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TMI Blog2023 (12) TMI 540X X X X Extracts X X X X X X X X Extracts X X X X ..... erials. This, in our view, is totally irrational and perfunctory. On what basis, AO has bifurcated the receipts between FTS and business income is unknown. When the price payable by the contractee is for design, manufacture, testing and CIF supply and is a consolidated price, the basis for allocation of 60% towards FTS is not understood. In fact, AO has not given any reason for quantifying 60% of the receipts towards FTS, as no such bifurcation has been provided in the contract documents. In any case of the matter, the price paid by the contractee for supply of goods and equipments, design and testing etc. is certainly part of the manufacturing activities and cannot be considered de hors such activity. Thus, in our view, the artificial segregation of receipts between supply of goods and FTS is without any basis, hence, unacceptable. Though, AO has made an attempt to link the supply of goods to the alleged PE in the form of ZTT India Private Limited, however, such inference drawn by the AO is not based on any evidence at all. There is nothing on record to suggest that ZTT India Private Limited has undertaken or was in any way involved with the design, manufacturing and testi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... side India and sale was completed outside India, the receipts from sale of such goods and equipments are not taxable in India. It was further submitted by the assessee that since it was not involved in any onshore activities in India and the onshore activities were carried out by its Indian subsidiary, viz., ZTT India Private Limited and income from such activities was offered to tax in India by M/s. ZTT India Private Limited, the assessee is not taxable in India in respect of PE. 5. While examining assessee s claim in the context of facts and materials on record, the Assessing Officer observed that as per terms of the contract, in addition to supply of goods and equipments, the assessee was required to provide technical knowledge, experience, skill, knowhow or processes, managerial or consultancy services. He submitted, the terms of all the contracts are more or less identical. He observed that asessee s Indian subsidiary, M/s. ZTT India Private Limited is fully controlled by the assessee and the said subsidiary is engaged in the business of manufacture, selling, importing or exporting of optical fibres, optical fibre cables, electrical wires, power cables, conductors and other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... F sale, which is an incoterm used in the contract to transfer the goods at the port of origin, which in this case is China, then it demonstrates that transfer of goods has taken place outside India at the port of origin in China. In support of such contention, the assessee relied upon the decision of coordinate Bench in case of Schindler China Elevator Company Ltd. (2023) 103 ITR (Trib) 567. He submitted, the allegation of the departmental authorities that offshore and onshore contracts are composite is merely based on cross-fall breach clause in the offshore contract, which suggests that any breach of terms in offshore contract leads to violation of onshore contract and vice versa. Thus, the assessee was responsible for overall execution of both onshore and offshore contracts. He submitted, for buttressing such allegation, the departmental authorities have introduced theory of ZTT India Private Ltd., being a PE of the assessee in India. He submitted, the observations of the departmental authorities on the face of it are erroneous, as they are in the teeth of the ratio laid down by Hon ble Supreme Court in case of Ishikawajma Harima Heavy Industries v. DIT (2007) 288 ITR 408, the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... final 10% of the payment to be made towards supply of goods is to be cleared on receipt of goods at site and on submission of invoice supported by the material acceptance certificate issued by purchaser s representative. He submitted, the contract also provides that payment towards port clearance, port handling, insurance etc. shall be initially borne by M/s. ZTT India Private Limited on behalf of the assessee and subsequently, such expenses are reimbursed by the contractee directly to ZTT India Pvt. Ltd. based on the authorisation letter issued by the assessee to the purchaser. Thus, he submitted, assessee s responsibilities do not end merely with establishment of supply of goods from port at China, but also existence of various other activities in India. He submitted, the assessee is ultimately liable for breach in any of the terms of either of the contracts. Thus, he submitted, these facts clearly indicate that both offshore supplies and onshore activities are part of a composite contract. Learned Departmental Representative submitted, the fact that ZTT India Private Limited has discharged various activities relating to supply of goods in India, for which, it has not only been r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and other services to be performed in India, such as clearance, handling at port etc. shall be on ZTT India Private Limited, however, the entire cost is reimbursed by the contractee. The other contracts are also couched in similar terms and conditions. 12. Thus, the terms of the contracts clearly demonstrate that the transfer of title over the goods have not only taken place outside India with all associate risks and liabilities, but the payments have also been made outside India. In fact, as per the specific terms of the contract and understanding between the parties, the ownership over the goods to be imported to India shall be transferred to the purchaser upon loading on to the mode of transport to be used to convey the goods from the country of origin and upon endorsement of the dispatch documents in favour of the purchaser. In the bid data details forming part of the contract, it has been clearly mentioned that as per purchaser s understanding and as per the extant provisions, Indian Income Tax is not payable on sale of goods, if the contract is on principal to principal basis and the title of the goods passes to the purchaser outside India. 