TMI Blog2016 (10) TMI 1131X X X X Extracts X X X X X X X X Extracts X X X X ..... contract price of ₹ 11,23,66,668, the quantum of offshore supplies is ₹ 5,55,54,119. Therefore it cannot be said that offshore supplies are skewed. Having analysed the facts of the case in the context of the decisions relied upon we are of the considered view that the assessee’s case is more or less similar to the facts involved in case of Ishikawa Jima Harima Heavy Industries Ltd.(supra) hence, the principles laid down therein would squarely apply to assessee’s case. Therefore applying the ratio laid down therein we hold that the amount received towards offshore supply is not taxable in India. As far as contract with DMRC is concerned it is evident from the observations of the departmental authorities that the nature of contract is similar to MRVC. Therefore our aforesaid observations will equally apply to the offshore supplies made by assessee in relation to this contract also. In the aforesaid view of the matter we hold that the amount received by the assessee in respect of offshore supplies would not be taxable in India. Ground no.1, is allowed. Estimation of income on presumptive basis on the total revenue earned including off-shore supplies - Held that:- As fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of facts and circumstances, therefore, as a matter of convenience, these appeals were heard together and are being disposed off by way of this consolidated order. ITA no.1023/Mum./2015 - A.Y. 2011-12 3. The grounds of appeal, are more or less common in both the assessment years, except variation in figures, read as under:- The appellant objects to the order dated 14 January 2015 passed by the Deputy Commissioner of Income Tax (International Taxation)-(2)(2)(1), Mumbai ('the AO') for the assessment year 201112, pursuant to the directions dated 22 December 2014 issued by the Dispute Resolution Panel ('DRP') under section 144C(5) of the Income-tax Act, 1961 ('the Act') on the following among other grounds. Ground No. 1: Income in relation to offshore supply is not taxable in India. 1.1 The learned AO/DRP erred in law and in facts in seeking to tax in India, a sum of ₹ 300,65,923 as against the income of ₹ 57,41,665 offered to tax for the year under consideration. 2. The learned AO/DRP erred in law and in facts in considering revenue from Offshore Supplies for the purpose of computing the appellant's income taxable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereafter will be referred to as MRVC Contract ). 3. Contract with Delhi Metro Rail Corp. Ltd. (DMRC) on 21 st June 2007, for supply, laying, testing and commissioning of extra High Voltage for Delhi MPTS Phase-II Project (this contract hereafter will be referred as DMRC Contract ). the scope of contract involved off-shore supply of equipment, on shore supply of equipment and on-shore services relating to laying, testing and commissioning. As far as amount received by the assessee towards on-shore supply and services are concerned, in the return of income filed for the impugned assessment year assessee offered it as income after claiming statutory deductions. However, as far as off- shore supplies are concerned, the assessee did not offer it to tax on the ground that title over the goods involved in off-shore supplies was transferred outside India to the contractee/employer upon loading onto the transportation medium outside India. The Assessing Officer in the course of assessment proceedings noticing that the assessee has not offered the amount received on account of off-shore supplies to tax, called upon the assessee to justify its claim. In response to the show cause not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation in relation to off-shore supplies emanated from the contracts entered into by the company. The contracts were awarded to the company on the basis of its credentials and expertise in relation to manufacturing cables and accessories. The said credentials and expertise were possessed by the Head Office because of which the contracts were secured and in pursuance thereto off-shores were made by the Head Office; The project office had no role to play in making off-shore supplies. In fact, the project office had no role to play in securing the contract which lead to the obligation to make the off-shore supplies; The installing of cables and commissioning thereof was awarded to the company owning to the employer s judgment that it would be preferable that the said activities were carried out by the suppliers. Hence, the distinct activities of installation and commissioning were awarded to the company. In connection with the distinct activities, the company established the project office since the activities could only be undertaken in India which required physical presence in India. Therefore, the project office has no role to play either in securing or in executing the ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erusing the relevant contracts observed that