill of lading indicates that freight and charges are payable at the destination only. The invoice for supply of plant and machinery shows that place of delivery is Moji Port, Japan and the value of invoice is on FOB basis. Thus, the aforesaid facts clearly establish that the situs of sale of plant and equipment was in Japan and not within the territory of India. Therefore, in our view, the ratio laid down in case of Ishikawajma-Harima Heavy Industries Ltd 2007 (1) TMI 91 - SUPREME COURT clearly applies to the facts of assessee s case and no part of the receipts in dispute is taxable in India as the sale event and transfer of title over the goods have taken place outside the territory of India. In the facts of the present appeal, admittedly, the assessee is not engaged in the business of providing services or facilities in connection with prospecting for, or extraction or production of mineral oils in India. Neither the assessee has supplied plant and machinery on hire for use or to be used in prospecting for, or extraction or production of mineral oils. The assessee has sold the plant and equipment to BPCL for setting up a plant in its facilities at Kochi. Therefore, in our opinion, the conditions of section 44BB of the Act do not apply. In case, the Department was convinced that the assessee had a PE in India all the receipts should have been brought to tax under domestic law, either under section 44BB or section 44DA or section 9(1)(vii) of Act, as the case may be. Further, though, the departmental authorities have concluded that the assessee had a PE in India, however, they have not established how the conditions of Article 5(1) of the tax treaty are satisfied and what is the nature of PE in India. On careful scrutiny of the assessment order and directions of learned DRP, we find that except general observations, no valid reasoning has been provided by the departmental authorities to establish existence of PE. Thus we hold that the receipts from sale/supply of plant and equipment are not taxable in India. Accordingly, ground no. 1 is allowed.

Summary

Issues Involved:
The core issue relates to the taxability of the amount received by the assessee from offshore supplies of plants and equipments.

Issue 1: Situs of sale event
The assessee challenged the final assessment order, claiming exemption from taxation in India for the receipts from offshore supplies of plants and equipment to Bharat Petroleum Corporation Limited (BPCL). The Assessing Officer and the DRP invoked section 44BB of the Income-tax Act, treating 10% of the receipts as deemed profit and gains of the Permanent Establishment (PE) in India. The assessee contended that the sale event was completed outside India, supported by documentary evidence such as purchase orders, bill of lading, and invoices. The Tribunal observed that the situs of sale was in Japan, not within India, as evidenced by the terms of delivery, payment conditions, and location specified in the agreements. Citing the Ishikawajma-Harima Heavy Industries Ltd. case, the Tribunal held that no part of the disputed receipts was taxable in India.

Issue 2: Applicability of section 44BB of the Act
The Departmental Authorities applied section 44BB to tax the receipts on a presumptive basis, considering the nature of the contracts with BPCL. However, the Tribunal noted that the provision applies to non-residents engaged in providing services or facilities in connection with mineral oils, which did not apply to the present case. The assessee had sold the plant and equipment to BPCL for setting up a plant, not for prospecting or production of mineral oils. The Tribunal also highlighted that the other receipts were offered as Fees for Technical Services under the India-Germany DTAA, raising questions about the differential treatment by the Department. The Tribunal found that the conditions of section 44BB were not met, and no valid reasoning was provided to establish the existence of a PE in India. Consequently, the Tribunal held that the receipts from the sale/supply of plant and equipment were not taxable in India.

Final Decision:
The Tribunal allowed the appeal, holding that the receipts from the offshore supplies of plants and equipment were not taxable in India. The stay application was dismissed, and the appeal was allowed, based on the findings related to the situs of sale event and the inapplicability of section 44BB of the Income-tax Act.