1. DIRECTOR OF INCOME TAX, NEW DELHI Vs. LG CABLE LTD., ITA No. 703/2009, Date of Decision : December 24, 2010 HIGH COURT OF DELHI at NEW DELHI
Whether
the Income Tax Appellate Tribunal is justified in not holding that the
contract in question is not a composite one and, therefore, the
assessee is not liable to pay tax in India in respect of offshore
service?
Yes.
Relevant Extracts from Judgments
36.
In the final analysis we have no hesitation in holding that viewed from
any angle, the fact situation in the instant case is almost identical
to that in the case of Ishikawajma (supra) and the law
as enunciated by the Supreme Court in the said case will squarely apply
to the facts of the present case. If at all there is a difference, the
facts in the present case stand on a better footing than in Ishikawajma (supra). In Ishikawajma (supra) there was a turnkey contract with four separate component activities, viz., offshore
supply, offshore services, onshore supply and onshore services awarded
by Petronet LNG to a consortiumof companies led by the Japanese company
Ishikawajma-Harima. In the instant case there are two separate
contracts i.e. offshore supply and the onshore services contract
awarded by the PGCIL to the respondent-assessee. As in the said case
the consideration for offshore contract and onshore contract are
separate and distinct from each other, inasmuch as the consideration in
the case of offshore supply contract was received outside India through
the mechanism of a Letter of Credit in foreign exchange while the
consideration for onshore contract was received, for the most in Indian
rupees with a nominal amount in foreign currency, the latter being for
training charges. The title to the equipment supplied from outside
India was transferred in favour of PGCIL outside India. In the case of Ishikawajma (supra),
it was transferred on the high seas but in the instant case, it was
transferred in the country of origin itself as soon as the goods were
loaded upon the mode of transfer to be used to convey the plant and
machinery, i.e., the shipping vessel, even prior to the goods reaching
the high seas. Once the title was transferred in the aforesaid manner,
there was no provision either in the agreement or in law providing
recourse to the respondents to take back the title.
36.
With regard to the setting up of a permanent establishment also, the
permanent establishment of the respondent in the instant case, as in
the case of Ishikawajma (supra), had no role to play in
the execution of the offshore supply contract and as a matter of fact
was set up for the sole purpose of enabling the performance of the
onshore services contract.
37. The contract, however, in the instant case as in the case of Ishikawajma (supra)
would be said to have been successfully performed only after the
satisfactory commissioning and erection of the plant and equipments.
Since the permanent establishment was not at all involved in the
transaction of the offshore supply of equipment, the existence of the
permanent establishment (which as held in Ishikawajma (supra)
is for the purpose of assessment of income of a non-resident under the
Double Taxation Avoidance Agreement), would be irrelevant in the
instant case. Clause (a) of Explanation (1) to Section 9 (i) would not
be attracted at all which provides that in the case of a business where
all operations are not carried out in India, the income of the business
deemed under this clause 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. In the instant case there were no operation qua
the agreement for supply of equipment, which was carried out in India,
and therefore, no income could be deemed to have accrued or arisen in
India whether directly or indirectly or through any business connection
in India.
38.
In view of the aforesaid we answer the question no.1 in the affirmative
in favour of the respondent-assessee and against the Revenue.
(Please click here for judgment)
2. COMMISSIONER OF INCOME TAX, DELHI-XI Vs. M/S. AERO CLUB, ITA No. 216/2006 Date of Decision : December 24, 2010, HIGH COURT OF DELHI AT NEW DELHI
The
answer is our opinion must be an emphatic no. In our opinion, the
CIT(A) and the Income Tax Appellate Tribunal rightly set aside the
“best judgment” assessment of the Assessing Officer on the ground that
the Assessing Officer had “not brought on record any comparable case
wherein the net profit declared by a tax payer in the similar business
was higher than the one declared by the assessee.” We also concur with
the findings of the Income Tax Appellate Tribunal that the profit
margins of a tax payer as declared by him, could be varied and
disturbed only if the profit margins in the case of other assesses
engaged in similar business are higher. In the instant case, the
assessee has brought on record evidence that in the case of a company
having similar business, the declared profits were in fact lower than
the profits declared by the assessee. The Assessing Officer in his
Remand Report was also unable to comment on the comparable case of M/s.
Bata India Limited and Aero Traders relied upon by the assessee. In the
circumstances, we are of the view that the Tribunal rightly held that
the net profit as declared by the assessee was not required to be
disturbed.
(Please click here for judgment)
3. [Contribution by CA. Manoj Gupta, and contributor is available on Mobile No. 9350760606 / email-id: mgupta2803@gmail.com ]
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