entire revenues were generated from single composite contract and for this purpose, assessee has set-up project office for execution of contract in India. He observed, all supplies or service, whether on-shore or 0ff-shore, are finally utilised in India for the purpose of executing the main contract with the employers viz. MRVC and DMRC. He observed, there is a profit element in off-shore supplies and it has a business connection in India as these off-shore supplies were finally utilised in India. He observed, assessee by applying a dissecting approach has bifurcated the composite contract into on-shore and off-shore supplies. He was of the view that a Look At Approach should be taken rather than Look Through Approach . The Assessing Officer observed, the assessee set- up its project office in India for executing the contract. The Assessing Officer observed, as the project office is executing the contract in India, on turnkey basis the entire amount received in pursuance to the contract comes within the purview of scope of income as envisaged under section 5(2). Therefore, as the assessee is having a direct business connection in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nless all the works including the commissioning is completed. The DRP observed, the schedule of the contract contained values for each component of the contract, however, these values are only indicative and cannot form the basis to make the contract separable. As far as assessee s claim that the transfer of ownership over the off-shore supplies were outside the country, the DRP observed, since the assessee is responsible for supply of material purchased overseas, transportation of the material to the site, delivery, storage, security and also insurance till the cables are installed, tested, commissioned and the completed facility is handed over to employer, the transfer of ownership of the cable procured from overseas on loading to the mode of transport for delivery at Indian Ports is only notional and for the limited purpose of making insurance claim due to damage/loss in transit. Even the custom duty on such material is payable by the assessee. Delivery at the ports is to be taken by the assessee and transported to the site and assessee is responsible for the quality, security, storage, testing, performance of such cable till completion of contract and transfer of facility on co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has a direct business connection in India within the meaning of provisions of section 9(1) by virtue of its project office exclusively set-up to execute the contracts and supply goods. Ultimately, the DRP observed, the off-shore supply being inextricably linked to the P.E., the entire amount received under the contract including the off-shore supplies should be taxed as business receipt of P.E. Thus, the DRP upheld the draft assessment order. In terms of the directions of the DRP, the Assessing Officer finalized the assessment. Aggrieved, the assessee is in further appeal before the Tribunal. 9. Learned Authorised Representative taking us through various clauses of the contract submitted that both the contracts are turnkey composite contract having three distinct and separate components off- shore supply, on-shore supply and on-shore services. He submitted, the total contract value has been segregated to three different parts i.e., for off-shore supplies, on-shore supplies and on-shore services. Referring to clause 31.1, the learned Authorized Representative submitted that ownership in respect of plant and equipment including spare parts from off-shore supplies shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n-shore supplies and on-shore services, however, the project office had no role to play in relation to off-shore supplies. He submitted, none of the aforesaid facts have been controverted by the Departmental Authorities. Learned Authorised Representative submitted, as off- shore supply is a distinct component of the turnkey contract and the title to the goods passed outside India, no income is received or deemed to be received or accrues or arise or is deemed to accrue or arise in India. He submitted, Explanation-1(a) to section 9(1)(i) specifies that only so much of income is taxable in India as can reasonably be attributable to the operations carried out in India. He submitted, as the only operations in India relate to on-shore supplies and on-shore services, income from these activities having already been offered to tax by the assessee, no further tax liability can arise. Therefore, income from off-shore supplies is not chargeable in India as per the provisions of section 5 r/w section 9. Learned Authorised Representative submitted, as the project office had no role to play in relation to off-shore supply, income from off-shore supply is not attributable to the P.E. in India. