INCOME TAX ACT, 1961

Section 9(1)(i) Section 90

Income deemed to accrue or arise in India - Under section 9(1)(i) - Taxability of receipts from offshore supply of escalators and elevators by non-resident assessee to Indian entities -

Assessee based at China was engaged in the business of supply of elevators and escalators, which included design and manufacturing. Assesse considered receipts from Delhi Metro Rail Corporation Ltd. (DMRCL) and from Maharashtra Metro Rail Corporation Ltd. (MMRCL). From offshore supply of escalators and elevators. as not taxable in India and claimed a refund of taxes deducted at source. AO viewed that assessee entered into an arrangement with its Indian associated enterprise, Schindler India (P) Ltd. ['SIPL'] for fulfilment of its obligation under the contract. AO treated the consortium of assessee and SIPL as an Association of Persons ['AOP'] within the meaning of section 2(31) and held that the contract with DMRCL and MMRCL was composite and indivisible and could not be split up into supply and commissioning parts as sought to be done by the assessee. AO held that consortium was liable to be assessed as an AOP and income from the transaction was chargeable to tax in India, as no benefit of Indo-Chinese DTAA could be afforded to the association. Held: Though AO treated the consortium as an AOP, however, proceeded to make addition only in the hands of assessee and no separate assessment was made in the hands of consortium as an AOP. In coming to the aforesaid conclusion, AO placed heavy reliance on the scope of the contract, which was design, manufacturing, supply, installing, testing, commissioning. However, AO did not consider the other parts of the contract agreement with DMRCL and MMRCL, which clearly demarcated the description of work, the consideration, and the currency in which same was to be paid to each of the consortium members. /the goods were transferred on CIF basis. In case of CIF, property in goods passes on to the buyer at the port of shipment. Though Cost, Insurance, and freight, etc., are met by the seller but property in the goods gets transferred to the buyer at the port of shipment. The buyer incurs all risks of loss of or damage to the goods from the port of shipment. Therefore, title in goods, i.e., escalators and elevators was transferred to DRMCL and MMRPL outside India and payment thereof was also received outside India and therefore, the transaction could not be taxed in India.

Relied:Ishikawajma-Harima Heavy Industries Ltd. v. DIT (2007) 288 ITR 408 (SC) : 2007 TaxPub(DT) 876 (SC).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2019-20

SUBSCRIBE FOR FULL CONTENT