Whether the amount paid/payable by the Applicant to LSCL under the transaction mentioned in Annexure III in respect of Offshore supply of Equipments is liable to tax in India in the hands of LSCL, i.e. the recipient non-resident Korean company?

Deepak Cables (India) Limited Vs. DIT (International Taxation), Bangalore (Advance Ruling Authority)- It is the case of the applicant that transfer of the goods by LS Cables, Korea to the applicant being outside India, there is no territorial nexus for taxation regarding those off-shore supplies. It is pointed out that the applicant after obtaining the goods from LS Cables, Korea sells them to KPTCL for consideration. For its on-shore activity, including the sale it is taxed in India. Learned Counsel specifically requested as to note that sale by the applicant to KPTCL is taxed in India since it is taxable in India and that part of the contract is not involved in this application.

It is submitted that in the light of the decision of the Supreme Court in Ishikawajima Harima Heavy Industries V/s DIT 288ITR408, the questions raised by the applicant have to be ruled in favour of the applicant. Counsel pointed out that the two objections raised by the Revenue are that LS Cables has a project office in India when the contract was signed in India. It is submitted that this aspect has also been considered in the above decision of the Supreme Court and it has been ruled that it has no role to play in respect of offshore supplies The concluding portion of that ruling is brought to our notice. It is pointed out that except the fact that the on-shore supplies are by the applicant and the off-shore supplies are by LS Cables, the case is identical regarding the transaction between LS Cables and the applicant on the one hand and KPTCL on the other with that of the case decided by the Supreme Court. Since the onshore activities of the applicant are taxed in India, regarding this part of the agreement relating to off-shore activity, the decision of the Supreme Court has to be applied.

The representative of the Revenue submitted that the division of responsibility of on-shore and off-shore activities between the consortium partners was not a relevant consideration for considering the liability. What was relevant was the source of Income. Arrangement between the parties cannot control the arising of that income. They have together entered into the contract and the contract has to be construed in the context of the relevant provision of the Income-tax Act. The doubts expressed by this Authority on some of the aspects of that ruling is relied on in support. The representative also made an attempt to raise questions regarding the correctness of the view taken in Ishi kawaji ma Harima Heavy Industries.