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith the turnkey contract which is composite contract. He submitted, once the contract is held to be a composite contract, all receipts including those attributable to the off-shore supply are to be brought to tax in India. In this context, the learned Departmental Representative relied upon the decision of the Tribunal, Mumbai Bench, in Orpak Systems Ltd., ITA no.8862/Mum./2011, dated 6 th January 2016. He submitted, in the said decision, the Tribunal, while relying upon the decision of the Hon'ble Madras High Court in Ansaldo Energia Spa (supra), had also observed that the decision in the case of Ishikawajima Harima Heavy Industries (supra). He submitted, as per these decisions, even if title in respect of off-shore supply of goods passed outside India it alone cannot decide the issue of taxability. He submitted, the AAR in case of Roxar Maximum Reservoir Performance WLL, 349 ITR 189, also observed that a contract has to be read as a whole and the purpose for which the contract is entered into by the party is to be ascertained from the terms of the contract. Relying upon the said decision, learned Departmental Representative submitted, when the contract is a composite contrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no.1829/1989, heavily relied upon by the assessee was issued for power projects (Hydel Power Project) undertaken by pre-existing consortium making income from off-shore supply of goods by a specific member of consortium exempt from tax in India. However, due to misuse of the said instruction, subsequently, it was withdrawn by CBDT Instruction 9 of 2009. He submitted, in any case of the matter, as the assessee has neither executed a Hydel Power Project nor it is a consortium the instruction no.1829 of 1989 will not apply. He submitted, Explanation-4 to section 9(1)(i) retrospectively inserted by Finance Act, 2012, defines the meaning of through which is used in section 9(1)(i) of the Act and in Article-27 of the DTAA. 13. He submitted, as per the definition of the word through under explanation-4,it is not imperative to establish the fact that the P.E. played active role in the off-shore supply contract as held by the Hon'ble Supreme Court in Ishikawajima Harima Heavy Industries (supra). He submitted, as no definition of the word through has been provided under India-Korea DTAA by virtue of Article-3(2), the meaning of through provided in Explanation-4 to sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -6 of the protocol to the said DTAA extent of income that can be taxed has to be determined on the basis of part played by the P.E. in the transaction and the Court had given a finding that P.E. had not played any part in respect of off-shore supply of goods. He submitted, the decision in DIT v/s Xelo Pty. Ltd. (supra), would also not apply for the reason for which Ishikawajima Harima Heavy Industries (supra) is not applicable. He submitted, the decision of the Hon'ble Delhi High Court in L.G. Cables Ltd. (supra), is not applicable as the non-resident company was awarded two separate contracts one for off-shore supply of goods and services and another for on-shore erection, installation, etc. He further submitted that in the case of L.G. Cables Ltd. (supra), the Hon ble High Court did not discuss the decision of Roxar Maximum Reservoir Performance WLL (supra) and Ansaldo Energia SPA (supra). He submitted, the Hon ble High Court also did not have the benefit of the Hon'ble Supreme Court s decision in the case of Vodafone International Holdings B.B. (supra). Thus, it was submitted by the learned Departmental Representative the consideration received towards off-shore supply o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lay down the principle of divisibility of contract, whereas, it primarily deals with status of consortium for tax purposes and related issues arising and, that too, specifically for power projects. He submitted, in many of the decisions wherein it has been held that off- shore supply is not taxable, instruction no.1829 (supra) is not at all being referred to. As far as contention of the learned Departmental Representative regarding applicability of Explanation-4 to section 9(1)(i), learned Authorised Representative submitted, though, Explanation-4 of section 9(1)(i) was inserted by Finance Act, 2012, much before the draft assessment order, as well as final assessment order, however, none of the Departmental Authorities including DRP have referred to the said Explanation. He submitted, even otherwise also, Explanation-1(a) to section 9(1)(i), would apply and not Explanation 4. He submitted, in Explanation 1(a), the word through does not appear. Therefore, by virtue of Explanation 1(a) to section 9(1)(i) territorial nexus is required for taxing the income in India as held by the Hon'ble Supreme Court in Ishikawajima Harima Heavy Industries (supra). He submitted, even assumin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndirectly is not appearing in Article 7(1) of the DTAA and the India Korea DTAA does not contain force of attraction rule. As far as the allegation of the Department that consideration is heavily skewed in favour of off-shore supply of goods, the learned Authorised Representative submitted, such allegation is without any basis and it is neither a case of Assessing Officer nor the DRP. He submitted, even otherwise also, the contention of the learned Departmental Representative is factually incorrect which is very much evident from the contract value. The learned Authorised Representative finally submitted, though, the learned Departmental Representative has tried to distinguish the decision of the Hon'ble Supreme Court in Ishikawajima Harima Heavy Industries (supra) as well as other decisions relied upon by the assessee, however, the assessee s case is fully covered by these decisions. 