Offshore Supply Contracts Are Not Taxable u/s 44BBB: ITAT Quashes Tax Demand Against Chinese Company for Income from Turnkey Power Project Supplies
Relying on Supreme Court rulings in Hyundai Heavy Industries and Ishikawajima Harima Heavy Industries, the ITAT observed that offshore supply income cannot be taxed in India without a territorial nexus.
The Delhi Bench of Income Tax Appellate Tribunal ( ITAT ) quashed tax demand against Chinese company for income from turnkey power project supplies, holding that offshore supply contracts are not taxable under section 44BBB of Income Tax Act,1961. Shenhzhen SDG Information Co. Ltd., appellant-assessee,was aggrieved by the Commissioner of Income Tax(International...
The Delhi Bench of Income Tax Appellate Tribunal ( ITAT ) quashed tax demand against Chinese company for income from turnkey power project supplies, holding that offshore supply contracts are not taxable under section 44BBB of Income Tax Act,1961.
Shenhzhen SDG Information Co. Ltd., appellant-assessee,was aggrieved by the Commissioner of Income Tax(International Taxation)[CIT(IT)]’s order under section 263, which treated offshore revenue of ₹64.37 crore from equipment sales in China as taxable in India under section 44BBB.
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The tribunal examined the relevant facts and noted that the assessee, a Chinese company engaged in R&D and manufacturing of fiber-optic cables and communication equipment, had entered into offshore supply contracts with Power Grid Corporation of India Ltd. and Jharkhand Urja Sancharan Nigam Limited.
These contracts involved the supply of optical ground wire cables and related equipment, which formed the basis of the CIT(IT)’s revision order treating the offshore revenue as taxable under section 44BBB.
The two member bench comprising Satbeer SinghGodara (Judicial Member) and S.Rifaur Rahman (Accountant Member) noted that section 44BBB applies only where the foreign company is engaged in the business of civil construction or installation of plant and machinery in connection with a turnkey power project.
In this case, the offshore contract covered activities like design, engineering, testing, and commissioning entirely performed outside India while the onshore contract, involving local transportation and incidental services worth only ₹30.24 lakh, was handled separately by M/s Incap Limited.
Given this distinction, the tribunal held that the CIT(IT) erred in clubbing offshore and onshore revenues and treating the former as taxable in India. Referring to the Supreme Court rulings in Hyundai Heavy Industries Co. Ltd. and Ishikawajima Harima Heavy Industries Ltd., the ITAT stated that offshore supply revenues could not be taxed in India unless there was a clear territorial nexus.
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Accordingly, the tribunal concluded that the CIT(IT)’s revision directions were unsustainable both in law and on facts. It held that the offshore supply revenue was not taxable under normal provisions, and therefore section 44BBB was also not applicable. The revision order was reversed.
In short,the appeal was allowed.
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