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TMI Blog2024 (3) TMI 307X X X X Extracts X X X X X X X X Extracts X X X X ..... n Bhadoriya And Shri Puru Medheria, Advs. For the Revenue : Shri Vizay B. Vasanta, CIT-D.R. ORDER PER PRADIP KUMAR KEDIA, AM : The captioned appeal has been filed by the assessee against the assessment order passed by the Assessing Officer under section 143(3) read with section 144C(13) dated 22.12.2022 for Assessment Year 2020-21 in question. 2. As per the grounds of appeal, the taxability of receipts from offshore supply of equipments by the assessee is essentially in question. 3. Briefly stated, the assessee company Jiangdong Fittings is a company incorporated under the laws of China and is a tax resident of China. The assessee company is engaged in the business of manufacture and supply of composite long rod insulator and other hardware fittings for Optical Fibre Ground Wire (OPGW) used in the transmission lines. During the year under consideration, the assessee is stated to have received an amount of Rs. 14,28,30,433/- on account of offshore supply made to Indian PSU s which the assessee had claimed to be not chargeable to tax under Indian Taxation and accordingly, claimed the refund of corresponding tax credit. 4. The Assessing Officer however followed same modus operandi as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of goods outside India to Indian customers as exempt and not chargeable to tax under section 4 and 5 of the Act as per its return. The learned Counsel alleged that the Assessing Officer as well as the DRP have arbitrarily and without any basis bifurcated the said receipt into business income and Fee for technical services FTS (in ratio of 60%:40%) taxable in India. 6.2 The learned Counsel submits that the only basis for entire addition is AO/TPO reliance on DRP directions for A.Y. 2018-19 wherein on identical facts and identical issue, the DRP had held that; (i) 60% of total revenue from offshore contracts to be regarded as business income alleging that as Assessee was responsible for overall execution of offshore-onshore contracts, sale of goods cannot considered to have taken place outside India. (ii) 40% of total revenue from offshore contracts as FTS on the ground that Assessee was engaged in engineering, design, testing, commissioning of goods, the same qualify as technical service. 6.3 In this backdrop, the learned Counsel submitted that the appeal filed in respect of A.Ys. 2018-19 2019-20 in similar facts have been adjudicated in favour of the assessee by the Co-ordinate Be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 contract clearly establish that title over the goods, for which the assessee has received the payment, was transferred outside India and the sale was completed outside In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 equipment passed to the buyer only in India and this property did not pass till equipment was erected and yielded satisfactory performance in India. In para 18, the Hon ble High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 income from offshore supplies is not liable to tax in India both u/s 44BBB as well as under the provisions of Article 7 r.w. para 6 of DTAA between India and Japan. Accordingly, grounds No.1 and 2 raised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment'. 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 outside India. Thus no income accrued to the assessee in India towards this transaction. 16. In case of LG Cables (supra), Hon ble jurisdictional High Court has held as under : 14. A look now at the relevant provisions of the offshore a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 repetition, accrued when the goods were sold. The performance of duties as envisaged in the second contract, viz., the Erection Contract, by no stretch of imagination can be conceived to postpone the transfer of property under paragraph 31.2 of the agreement, which property passed on to the bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of ZTT India Private Limited, however, such inference drawn by the Assessing Officer 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 testing of supplied goods. Thus, eve ..... X X X X Extracts X X X X X X X X Extracts X X X X
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