16. Learned Authorised Representative submitted, though, in the case of L.G. Cables Ltd. (supra), two separate contracts were executed even then the Hon ble High Court held, assuming that both the contract needed to be read together as a composite contract, still then, the issue is covered by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion Schedule no.4 Installation Services Schedule no.5 Grand Summary (Schedule no.1 to 4) Schedule no.6 Recommended Spare Parts Bidders shall note that the plant and equipment included in schedule numbers 1 and 2 above exclude materials used for civil, building and other construction works. All such materials shall be included and priced under schedule no.4, Installation Services. 18. As per clause 11.4, the bidder is required to furnish the details and break-down of their prices as under:- 11.4 In the schedules, bidders shall give the required details and a breakdown of their prices as follows: (a) Plant and equipment to be supplied from abroad (Schedule no.1) shall be/quoted on a CIF port-of-entry, CIP border point basis or CIP-named place. In addition the FOB price (or the FCA price, as the case may be) shall also be indicated. (b) Plant and equipment manufactured or fabricated within the Employer's country (Schedule No.2) shall be quoted on an EXW (ex-factory, ex-works, ex-warehouse or off-the-shelf as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e MRVC and the assessee on 12 th Nov 2008, laying down certain terms and conditions. The total contract value was for U.S. dollar 12,59,445 and ₹ 5,68,12,549/-. The price break-up as per clause 4 of the contract is as under:- 1. CIF Indian port basis (Schedule 1A) USD 12,59,445 2. Schedule 1B, 1C 1D INR 5,57,01,467 3. Agent commission on CIF INR 11,11,082 4. Total of (ii) (iii) INR 5,68,12,549 5. Total payable USD 12,59,445 INR Rs. 5,68,12,549 USD one million two hundred fifty nine thousand four hundred forty five only And Rupees five crore sixty eight lakh twelve thousand five hundred forty nine only 21. Schedule-1(A) specified the goods/equipment to be supplied from abroad; Schedule-1(B) specified the goods/equipments to be supplied from employer s country (India); Schedule-1(C) lays down the structure of taxes; Schedule-1(D) provides for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re concerned, Clause 31 of the Contract speaks of transfer of ownership of the plant and equipment. As per clause 31.1 ownership of plant and equipment including spare parts to be imported into the country where the site is located shall be transferred to the employer upon loading onto the mode of transport to be used to convey the plant and equipment from the country of origin to India. Clause 31.5 provides, notwithstanding the transfer of ownership of plant and equipment the contractor shall be responsible for care and custody together with risk or loss or damage thereto until completion of the facilities or the part thereof in which such plant and equipments are incorporated. On a perusal of the invoice raised towards off-shore supplies, copies of which are submitted in the paper book, we find that sales were effected directly by the company from Seol, Korea, or some other foreign destinations to the employer MRVC and goods were transported to India. It is also evident that price charged in the invoice is in dollar. Thus, as could be seen, in terms of clause 31.1 of the contract, ownership over the plant and equipments got transferred to the name of MRVC once the plant and equip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection in India or through or from any property in India or through or from any aspect or source of income in India or through the transfer of a capital asset situated in India. However, Explanation- 1(a) to section 9(1)(i) carves out an exception to the effect that in the case of a business of which all the operations are not carried out in India, the income of 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. Explanation-2 to section 9(1)(i) defines business connection . As per the said provision, business connection shall include any business activities carried out through a person who acted on behalf of the non-resident performing following acts:- (a) has and habitually exercises in