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2023 (12) TMI 540 - AT - Income TaxIncome taxable in India - taxability of certain amounts received by the assessee towards offshore supplies of goods and equipment - existence or otherwise of permanent establishment (PE) and attribution of profits to the PE - assessee is a non-resident corporate entity incorporated in China involved in offshore supply of goods/equipments to the Indian contractees - HELD THAT:- Merely because there is crossfall breach clause in some of the contracts, it will not tantamount to making distinct and separate contracts composite contract and to tax the income accruing outside India taxable in India. When, there is no dispute over the fact that transfer of title over the goods have passed outside India, which in fact has passed, the receipts certainly cannot be taxed in India. Mode and manner in which the receipts from offshore supplies are brought to tax - AO 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, 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 testing of supplied goods. Thus, even assuming that ZTT India Private Limited constitutes a PE, however, in our view, it is in no way involved with the supply of goods and equipments from China. Receipts from onshore contracts - There is no dispute that they have been taxed in India at the hands of ZTT India Private Limited. Thus, in our considered opinion, the sale incident in respect of supply of goods having completed outside India and the transfer of title over the goods, having passed from the assessee to the contractees outside India in terms with the contract, the receipts from such supply of goods and equipments cannot be made taxable in India. Accordingly, we direct the Assessing Officer to delete the additions. Assessee appeals are allowed.
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