Taxpublishers.in - InterestingDecision/IDDTF_206.htm - Tax Publishers Your Tax Solution Hub

Share via Whatsapp 80 Views


The Tax Publishers Attribution of profit for offshore delivery of goods on FOB basis to assessee nominated transporter/carrier but customs clearance and duty payments paid by Indian project PE office and billed back to assessee - group company reporting global loss - attribution of profits in India on offshore portion *Facts:* Assessee a Japanese company in infrastructure and specialized project activity as part of the dedicated freight corridor had to deliver certain goods in Japan to its designated/nominated carrier Mitsui and Co. Mitsui and Co. would perform the carriage and deliver the goods to the end customer who will pay directly to Mitsui and Co. for the FOB carriage. Customs duty and clearance responsibility was to be managed by the assessee's Indian project Permanent Establishment offices as part of the overall contract who will bill the same back to the assessee which was also performed accordingly. The existence of the project PE meant already project activity which was performed in India was offered as income in the hands of the PE offices. For the offshore technical consultancy assessee offered income under royalty and fee for technical services as per Indo-Japan DTAA. Dispute arose on the offshore delivery part, where in revenue attributed 35% of the quantum as profits attributable to the PE/contract performance in India. Plea of the assessee to exempt the offshore part from Indian tax ambit was two fold - 1) The overall group parent was incurring loss on this business due to cost overruns, redoing contract specifications etc. 2) Offshore part was delivered in Japan outside India and was not part of the Project PE/contract performance in India. DRP upheld views of the AO. On further appeal - Held in favour of the assessee that the offshore part was not taxable in India. When the parent was incurring losses no further attribution is possible in India. *Applied:* Offshore delivery not taxable in India - (i) Ishikawajima - Harima Heavy Industries Ltd. - v. Director of Income tax, Mumbai (228 ITR 408 SC) (ii) Director of Income Tax, New Delhi v. LG Cables Ltd. (2011) 197 Taxman 51 (Delhi). (iii) Linde AG, Linde Engineering Division v. DDIT (2014) 44 taxmann.com 244 (Delhi) : 2014 TaxPub(DT) 2223 (Del-HC). Parent reporting losses, no further attribution of income in India is possible - Commissioner of Income - Tax(lnternational Taxation) v. Nokia Solutions and Networks OY (2023) 147 Taxmann.com 165 (Delhi) : 2022 TaxPub(DT) 8235 (Del-HC) *Case:* Hitachi Ltd. v. ACIT 2023 TaxPub(DT) 4424 (Del-Trib)

The Tax Publishers

Attribution of profit for offshore delivery of goods on FOB basis to assessee nominated transporter/carrier but customs clearance and duty payments paid by Indian project PE office and billed back to assessee - group company reporting global loss - attribution of profits in India on offshore portion

Facts:

Assessee a Japanese company in infrastructure and specialized project activity as part of the dedicated freight corridor had to deliver certain goods in Japan to its designated/nominated carrier Mitsui and Co. Mitsui and Co. would perform the carriage and deliver the goods to the end customer who will pay directly to Mitsui and Co. for the FOB carriage. Customs duty and clearance responsibility was to be managed by the assessee's Indian project Permanent Establishment offices as part of the overall contract who will bill the same back to the assessee which was also performed accordingly. The existence of the project PE meant already project activity which was performed in India was offered as income in the hands of the PE offices. For the offshore technical consultancy assessee offered income under royalty and fee for technical services as per Indo-Japan DTAA. Dispute arose on the offshore delivery part, where in revenue attributed 35% of the quantum as profits attributable to the PE/contract performance in India. Plea of the assessee to exempt the offshore part from Indian tax ambit was two fold -

1) The overall group parent was incurring loss on this business due to cost overruns, redoing contract specifications etc.

2) Offshore part was delivered in Japan outside India and was not part of the Project PE/contract performance in India.

DRP upheld views of the AO. On further appeal -

Held in favour of the assessee that the offshore part was not taxable in India. When the parent was incurring losses no further attribution is possible in India.

Applied:

Offshore delivery not taxable in India -

(i) Ishikawajima - Harima Heavy Industries Ltd. - v. Director of Income tax, Mumbai (228 ITR 408 SC)

(ii) Director of Income Tax, New Delhi v. LG Cables Ltd. (2011) 197 Taxman 51 (Delhi).

(iii) Linde AG, Linde Engineering Division v. DDIT (2014) 44 taxmann.com 244 (Delhi) : 2014 TaxPub(DT) 2223 (Del-HC).

Parent reporting losses, no further attribution of income in India is possible -

Commissioner of Income - Tax(lnternational Taxation) v. Nokia Solutions and Networks OY (2023) 147 Taxmann.com 165 (Delhi) : 2022 TaxPub(DT) 8235 (Del-HC)

Case: Hitachi Ltd. v. ACIT 2023 TaxPub(DT) 4424 (Del-Trib)