India, an authority to conclude contracts on behalf of the non-resident, unless his activities are limited to the purchase of goods or merchandise for the nonresident; or (b) has no such authority, but habitually maintains in India a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the non-resident; or (c) habitually secures orders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urrency. It is relevant to mention that the breakdown of price as per schedules provided in IFB were also incorporated in the contract executed between the parties and as far as off-shore supplies are concerned, the payment is to be made in U.S. dollar. Further, clause 31.1 provides that the transfer of ownership of goods to be supplied from abroad would take place as soon as the goods are loaded onto the mode of transportation. The sale invoices raised also demonstrate that the sale was effected in the country of origin where goods were manufactured i.e., in Korea or some other countries like Switzerland, etc. Thus, reading of the IFB as well as contract as a whole clearly demonstrate that the work entrusted under the contract is divisible and is divided into several components and the intention of the parties to the contract always has been to segregated the off-shore supplies of plant and equipments from the on-shore supplies and services. In other words, the intention of the parties to the contract was to treat the off-shore supplies of plant and equipment as a distinct and separate component of work having no connection with the on-shore supply and services. Thus, if we examin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion. Therefore, at this stage Ld. Departmental Representative cannot build up a new case. Since we have held that income derived from off-shore supplies is not taxable under the provisions of the Act, there is no need to examine the applicability of Double Taxation Avoidance Agreement. However, for the sake of completeness we also intend to examine the aspect of taxability of off-shore supply under the provisions of India-Korea Double Taxation Avoidance Agreement. Article-7 of the treaty which provides for taxability of business profits reads as under:- ARTICLE-7 BUSINESS PROFITS 1. The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting state through a permanent establishment situated therein. If the enterprise carries on business as aforesaid the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to that permanent establishment. 2. Subject to the provisions of paragraph (3), where an enterprise of a Contracting State carries on business in the other Contracting State through a permanent establishment situated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... head office and the employer on principal to principal basis and PE having no role to play, the force of attraction rule, even assuming that it exists in the treaty, cannot extend to activities carried out outside India and having no economic nexus with PE in India. Therefore, in our considered opinion, income derived from offshore supply will not be taxable in India even under the treaty. Having held so, we consider it appropriate now to analyse the ratio laid down in certain judicial precedents which have a direct bearing on the issue. 26. In Ishikawajima Harima Heavy Industries (supra), the Hon'ble Supreme Court was seized with identical facts and situation relating to off-shore supply of goods in pursuance to a contract for execution of a turnkey project in India. 27. In the case before the Hon'ble Supreme Court, a Japanese company by forming a consortium entered into an agreement with Petronet NLG Ltd., for setting-up a liquefied natural gas receiving storage and degasification at Dahej, Gujarat. The scope of contract involved off-shore supply, off-shore service, on-shore supply and onshore service. As far as off-shore supply and off-shore service are concerned, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... connection, have to be considered keeping in view the scope and intent of the contract. The Hon'ble Supreme Court observed territorial nexus doctrine plays an important part in the assessment of tax, therefore, the issue to be decided is, as to whether income arising out of a particular transaction would be required to be apportioned to each of the territories wherein operations were carried out. The Court observed, income arising of operations in more than one jurisdiction would have territorial nexus with each of the jurisdiction on actual basis. In that case, it will not be correct to contend that the entire income accrues or arise in each of the jurisdiction. The Hon'ble Supreme Court, after analysing the terms of the contract vis-a-vis the provisions contained under section 9 of the Act, as well as relevant articles of the DTAA observed, where the payments for off-shore and on-shore supply of goods and services is clearly demarcated, it cannot be held to be a composite contract. The Hon'ble Supreme Court held, a contract must be construed