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The Tax Publishers Offshore delivery of equipments - Indo-Singapore DTAA - PE-Taxability *Facts:* Assessee had supplied certain security equipments on offshore basis to Cochin International Airport besides also having other offshore delivery of goods, royalties from India, maintenance income from India. Revenue's stand was the offshore delivery was part of their Indian activities thus a PE (Permanent Establishment) arose in India and accordingly attribution of profits was done. The force of attraction rule meant if PE was established in one contract it would extend to other incomes as well, was revenue's reading. DRP voiced views of the AO. On higher appeal - Held there was no PE due to offshore delivery of goods. Force of attraction rule cannot extend to all the activities unless a PE could be found or be read into on facts. If PE exists then only that much attributable to the PE can be taxable in India. *Applied:* Ishikawajima Harima Heavy Industries Limited (2007) 288 ITR 408 (SC) : 2007 TaxPub(DT) 0876 (SC Hyundai Heavy Industries Co. Ltd. (2007) 291 ITR 482 (SC) : 2007 TaxPub(DT) 1249 (SC) "The core issue which needs to be addressed at the outset is to what extent the Force of Attraction Rule apply in the case of off shore supply/sales of goods/merchandise. As held in Hyundai Heavy Industries Co. Ltd. (2007) 291 ITR 482 (SC) : 2007 TaxPub(DT) 1249 (SC) "The attraction rule implies that when an enterprise (GE) sets up a PE in another country, it brings itself within the fiscal jurisdiction of that another country to such a degree that such another country can tax all profits that the GE derives from the sources country-whether though PE or not. It is the act of setting out a PE which triggers the taxability of transactions in the source State. Therefore, unless the PE is set up, the question of taxability does not arise-Whether the transactions are direct or they are through the PE. In the case of a Turnkey Project, the PE is set up at the installation stage while the entire Turnkey Project, including the sale of equipment, is finalized before the installation stage. The setting up of PE, in such a case, is a stage subsequent to the conclusion of the contract. It is as a result of the sale of equipment that the installation PE comes into existence. However, this is not an absolute rule. In the present case, there was no allegation made by the Department that the PE came into existence even before the sale took place outside India. Similarly, in the present case, there was no allegation made by the Department. that the price at which ONGC was billed/invoiced by the assessee for supply of fabricated platforms included any element for services rendered by the PE. In the present case, we are concerned with assessment years 1987-88 and 1988-89. Therefore, we are not inclined to remit the matter to the adjudicating authority. We reiterate, in the circumstances, not all the profits of the assessee company from its business connection in India (PE) would be taxable in India, but only so much of profits having economic nexus with PE in India would be taxable in India. To this extent, we find no infirmity in the impugned judgment of the Tribunal. Accordingly, we are of the view that the Tribunal was right in holding that profits attributable to the Korean Operations was not taxable in view of Article 7 of CADT." *Case:* Smiths Detection Asia Pacific Pte Ltd. v. Dy. CIT 2023 TaxPub(DT) 1173 (Del-Trib)

The Tax Publishers

Offshore delivery of equipments - Indo-Singapore DTAA - PE-Taxability

Facts:

Assessee had supplied certain security equipments on offshore basis to Cochin International Airport besides also having other offshore delivery of goods, royalties from India, maintenance income from India. Revenue's stand was the offshore delivery was part of their Indian activities thus a PE (Permanent Establishment) arose in India and accordingly attribution of profits was done. The force of attraction rule meant if PE was established in one contract it would extend to other incomes as well, was revenue's reading. DRP voiced views of the AO. On higher appeal -

Held there was no PE due to offshore delivery of goods. Force of attraction rule cannot extend to all the activities unless a PE could be found or be read into on facts. If PE exists then only that much attributable to the PE can be taxable in India.

Applied:

Ishikawajima Harima Heavy Industries Limited (2007) 288 ITR 408 (SC) : 2007 TaxPub(DT) 0876 (SC

Hyundai Heavy Industries Co. Ltd. (2007) 291 ITR 482 (SC) : 2007 TaxPub(DT) 1249 (SC)

"The core issue which needs to be addressed at the outset is to what extent the Force of Attraction Rule apply in the case of off shore supply/sales of goods/merchandise.

As held in Hyundai Heavy Industries Co. Ltd. (2007) 291 ITR 482 (SC) : 2007 TaxPub(DT) 1249 (SC)

"The attraction rule implies that when an enterprise (GE) sets up a PE in another country, it brings itself within the fiscal jurisdiction of that another country to such a degree that such another country can tax all profits that the GE derives from the sources country-whether though PE or not. It is the act of setting out a PE which triggers the taxability of transactions in the source State. Therefore, unless the PE is set up, the question of taxability does not arise-Whether the transactions are direct or they are through the PE. In the case of a Turnkey Project, the PE is set up at the installation stage while the entire Turnkey Project, including the sale of equipment, is finalized before the installation stage. The setting up of PE, in such a case, is a stage subsequent to the conclusion of the contract. It is as a result of the sale of equipment that the installation PE comes into existence. However, this is not an absolute rule. In the present case, there was no allegation made by the Department that the PE came into existence even before the sale took place outside India. Similarly, in the present case, there was no allegation made by the Department. that the price at which ONGC was billed/invoiced by the assessee for supply of fabricated platforms included any element for services rendered by the PE. In the present case, we are concerned with assessment years 1987-88 and 1988-89. Therefore, we are not inclined to remit the matter to the adjudicating authority. We reiterate, in the circumstances, not all the profits of the assessee company from its business connection in India (PE) would be taxable in India, but only so much of profits having economic nexus with PE in India would be taxable in India. To this extent, we find no infirmity in the impugned judgment of the Tribunal. Accordingly, we are of the view that the Tribunal was right in holding that profits attributable to the Korean Operations was not taxable in view of Article 7 of CADT."

Case: Smiths Detection Asia Pacific Pte Ltd. v. Dy. CIT 2023 TaxPub(DT) 1173 (Del-Trib)