TMI Blog2015 (11) TMI 1191X X X X Extracts X X X X X X X X Extracts X X X X ..... veneu : Shri Manjunathaswamy ORDER PER R.C.SHARMA (A.M.) : This appeal has been filed by assessee against the order of DRP, dated 24-9-2012 for the assessment year 2008-09, in the matter of order passed u/s.144C(5) of the I.T.Act, wherein followings grounds have been taken by the assessee :- On the facts and in the circumstances of the case and in law, the learned AO based on directions of Hon'ble DRP: General 1. erred in assessing the total income at ₹ 15,88,04,441 as against ₹ 26,131,352 computed by the Appellant; Benefit of Article 7 of India-Japan Double Taxation Avoidance Agreement ('DTAA') 2. erred in holding that the income from offshore services rendered by the Appellant amounting to ₹ 13,26,73,089 is liable to tax in India under the provisions of the Act as well as the India-Japan DTAA; 3. erred in taxing the income from offshore services under Article 12 of the India-Japan DT AA ignoring the provisions of Article 12(5) read with Article 7 of the India-Japan DTAA; 4. without prejudice to the above, erred in taxing the income from offshore services at the rate of 10.5575 percent instead ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see has set up a project office in India. It was claimed that activities carried out by the project office in respect of offshore supply and onshore services for the first and second tank had been completed as on March 31,2006. The assessee before the AO submitted that during A.Y.2008-09, there was no head office expenses. In the return of income filed, the assessee offered the income received from onshore activities to tax in India with the claim of applicability of India Japan tax treaty or Act whichever is beneficial to the assessee. However, the assessee has not offered income from offshore supply and offshore services to tax in India. It had been claimed that income from offshore supply is not received in India, its actual place of business is outside India and hence it had neither accrued or arisen in India. For this purpose, reliance was placed on the decision of Hon ble Supreme Court in assessee s own case, 288 ITR 0408. Thus, the assessee submitted that offshore supply should not be taxable in India as per the following reasons:- Only such part of the income, as is attributable to the operations carried out in India can be taxed in India. All activities in con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces was `effectively connected' with the permanent establishment. 6.5. In order to answer this question, we find it useful to reproduce the judgment of the Hon'ble Supreme Court on this issue, whose relevant part is as under:- Re : Offshore services : (1) Sufficient territorial nexus between the rendition of services and territorial limits of India is necessary to make the income taxable. (2) The entire contract would not be attributable to the operations in India viz. the place of execution of the contract, assuming the offshore elements form an integral part of the contract. (3) Section 9(1)(vii) of the Act read with the Memo cannot be given a wide meaning so as to hold that the amendment was only to include the income of non- resident taxpayers received by them outside India from Indian concerns for services rendered outside India. (4) The test of residence, as applied in international law also, is that of the taxpayer and not that of the recipient of such services. (5) For section 9(1)(vii) to be applicable, it is necessary that the services not only be utilized within India, but also be rendered in India or have such a live l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... endered by the assessee in respect of the contract under consideration cannot be characterized differently as argued on behalf of the Revenue. It is further relevant to note that the Tribunal in assessee's own case for the assessment year 2003-2004 considered similar issue. Following the above judgment of the Hon'ble Supreme Court, it was held that the income from offshore services cannot be taxed in terms of section 9(1)(vii) of the Act. The Revenue assailed this order before the Hon'ble jurisdictional High Court by contending that Explanation added by the Finance Act, 2010 with retrospective effect from 1st June, 1976 has changed the position. The Hon'ble jurisdictional High Court vide its judgment in ITA No.239 of 2011 dated 6th November, 2012 upheld the Tribunal order by noting that the Apex Court in the assessee's own case has held that apart from non-applicability of section 9(1) in the present case, Article 7 of the DTAA is also applicable and hence the income arising on account of offshore services would not be taxable. 6.7. In view of the foregoing discussion it is abundantly manifest that the Hon'ble Supreme court as well as the Hon'ble j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dgment of the Hon'ble Supreme Court, it was held that the income from offshore services cannot be taxed in terms of section 9(1)(vii) of the Act. The Revenue preferred appeal before the Hon'ble jurisdictional High Court by contending that Explanation added by the Finance Act, 2010 with retrospective effect from 1st June, 1976 has changed the position. The Hon'ble jurisdictional High Court in ITA No.239/2011 dated 6-11-2011, upheld the order of the Tribunal by noting that the Apex Court in the assessee's own case has held that apart from non-applicability of section 9(1) in the present case, Article 7 of the DTAA is also applicable and hence the income arising on account of offshore services would not be taxable. Thus, it is clear that the Hon'ble Supreme court as well as the Hon'ble jurisdictional High Court have held in unequivocal terms in the assessee's own case for the earlier years that the income on account of offshore services is not chargeable to tax as per Article 7 of the DTAA. The provisions of Section 90(2) is very clear that where the Central Government has entered into an agreement with the Government of any country outside India or specifi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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