keeping in view the intention of the parties. Though, the applicability of tax would depend upon the nature of the contract but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome of a non-resident under the DTAA. The Court observed, when the entire transaction was completed on high seas, the profit on sale will not arise in India, therefore, the transaction itself having been excluded from the scope of taxation of the Act, the application of DTAA would not arise. Finally the Court as far as taxability of off-shore supply under the Act is concerned, summed up its conclusion as under:- 79. We, therefore, hold as under:- Re : Offshore Supply : (1) That only such part of the income, as is attributable to the operations carried out in India can be taxed in India. (2) Since all parts of the transaction in question, i.e. the transfer of property in goods as well as the payment, were carried on outside the Indian soil, the transaction could not have been taxed in India. (3) The principle of apportionment, wherein the territorial jurisdiction of a particular state determines its capacity to tax an event, has to be followed. (4) The fact that the contract was signed in India is of no material consequence, since all activities in connection with the offshore supply were outside India, and therefore cannot be deemed to accrue o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the terms of contract distinctly set out the quantum of off-shore supplies and the quantum of the payments for the same, observed, if the composite contract specifically records the quantum of goods to be supplied from outside India and even the payment is made outside India, income arising from off-shore supplies cannot be held to be taxable in India. The Court held, once it is held that the amount is not taxable in India, the question of applying DTAA would not arise. In this context, jurisdictional High Court followed the decision rendered in the case of Ishikawajima Harima Heavy Industries (supra). The same view has also been expressed in the following decisions:- i) DIT v/s Toyo Engineering Corporation; ITA no.663/2011, 23.1.2013 ii) DIT v/s L.G. Global Ltd., 237 CTR 438; iii) National Petroleum Construction v/s DIT, 383 ITR 648; and iv) DIT v/s Siemens Akliongesellschaft, 310 ITR 320 (Bom.) 30. At this stage, it is necessary to deal with some of the propositions advanced by the learned Departmental Representative. 31. Learned Departmental Representative observed, in terms of provisions of section 5(2) r/w section 9 of the Act, source rule applies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . UOI (2012) 341 ITR 1, that look at approach instead up look through approach has to be taken. However, in the facts of the present case there is no need to adopt such approach as the IFB as well as contract document make the intention of the parties clear that the offshore supplies were to be kept as a distinct and separate transaction and not to be included with the on source supply and services. When the terms of the contract are specific there is no need to adopt a look at or look through approach. Moreover, in case of Linde AG, Linde Engineering Division vs. DDIT(2014) 44 taxmann.com,244, the Hon ble Delhi High Court relying upon the decision of Ishikawajima Harima Heavy Industries (supra) held as under:- 84. In our view, the approach as well as the conclusion of the Authority is flawed. First of all, the Authority erred in proceeding on the basis that the contract as a whole was the subject of taxation. The subject matter of taxation was not the Contract between the parties but the income that the petitioner derived from the Contract. Thus, the situs of the object of the Contract would not be as relevant as determining the situs where the income of Linde had accrued or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to be taxed had accrued or arisen. The impugned ruling is thus clearly contrary to the decision of the Supreme Court in Ishikawajima Harima Heavy Industries (supra). The Hon ble Court while considering the plea of look at vs. look through approach referred to the decision of the Hon ble Supreme Court in the case of Vodafone International Holdings B.V.(supra) and observed as under:- 86. The reference of the Authority to the decision of the Supreme Court in the case of Vodafone International Holdings B. V.