13. Thus, the terms of the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f LG Cables Ltd., it has entered into a contract with Power Grid Corporation of India Ltd. And has entered into two contracts. One was for offshore supplies and services and the second one was for onshore services. This contract was entered into on 26th February, 2001 and PGCIL was under Ministry of Power as is the case of the assessee where NHPC is also under Ministry of Power and the contract was entered into on 6th December, 2001. The terms of the contracts are similar as these contracts are drafted and vetted by the Ministry of Law, Government of India. The issue raised in the assessment order by the AO were also the issues in the case of LG Cables which is evident from the table in the order passed by the Hon ble High Court comprising the two contracts entered into by the LG Cables with PGCIL. A perusal of the decision of the Hon ble High Court shows that in this contract of LG Cables with PGCIL, the contractor was overall responsible to ensure the execution of the two contracts to achieve successful completion. There was a cross fall breach clause in the contract also. In para 11 of the decision, the court has taken note of the arguments of the ld. counsel that property in eq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us, it is the intention of the agreement and in the present case in clause 31.1 and 31.2 of the agreement, it is clearly stipulated that ownership passes upon loading on to the mode of transport from the country of origin i.e., Japan. Therefore, there cannot be any dispute about the transfer of ownership having taken place in Japan. 41. So far as the decision in the case of Mahavir Commercial Co. Ltd. Vs. CIT, reported in 86 ITR 417 (SC) is concerned, we find the Hon ble Supreme Court in the said decision has held that: intention of the parties is, therefore, one of the important elements in determining the situs where the property passes to the buyer in pursuance of the contract. Thus, in this judgment it is clear that it is the intention of the parties which will determine the situs where the property will pass on. In the present case clause 31.3 shows that the property will pass on in Japan. This is an agreement entered into between the parties which reflect their intention and there is no dispute about such intention between the parties. xxx xxx xxx 46. In view of the above discussion, we are of the considered opinion that the ld.CIT(A) is correct in holding that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave passed the ship's rail at the port of shipment. Clause B.5 in turn states that the buyer must 'bear all risks of loss of or damage to the goods from the time they have passed the ship's rail at the named port of shipment'. 14. As of the above it follows that in the case of CIF, the property in goods passes on to the buyer at the port of shipment. Though the Cost, Insurance and Freight etc. is met by the seller but the property in the goods gets transferred to the buyer at the port of shipment. The buyer incurs all risks of loss of or damage to the goods from the port of shipment. Therefore, it can be precisely seen that when the assessee made offshore supply of equipment to BPL on CIF Bombay basis against the stated consideration, the property in the equipment passed on to BPL on the port of Germany itself. It is trite law that income accrues at the place where the title to goods passes to the buyers on the payment of price. Our view is fortified by the judgment of the Hon'ble Supreme Court in Seth Pushalal Mansighka (P.) Ltd. v. CIT [1967] 66 ITR 159. As it is the case of offshore supply of equipment, it is axiomatic that this transaction got completed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifferent. xxx xxx xxx 27. Applying the aforesaid law enunciated by the Supreme Court in the case of Ishikawajma (supra), there can be no manner of doubt that the offshore supplies in the instant case are not chargeable to tax in India. The instant case, in fact, in our view stands on a better footing as two separate contracts have been entered into between the parties, albeit on the same day, one for the offshore supply and the other for the onshore services, but even assuming that both these contracts need to be read together as a composite contract, the issue in controversy is nevertheless squarely covered by the decision of the Supreme Court in Ishikawajma (supra)...... 28. As regards the payment for the performance of the activities within India, the contract price aggregating to INR 59982,160 plus US Dollars 88,400/- was specifically and separately fixed by Article (2) of the contract titled Contract price in terms of payment . This consideration was separate from the consideration for the supply of equipment and there appears to be no justification to intermingle the two. The consideration for the offshore supply of equipment, it is repeated at the risk of repetiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e mode and manner in which the receipts from offshore supplies are brought to tax. As discussed earlier, the Assessing Officer has attributed 60% of the receipts towards FTS and 40% towards price of goods/materials. This, in our view, is totally irrational and perfunctory. On what basis, the Assessing Officer has bifurcated the receipts between FTS and business income is unknown. When the price payable by the contractee is for design, manufacture, testing and CIF supply and is a consolidated price, the basis for allocation of 60% towards FTS is not understood. In fact, the Assessing Officer has not given any reason for quantifying 60% of the receipts towards FTS, as no such bifurcation has been provided in the contract documents. In any case of the matter, the price paid by the contractee for supply of goods and equipments, design and testing etc. is certainly part of the manufacturing activities and cannot be considered de hors such activity. Thus, in our view, the artificial segregation of receipts between supply of goods and FTS is without any basis, hence, unacceptable. Though, the Assessing Officer has made an attempt to link the supply of goods to the alleged PE in the form ..... X X X X Extracts X X X X X X X X Extracts X X X X
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