Outotec Gmbh v. Dy. DIT

INCOME TAX ACT, 1961

--Income deemed to accrue of arise in India --Under section 9(1)(i)Business connection--The assessee was a tax resident of Germany, engaged inter alia in the business of providing innovative and environmentally sound solutions for a variety of customers in metals and minerals processing industries. The AO framed draft proposed assessment order under section 143(3) read with section 144C proposing to assess the income from sale of equipment as taxable in India. According to AO, the assessee supplied equipment to seven Indian companies during the year under consideration relating to steel industry. The assessee raised invoices for sale of equipment applying TT buying rate as on 31-3-2010. The assessee filed copies of contract for sale of equipment and AO after considering the submissions and documents proposed that a profit percentage @ 10 per cent be chargeable to tax from sale of equipment. Aggrieved, assessee carried the matter to DRP. DRP issued direction under section 144C(5) read with section 144C(8) and issued direction to the AO. The DRP came to the conclusion that “the equipment is part of whole plant which consists of various designs, electrical and automated systems. Though the contract is split into parts, the completeness of the contract is achieved only after the successful testing of the plant. The work done by the assessee may include supply of material, equipment, drawings documents, guaranteeing the work. The responsibility of the assessee did not stop with the supply of the equipment and when the contract is for the work the supply component need not be viewed separately. In view of the above position, this DRP is not in agreement with the contentions raised by the assessee and the objection on the non-taxability of sale of equipment is rejected”. The AO also followed the directions of DRP and assessed the estimated profit at the rate of 10 percent of sale of equipment. Held:Sale of equipment is concluded outside India because all work relating to manufacturing, designing, fabrication, etc., of equipment is done outside India and sold to the assessee directly on export sale basis. The contract provides for delivery of equipment on FOB foreign port of shipment, majority of payments, i.e., 80-85 per cent for each and every part of shipment becomes payable upon delivery of equipment on FOB foreign port of shipment, the above payments are through irrevocable letter of credit which makes it clear that even if the ship does not sail or deliver the goods to the destination, the assessee receives payment out of letter of credit guaranteed by bank upon FOB delivery. Even the customer's inspection for equipment is outside India. The buyers were Indian customers and unrelated parties and purchased equipment from assessee on their own account. Moreover, sale was on principal-to- principal basis and at arm's length. The assessee entered into either separate contracts each with its own scope of supply or service with separate consideration or single contract with separate scope of supply and services as well as separate consideration. The findings of DRP and that of the AO that the contracts are single contract split into separate parts was not correct. Even if the contract is considered to be integrated one, then also the taxability of each of the components has to be determined separately. In the light of the facts and legal position, the profit arising to the assessee from sale of equipment was not taxable in India. This issue of assessee's appeal was allowed.