INCOME TAX ACT, 1961

Section 44BBB Article 7

Presumptive taxation under section 44BBB - business connection - Income from offshore supplies vis-a-vis PE -

Assessee was a foreign company incorporated in Japan and was one of the biggest trading house of the world. It was involved in trading from needle to airplane engines. It had established a Liaison Office in New Delhi and undertakes several projects in connection with big industrial installations and power projects. In the notes attached to the statement of assessable income, the assessee stated that taxable income from execution of the projects had been computed @ 10% of the gross receipts under section 44BBB. AO noted that the assessee had entered into three contracts with NHPC on 6-12-2001. AO held that, the income received for offshore supplies in respect of Teesta and Purulia projects were chargeable to tax @ 10%. He further held that everything directly or indirectly relating to the said business should be considered under the ambit of section 44BBB. He accordingly concluded that income for the purpose of this section should also include offshore receitps for the supply of equipment. Assessee could not provide any documentary evidence so as to prove that the offshore supplies in respect of Teesta & Purulia Projects were already included in the turnover of the LO. Therefore, the AO held that no benefit can be given to the assessee on this ground. CIT(A) deleted the addition made by the AO being profit @ 10% of the offshore supplies. CIT(A) further held that the liaison office of the assessee does not constitute a PE. CIT(A) also held that no income is liable to be attributed in India even if Mitsui & Com (P) Ltd. (MIPL) constituted a Dependent Agency Permanent Establishment (DAPE) in India and, accordingly, deleted the addition made by the AO.Held: In the case of Ishikawajima Harmia Heavy Industries Co. Ltd., the Apex Court had held that the existence of PE would not constitute sufficient business connection. It had further been held that there exist a difference between the existence of a business connection and the income accruing or arising out of such business connection. The Apex Court had further held that para 6 of the protocol to the DTAA is not applicable because for the profits to be attributable directly or indirectly, the PE must be involved in the activity giving rise to the profits. CIT(A) was correct in holding that the income from offshore supplies was not liable to tax in India both under section 44BBB as well as under the provisions of Article 7 read with para 6 of DTAA between India and Japan. Tribunal in assessee's own case for assessment year 2005- 06 where it has been held that the assessee was not a Dependent Agent Permanent Establishment and no income was attributable.

Followed:Director of IT v. LG Cables Ltd. (2011) 237 CTR (Del) 438 : (2011) 50 DTR (Del) 1 : 2011 TaxPub(DT) 761 (Del-HC), Ishikawajma Harima Heavy Industries Ltd. v. Director of IT (2007) 288 ITR 408 (SC) : 2007 TaxPub(DT) 876 (SC) and Tribunal, vide ITA No. 2335/Del/2011, Order, dated 14-9-2017 in assessee's own cases. Relied:Mahavir Commercial Co. Ltd. v. CIT 91972) 86 ITR 417 (SC) : 1972 Tax Pub(DT) 428 (SC). Distinguished:Larsen and Toubro Ltd. 2015-TIOL-3055-HC-AP-CT, Shanghai Electric Group Company Ltd. 2017-TII-119-ITAT-DEL-INTL and Baker Hughes Asia Pacific Ltd. 2014-TII-104-ITAT-DEL-INTL : 2014 TaxPub(DT) 2734 (Del-Trib).

REFERRED : The Indure Ltd. and another 2010-TIOL-79-SC-CT; M/s. Larsen and Toubro Ltd. 2015-TIOL-3055-HC-AP-CT; Dongfang Electric Corporation 2012-TII-66-ITAT-KOL-INTL : 2012 TaxPub(DT) 2520 (Kol-Trib); Decision of Hon'ble West Bengal AAR for GST in Order No. 04/WBAAR/2018-19, dated 11-5-2018 : 2018 TaxPub(GST) 0157 (AAR-Del) in the case of EMC Ltd.

FAVOUR : In assedssee's favour.

A.Y. : 2006-07 to 2008-09

INCOME TAX ACT, 1961

Section 44BBB Section 5 Section 145

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