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2024 (7) TMI 701 - AT - Income TaxIncome taxable in India or not - Taxability of payment received under Offshore Supply Contracts - whether amounts received by the appellant company from the Offshore Supply Contracts are covered by the provisions of section 44BBB and consequently liable to tax in India? - HELD THAT - We noticed that the Co-ordinate Bench in assessee's own case has considered the same issue for earlier AYs and has been consistently holding that the receipt towards offshore supply contract cannot form part of the business income chargeable to tax under section 44BBB. As decided in AY 2007-08 2017 (4) TMI 758 - ITAT MUMBAI though the contract was a composite and an indivisible one as well as a non-resident assessee was required to perform certain functions to the satisfaction of the buyer after completion of the sale of the equipment, the income relating to offshore supply of equipment was not chargeable to tax in India. We heard the arguments of both the parties on the contention that the income from service contract should not be taxed under section 44BB of the Act. It is now settled position that the ld. DR cannot improve the case of the AO and therefore, we are unable to accept the without prejudice contention raised by the ld. DR. Further, we noticed that the Department has not raised this specific contention even before the Hon'ble Bombay High Court where the following question of law has been raised by the Department. Assessee appeal allowed.
Issues Involved:
1. Taxability of payment received under Offshore Supply Contracts. 2. Applicability of section 44BBB to the Offshore Supply Contracts. 3. Charging of interest under sections 234A and 234B. Issue-wise Detailed Analysis: 1. Taxability of Payment Received under Offshore Supply Contracts: The primary issue revolves around the taxability of Rs. 3267,27,22,775 received by the assessee from Offshore Supply Contracts. The Assessing Officer (AO) included this amount as taxable income under section 44BBB of the Income Tax Act, 1961. The Dispute Resolution Panel (DRP) upheld this addition, relying on its own orders from previous assessment years. The assessee argued that the receipts from Offshore Supply Contracts should not be taxable in India, citing previous Tribunal decisions in its favor for earlier assessment years. The Tribunal noted that the Co-ordinate Bench had consistently held that receipts from Offshore Supply Contracts do not form part of business receipts for computation of income under section 44BBB. The Tribunal reaffirmed that the income from Offshore Supply Contracts, being concluded outside India, does not accrue or arise in India and hence, is not taxable under section 44BBB. 2. Applicability of Section 44BBB to the Offshore Supply Contracts: The Tribunal examined the nature of section 44BBB, which deals with the computation of profits and gains of foreign companies engaged in civil construction or erection of plant and machinery in connection with turnkey power projects. The Tribunal reiterated that section 44BBB is a computational provision and does not expand the scope of total income beyond what is provided in sections 4, 5, and 9 of the Income Tax Act. The Tribunal cited various judicial precedents, including the Supreme Court's decision in Ishikawajma-Harima Heavy Industries Ltd., to support its conclusion that only income attributable to operations carried out in India is taxable. Since the Offshore Supply Contracts were carried out and concluded outside India, the income from these contracts does not fall under section 44BBB. 3. Charging of Interest under Sections 234A and 234B: The assessee contested the charging of interest under sections 234A (Rs. 4.57,92,447) and 234B (Rs. 38,92,35,799). The Tribunal did not delve into detailed discussions on these points, as the primary focus was on the taxability of the Offshore Supply Contracts. However, since the Tribunal ruled in favor of the assessee regarding the exclusion of Offshore Supply Contracts from taxable income, the consequential relief from interest under sections 234A and 234B would follow. Conclusion: The Tribunal allowed the appeal of the assessee, holding that the receipts from Offshore Supply Contracts do not form part of the business receipts for computation of income under section 44BBB of the Income Tax Act. The Tribunal also rejected the Departmental Representative's (DR) alternate plea to tax the service contract income as fees for technical services, noting that this issue was not raised before the lower authorities or the High Court. Consequently, the Tribunal directed the Revenue to recompute the assessee's income excluding the Offshore Supply Contracts from the taxable income under section 44BBB.
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