Case Law Details
CTCI Overseas Corporation Ltd. In Re (AAR)- In the present case, though the applicant has a business connection in India, it has not carried out any part of the business relating to offshore supplies in India. Under the deeming provision of section 9(1) read with Explanation 1(a), any business income accruing or arising to the applicant can be taxed in India only in respect of such operations carried out in India.
All that is income in the transaction for supplies has not arisen in India as the right, title, payments, etc, in the supplies have passed on to Petronet which is importing these supplies outside India. The applicant is not the owner of the supplies in India. The ownership vests with Petronet who imported these supplies. We may add that all such issues, including whether the contract is composite and indivisible, have been addressed in the case of IHHI and we are not free to travel outside the realm of the Supreme Court’s decision, especially in a case where such a question arises on offshore supplies. We may clarify that our ruling on offshore supplies does not include offshore services which may be included therein.We therefore rule on the questions posed that the amount received/receivable by the applicant from Petronet for offshore supplies in terms of the contract dated 17.11.2009 is not liable to tax in India under the provisions of the Act, in view of the decision of Supreme Court in IHHI.
AUTHORITY FOR ADVANCE RULINGS (INCOME TAX), NEW DELHI
1st Day of February, 2012
A.A.R. No. 854 of 2009
Name & address of the applicant – CTCI Overseas Corporation Ltd., Suite 1801-5, 18/F, Tower 2, China Hong Kong City, 33, Canton Road, Tsima Sha Tsui, Kowloon, Hong Kong.
Commissioner concerned : –Director of Income-tax (International Taxation)- I, New Delhi
RULING
(By V. K.Shridhar)
Applicant (CTCI) is a Hong Kong company and is in the business of engineering, procurement and construction of petroleum, petro-chemical and power plants. With a view to execute a project awarded by Petronet LNG Ltd. (Petronet), it has formed a consortium with CINDA Engineering and Construction Pvt. Ltd. (CINDA), an Indian company, to develop a terminal for the receipt and storage of liquefied natural gas at Kochi, Kerala. The Consortium Agreement was made on 6.3.2009. Petronet awarded the contract for the project to the consortium which was amended and reinstated on 17.11.2009. Under the contract, the consortium members are to undertake the designing, engineering, procurement of equipment, material supplies to erect, construct, test and commission and turn over the facilities for the storage and regasification of liquefied natural gas to Petronet.
2. As per the terms of the contract, CTCI is responsible for offshore supplies, offshore services and mandatory spares (for offshore supplies). CINDA is responsible for onshore supplies, onshore services, construction and erection and machinery spares (for onshore supplies).
3. It is in the context of these contracts that the applicant approached this Authority for an advance ruling. While admitting the application under section 245R(2) of the Income-tax Act (Act), this Authority framed the following questions for a ruling:-
i) Whether on the facts and circumstances of the case, the income received/receivable by the Applicant for offshore supplies from Petronet LNG Ltd. in terms of Article 13.1 of the contract for Engineering, Procurement, Construction and Commissioning for Kochi regas Facilities (Contract) is liable to be taxed in India?
ii) If the answer to the question No. i) is in affirmative, to what extent the income received by the Applicant under the Contract for offshore supplies is to be considered as reasonably attributable to the operations carried out in India and to be taxed in India.
4. It is the case of CTCI that transfer of goods to Petronet i.e. the offshore supplies, being outside India, there is no territorial nexus for taxation regarding those offshore supplies. Learned counsel submitted that in the light of the decision in Ishikawajima Harima Heavy Industry, 288 ITR 408 (IHHI), the facts being identical, the questions raised have to be ruled in its favour. The counsel pointed out that the only objection raised by the Revenue is that the consortium formed by CTCI and CINDA is an Association of Persons (AOP) as per the provision of section 2(31) of the Act and payments made by Petronet should be taxed in India.
5. The representative of the Revenue submitted that the decision in IHHI does not apply to the facts of the case as CTCI is a resident of Hong Kong with whom there is no agreement under section 90(2) of the Act by the Government of India and the Government of Hong Kong. The taxability of the receipts in the hands of the CTCI would be governed under section 9(1)(i) read with Explanation 2(b) to section 9(1) of the Income-tax Act, 1961 (Act). The consortium partner CINDA will constitute business connection of CTCI in India and CTCI is responsible for whole of the contract alongwith CINDA.
6. Referring to various clauses of the contract read with Consortium agreement, the learned counsel refuted the Revenue’s claim that as the role and responsibilities of each of the members of the consortium is specified and are to be paid separately, the partners to the consortium do not constitute an AOP for the purpose of taxability of the receipts. [Hundai Rotem Co., 230 CTR 468; Hysung Corporation, 314 ITR 343; Van Oord Acz BV, 284 ITR 399].
7. As we are to understand, CTCI is responsible for offshore supplies. The two questions that arise before us are: Whether any income arises to CTCI on offshore supplies to Petronet ? Whether such income can be brought to tax under the Act pursuant to the consortium formed by CTCI and CINDA? To answer the first question we have examined the sample of an invoice for ‘offshore supplies’ placed before us. What we notice on its perusal is that: (refer to page 30 of the written submission filed on 29.8.2011)
- the importer is Petronet in the Declaration Form presented to the Custom Authorities.
