Court: Delhi Income-tax Appellate Tribunal
Citation: Tech nip Italy Spa Vs. ACIT (2010-T11-133-ITAT-DEL-INTL)
Brief: It was held that the offshore supply of equipment, even on a CIF basis, under a composite contract is not taxable in India.
The assessee, a company incorporated in Italy, was awarded a turnkey contract by Indian Oil Corporation Ltd. (“IOCL”) for the designing, construction and commissioning of a Hydro- treater and Hydrogen facility at IOCL’s Guwahati Refinery. For execution of the above services, the assessee established a Project Office (“PO”) in India. Since the PO constituted a Permanent Establishment (“PE”) of the assessee in India, income was computed on a net income basis. While computing its income, revenue arising from onshore services, onshore supply and offshore services were offered by the assessee to tax in India. However, the assessee did not consider the revenue earned from offshore supply of equipment to be chargeable to tax in India.
As regards offshore supply of equipment, the Assessing Officer (“AO”) observed that supplies made by the head office of the assessee form an integral part of a turnkey contract, which was integrated into the business operations carried by the assessee’s PE in India. The AO further held that since the delivery of equipment was on a CIF basis, the title and custody of equipment was not passed on dispatch, but on successful installation. As such, the AO held that income from such offshore supply was taxable in India by placing reliance on the decision of the Authority for Advance Rulings (“AAR”) in the case of Ishikawajima-Harima Heavy Industries Ltd. v. DIT  271 ITR 193 (AAR).
On first appeal, the Commissioner of Income Tax (Appeals) (“CIT(A)”) observed that the entire work was carried out under a single contract. Further, since there was nothing mentioned in the agreement that the title of equipment would pass outside India, the CIT(A) upheld the order of the AO.
On further appeal, the Delhi Tribunal remanded the matter back to the CIT(A) to decide it afresh in light of the decision of the Supreme Court in Ishikawajima- Harima Heavy Industries Ltd. Vs. DIT  288 ITR 408 (SC)and the decision of the Madras High Court in M/s. Ansaldo Energia Spa v. ITAT  222 CTR 55 (Mad), since these decisions were not available before the CIT(A) at the time of passing the order.
In the second round of appeal, the CIT(A) observed that in the case of Ansaldo Energia Spa (above), the Madras High Court has held that if a contract is composite, inspite of the apparent demarcation into separate parts, the mere fact that for offshore supply the title passed outside India alone will not decide taxability.
The CIT(A) thus applied the decision in the case of Ansaldo Energia Spa (above) and held that revenue arising from offshore supply of equipment to IOCL was taxable in India since the agreement with IOCL was a composite turnkey contract and delivery of the equipment was on a CIF Job site basis, where title of the goods passed on delivery of equipment in India.
Aggrieved, the assessee filed an appeal before the Delhi Tribunal.
Whether income from offshore supply of equipment on a CIF basis under a composite contract is taxable in India?
The assessee contended that:
The revenue contended that:
The Tribunal held that:
Conclusion:-The Tribunal has applied the decision in the case of Ishikawajima- Harima Heavy Industries Ltd. to hold that revenue from offshore supply of equipment forming part of a composite contract shall not be taxable in India. The Tribunal reiterated the principle of the doctrine of territorial nexus and held that delivery, even on a CIF basis, under a composite contract cannot make the income from offshore supply taxable in India.