(supra) is also not apposite. In that case, the Supreme Court was considering a matter which, inter alia, involved a transfer of a capital asset outside India which was sought to be taxed by the Income Tax Authorities under Section 9(1)(1) of the Act. The subject matter of controversy was a transaction of sale and purchase of a share of an overseas company (capital asset). This capital asset was sold by a non-resident non-resident company to another non-resident company. The Revenue contended that the capital gain arising from this transaction was exigible to tax under the Act by virtue of Section 9(1)(i) of the Act as the transaction also implied transfer of control an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h was counteracted by a gain in another. The House of Lords' dismissed the appeal of the tax payer by holding that the Courts would look at the entire combination of transactions. It was held that the Revenue or the Courts were not limited to consider the genuineness or otherwise of each individual transaction in the scheme but could consider the scheme as a whole. The contentions being considered by the Supreme Court in the Vodafone International Holdings B. V.'s case (supra) as well as the House of Lords' in W. T. Ramsay Ltd. (supra) were in respect of schemes which were contended to be or the purposes avoiding tax. The Supreme Court held that the look at principle must be applied to see the transaction as it existed and piercing Corporate Veil was not necessary where the transaction were genuine and had commercial substance. In the present case, there is no controversy which involves lifting of the corporate veil or looking at any scheme to find whether a transaction is a sham or has any substance. Both the Revenue and Linde are accepting the Contract as it stands and the controversy only revolves around the situs of the income accruing or arising from the cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we did not felt the need to discuss them individually. 33. The contention of the learned Departmental Representative that CBDT instruction no. 1829 has been withdrawn will not have much relevance on the issue. 34. As far as the allegation of the departmental representative that contract is heavily skewed in favour of offshore supply, the same is found to be factually incorrect. On a perusal of the contract document we have found that out of the total contract price of ₹ 11,23,66,668, the quantum of offshore supplies is ₹ 5,55,54,119. Therefore it cannot be said that offshore supplies are skewed. Having analysed the facts of the case in the context of the decisions relied upon we are of the considered view that the assessee s case is more or less similar to the facts involved in case of Ishikawa Jima Harima Heavy Industries Ltd.(supra) hence, the principles laid down therein would squarely apply to assessee s case. Therefore applying the ratio laid down therein we hold that the amount received towards offshore supply is not taxable in India. As far as contract with DMRC is concerned it is evident from the observations of the departmental authorities that the natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cable to business of exploration of mineral oil, section 44BBB is applicable to foreign companies engaged in the business of civil construction, erection, testing, or commissioning in connection with a turnkey power project approved by the Central Government. Thus, estimation of income @ 10% on presumptive basis by applying aforesaid provisions is not proper. Moreover, Assessing Officer has not pointed out any specific defect in the accounts of the assessee. That being the case, we direct the Assessing Officer to compute the income of the assessee from revenue earned on account of on-shore supply and on-shore services after verifying the accounts of the assessee and examining the genuineness of expenditure claimed. The ground no.2, is allowed for statistical purposes. 40. In ground no.3, the assessee has challenged levy of interest under section 234B. 41. While objecting to levy of interest under section 234B of the Act before the DRP, the assessee had submitted that such interest cannot be levied against a non-resident as the obligation to deduct tax is on the payer. However, the DRP did not accept the contention of the assessee and sustained levy of interest. 42. Learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spute Resolution Panel ('DRP') under section 144C(5) of the Income-tax Act, 1961 ('the Act') on the following among other grounds. Ground No. 1: Income in relation to offshore supply is not taxable in India. 1.1 The learned AO/DRP erred in law and in facts in seeking to tax in India, a sum of ₹ 3,23,18,384 for the year under consideration, as against the loss of ₹ 1,25,79.964 declared by the appellant in its return of income. 1.2 The learned AO I DRP erred in law and in facts in considering revenue from Offshore Supplies for the purpose of computing the appellant's income taxable in India, without appreciating that the income therefrom is not taxable in India both as per the Act as well as the Double Taxation Avoidance Agreement between India and Korea. Ground No. 2: Income, if any, should be taxable only to the extent it can be attributed to operations in India. 2.1 Without prejudice, the learned AO I DRP erred in treating the profit from Offshore Supplies (arrived at on a presumed basis of 10% of revenue from Offshore Supplies) as taxable in India without undertaking an attribution thereof to the Permanent Establishme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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