Offshore Supply and AOP Allegation in Power Grid Contracts: ITAT Finds No AOP, Rules Offshore Income Not Taxable in India [Read Order]

The Mumbai bench of Income Tax Appellate Tribunal (ITAT) has held that Siemens AG’s offshore supply income under contracts with Power Grid Corporation of India Ltd. (PGCIL) is not taxable in India.

Siemens AG, a non-resident company, derived income in India through royalties and fees for technical services from its Indian associated enterprises (AEs). During the assessment, the AO alleged that Siemens AG and its Indian counterpart, Siemens Ltd., had jointly undertaken contracts with PGCIL for power transmission projects, thereby forming an Association of Persons (AOP) taxable in India.

On this premise, the AO taxed the offshore supply component on a protective basis, asserting that the composite contract was artificially split to avoid tax. The AO also held that the supplies were made on a CIF (Cost, Insurance, Freight) basis to Indian ports, implying delivery in India.

Aggrieved by this order the assessee filed an appeal before the Tribunal.

Siemens contended that the offshore supplies were completed outside India, that title and risk passed abroad, and that Siemens AG and Siemens Ltd. operated as independent entities under separate contractual obligations.

It was further submitted that the protective assessment could not survive in law because no substantive assessment was made in the AOP’s name. The assessee relied on coordinate bench rulings in its own earlier years and the ITAT’s decision in Pegasus Properties Pvt. Ltd. v. DCIT (2022), which held that a protective assessment cannot stand without a corresponding substantive one.

The Tribunal observed that the AO’s reasoning was purely presumptive and unsupported by evidence. It noted that the revenue had not demonstrated any joint management, profit sharing, or common control between Siemens AG and Siemens Ltd., which are essential elements of an AOP.

Furthermore, the supplies were made on CIF terms, where property in the goods passed to the buyer outside India; therefore, no income could be said to accrue in India. The Bench also emphasised that no separate AOP assessment was ever completed, rendering the protective assessment invalid.

Following its earlier rulings and consistent jurisprudence on offshore supply contracts, the bench, comprising Beena Pillai (Judicial Member) and Renu Jauhari (Accountant Member), held that Siemens AG and Siemens Ltd. did not constitute an AOP, and that offshore supply income could not be taxed in India either on a substantive or protective basis. The entire addition was deleted.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates