Case Law Details
J.M. Voith SE & Co. KG Vs DCIT (ITAT Delhi)
In the case of J.M. Voith SE & Co. KG Vs DCIT, the issue at hand pertains to the taxability of income earned from offshore supplies and the attribution of profit to a Permanent Establishment (PE) in India. The Assessee, J.M. Voith SE & Co. KG, contends that income from the supply of plants, equipment, and spares, which were manufactured and supplied from outside India, should not be taxable in India. Additionally, they argue that they do not have a PE in India.
The crux of the matter revolves around a contract with Security Paper Mill (SPMCIL) for the design, supply, erection, installation, and commissioning of a paper making machine and associated equipment. The agreement outlines various obligations of the Assessee, including providing machinery, equipment, engineering services, specialist staff, training, and technical assistance. It also specifies that the Assessee’s obligations do not end with the supply of goods but extend to the satisfactory commissioning and performance run of the paper mill.
The Income Tax Appellate Tribunal (ITAT) examined the terms of the agreement and concluded that it constituted a single integrated project for setting up a paper mill in India. Thus, the receipts from offshore supplies could not be treated as standalone activities but were part of a composite indivisible contract, making them taxable in India.
However, the ITAT observed that the department had only considered the terms of the agreement with SPMCIL and had not examined similar contracts with other parties, such as J.K. Paper Ltd., Bank Note Paper Mill India Pvt. Ltd., and Tamil Nadu Newsprint and Papers Ltd. Without verifying the terms of these contracts, attributing 25% of the receipts from offshore supplies to the PE was deemed arbitrary.
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