- the supplier is CTCI Overseas Corporation Ltd., Taiwan, holding company of the applicant.
- the import is for Home Consumption of Petronet.
- the port of shipment is Philadelphila, USA.
Then the invoices for offshore services presented by CTCI to Petronet showing the mode of payment is to: (refer to pages 55 and 56, of the written submission filed on 29.8.2001)
- CLYON Taipei Branch.
- Branch address : 16F, Hung Kua Building No. 167 Tun Hua North Road
Taipei, Taiwan, ROC
CTCI address is suite 1801-5, 18/F, Tower 2, China Hong Kong City, 33, Canton Road, Tism Sha Tsui, Kowloon, Hong Kong. The Taiwan address is not that of CTCI but is that of the supplier of goods to Petronet. As the supplier of offshore supplies is not the applicant but a third party to whom the payment is made by Petronet, the commercial arrangement between them in respect of the supplies is required to be examined from the angle whether it has given rise to an income in the hands of CTCI or not.
8. The question raised before us is about income received by the applicant on offshore supplies from Petronet. What we find is that no payment is made to the applicant. The payment is made in the bank in Taiwan on the basis of bill submitted by the Supplier (Holding Company) and not by the applicant. There is a difficulty in answering the question in the absence of information that the supplies were arranged through the holding company and that payment made is for supplies by the applicant. The applicant was called upon to clarify this aspect.
9. Learned counsel submitted that for the purposes of custom clearance and preparation of documents, etc. the services of AFL Dacher Pvt. Ltd. (AFL), Cochin, were obtained. AFL inadvertently mentioned the name of CTCI Overseas Corporation Ltd. Taiwan instead of CTCI Overseas Corporation Ltd. Hong Kong as supplier while filling in the import declaration. This was examined and found correct by the custom authority. Regarding the name of the bank to which the payment has been remitted by Petronet, it is submitted that the applicant has maintained a bank account in Calyon Taipei Branch (Now CREDIT AGRICOLE CORPORATE AND INVESTMENT BANK) as per the certificate from the said bank. Further, a certificate from Petronet was furnished that the offshore supplies were made by the applicant and that the payments have been made in its favour.
10. The facts as subsequently clarified were not controverted by the Revenue.
11. The Revenue has argued that the case of the applicant is covered under the provisions of the Act as the Government of India has not entered into a Tax Treaty under section 90(2) of the Act with the Government of Hong Kong. It has a business connection in India for the reasons that it is a part of the consortium constituting an AOP as also in terms of Explanation 2(b) to section 9(1)(i) of the Act since it is providing offshore supplies. We notice that under section 2(31) of the Act, the consortium of CINDA and CTCI forms an Association Of Persons (AOP) to carry out the project awarded by Petronet. Whether the consortium’s object is to derive profit or share the profit in a particular manner is not relevant in view of the fiction created under the Explanation to section 2(31) of the Act. The responsibilities of the consortium members mentioned under the terms of the contract would also not affect conferring AOP status to the consortium in view of the formation of a consortium by CINDA and CTCI. That being so, the applicant can be said to have a business connection in India for the purpose of application of section 9(1) of the Act. As the applicant is excluded from the relief under section 90(2) of the Act, the fiscal jurisdiction to tax the offshore supplies would be governed under the Act.
The case of IHHI was of a non-resident company incorporated in Japan which was entitled to relief under section 90(2) of the Act. Inter alia, it was held: “the concepts profits of business connection and permanent establishment should not be mixed up. Whereas business connection is relevant for the purpose of application of section 9; the concept of permanent establishment is relevant for assessing the income of a non-resident under the DTAA.” Referring to the nature of the transaction, it was held that where “the entire transaction having been completed on the high seas, the profits on sale did not arise in India͙ Thus, having been excluded from the scope of taxation under the Act the application of the Double Taxation Treaty would not arise.” In the present case, though the applicant has a business connection in India, it has not carried out any part of the business relating to offshore supplies in India. Under the deeming provision of section 9(1) read with Explanation 1(a), any business income accruing or arising to the applicant can be taxed in India only in respect of such operations carried out in India. All that is income in the transaction for supplies has not arisen in India as the right, title, payments, etc, in the supplies have passed on to Petronet which is importing these supplies outside India. The applicant is not the owner of the supplies in India. The ownership vests with Petronet who imported these supplies. We may add that all such issues, including whether the contract is composite and indivisible, have been addressed in the case of IHHI and we are not free to travel outside the realm of the Supreme Court’s decision, especially in a case where such a question arises on offshore supplies. We may clarify that our ruling on offshore supplies does not include offshore services which may be included therein.
12 We therefore rule on the questions posed that the amount received/receivable by the applicant from Petronet for offshore supplies in terms of the contract dated 17.11.2009 is not liable to tax in India under the provisions of the Act, in view of the decision of Supreme Court in IHHI.
13. Accordingly ruling is given and pronounced on 1st Day of February, 2012.
