The Income Tax Appellate Tribunal (ITAT) Delhi bench held that receipts from sale of offshore supply of trains are not taxable in India as transfer of title over the goods taken place outside India. According to offshore supply the project office of the assessee in India not constitutes a fixed place PE in India in terms of Article 5(1) of India – Germany DTAA.
Assessee ,Bombardier Transportation is a non-resident corporate entity incorporated under the laws of Germany and a tax resident of Germany .Who engaged in the business of integration and manufacturing of complete rolling stocks and railway applications.
Assessee entered into a Memorandum of Understanding (MoU) with BTIL to collectively participate in the International Competitive Bid of Delhi Metro Rail Corporation (DMRC).
On verification of digital data found in the computer of the said key person, it was noticed that it contained a ledger copy, wherein, in addition to cheque payment, date-wise cash payment received from the assessee towards purchase of a flat was found.
Thereafter The joint bid submitted by the assessee and BTIL was accepted by DMRC and RS2 Contract was executed between the DMRC and the Consortium.
In terms with the contract with DMRC, the assessee made onshore supply of 58 rolling stocks (train sets) to DMRC, which were manufactured by BTIL in India. Besides the aforesaid onshore supply of train sets, the assessee supplied 8 more train sets costing Rs.415,67,27,145/- to DMRC.
As regards offshore supply of 8 train sets, the assessee did not offer income from such sales to tax in India.Therefore the assessee submitted that the transfer of title over the goods took place outside India and the sale consideration was also received outside India also the project office had no role to play in offshore supply of train sets.
During the assessment proceedings AO held that the contract with DMRC is a composite contract and there was active involvement of the project office, both, in relation to onshore and offshore supplies.
Therefore the project office of the assessee in India constitutes a fixed place PE in India in terms of Article 5(1) of India – Germany DTAA.
The Assessing Officer concluded the assessment by adding back the amount of Rs.17 lacs to the income of the assessee.
Aggrieved by the order, the assessee filed an objection before the Dispute Resolution Panel (DRP) . who granted partial relief to assessee. Therefore the assessee filed an appeal before the tribunal.
Before the bench Deepak Chopra, counsel for the assessee submitted that BTIL is a wholly owned subsidiary of the assessee, that by itself, would not make BTIL the PE of the assessee in terms of Article 5(7) of the treaty
Further income earned by both BTIL and assessee are from different work . entire revenue earned by BTIL offered to tax by it in India.
It was also contended by the assessee counsel that assessee has raised invoices only with regard to offshore supply. Thus neither the project office, nor BTIL constitute a fixed place of assessee in India in terms of section 5(1) of the treaty.
Sanjeev Krishna Sharma, Counsel for the revenue supported the decision of lower authorities arguing that BTIL constitutes a fixed placed PE in India in terms of Article 5(1) of the treaty.
It was observed by the tribunal that the DMRC executed a single contract with the Consortium partners, however, the scope of work to be performed by each Consortium partner has been well defined and demarcated.
The tribunal after reviewing the facts and submissions of the both parties, the two member bench of G.S. Pannub.R. Baskaran ,(President ) and Saktijit Dey ,(Vice President ) held that receipts from offshore supply of rolling stock could not be taxable in India as the transfer of title over the goods has taken place outside India.
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