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2016 (9) TMI 16 - AT - Income TaxIncome attributed to the offshore supply - Existence of PE in India - Held that:- Section 9(1)(i) of the Act provides that income shall be deemed to accrue or arise in India if such income has accrued or arisen through or from a business connection in India. Further, Explanation 1 to section 9(1)(i) of the Act provides that where a business, of which all the operations are not carried out in India, the income of the business deemed to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India. Admittedly no portion of the offshore supplies involved any activities in India as all the activities in relation to the earning of income from offshore supplies took place outside India. Now even assuming that on account of contract being signed in India, a business connection had been established, still we have to examine the issue from India US DTAA point of view as the assessee was eligible to claim benefit under the treaty. As per Article 7(1) of the India US DTAA, the business income of a US entity can be taxed in India only if it had PE in India. The AO held that assessee had PE in India for installation and commissioning and supply which also included the indigenous supply and presence of its personnel/ entities for providing training to ONGC personnel. These observations are primarily with reference to the contract being treated as a composite contract and does not refer to which PE as per Article 5 of the India-US treaty was there. Admittedly the assessee had no fixed place of business in India and its employees only gave training for proper execution of the project. Further, assessee company did not take the services of any person in India except for supply of indigenous parts and, therefore, there was no dependent agent PE in India also. The AO has not brought on record any evidence to substantiate that the income from offshore supplies was attributable to alleged PE. Further, if we consider the AO’s view that there was installation PE, then too as per Article 5(2)(j)&(k), there should have been presence for more than 120 days then only installation PE could be considered. The AO has not commented on this aspect. Therefore, the entire findings of AO on the issue relating to PE are without any basis. Therefore, considered from all perspectives no income can be attributed to the offshore supply.
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