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2025 Supreme(Online)(ITAT) 6267
INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH)
Sh. Naveen Chandra, ACJ, Sh. Vikas Awasthy, J
M/s Smiths Detection Asia Pacific Pte Limited – Appellant
Versus
Income Tax Department – Respondent
ITA No. 2396/Del/2023 | ITA No. 3264/Del/2023
For the Appellants/Petitioners: Shri Himanshu Sinha, Adv., Shri Jainender Kataria, Adv.
For the Respondents: Shri Vijay B. Vasanta, CIT-D.R.
The absence of a Permanent Establishment in India precludes taxation of offshore equipment sales under Indian tax law and the DTAA with Singapore.
Headnote:(A) Income-tax Act, 1961 - Assessment Year 2020-21 and 2021-22 - Offshore supply of equipment - Assessee contested the taxability of income cited by the Assessing Officer due to absence of Permanent Establishment (PE) in India and claimed reliance on the India-Singapore DTAA provisions which advocate taxation based on income sourced within India - The court acknowledged the lack of PE based on the functional disaggregation established in contract agreements, ruling that profits attributable to unutilized contracts abroad should not be taxable within India - No justification for attributing profits on offshore sales was established. (Paras 29-34)
(B) Double taxation - The principle of apportionment provides that only income attributable to operations performed in India is taxable - The court emphasized previous findings, underscoring the need for coherence in adjudicating tax transactions across fiscal years to avoid duplicate tax liability. (Paras 35-38)
| Table of Content |
|---|
| 1. tax implications of offshore supply of equipment linked to actual operational presence in india. (Para 4 , 5 , 6 , 7) |
| 2. arguments against taxability based on permanent establishment and nature of contractual obligations. (Para 8 , 9 , 11 , 12) |
| 3. court's rationale for not imposing tax on offshore income linked to established precedents. (Para 28 , 29) |
ORDER
PER NAVEEN CHANDRA, ACCOUNTANT MEMBER :
The above two separate appeals are by the assessee challenging the final assessment order dated 28.06.2023 passed for A.Y. 2020-21 and assessment order dated 21.09.2023 for A.Y 2021-22 in pursuance to the direction of learned Dispute Resolution Panel-2, New Delhi.
2. The grounds raised by the assessee in A.Y 2020-21 are as under :
1. “Grounds in General
1.1 On the facts and in the circumstances of the case and in law, the Ld. Assessing Officer (AO) has passed the assessment order ('order') on the basis of mere assumptions, surmises and conjectures, and without considering the detailed factual and legal submissions made by the Assessee during the course of proceedings under the Income-tax Act, 1961 (Act).
1.2 That the Ld. DRP/Ld. AO erred both on facts of the case and in law, in computing income at Rs.20,25,77,410/- instead of Rs. 5,24,25,082/- as declared by the Assessee.
Specific Grounds of Appeal
2. Permanent Establishment ('PE') in India
2.1 That the Ld. DRP/ Ld. AO erred both on facts of the case and in law, in holding that the assessee has a PE in India as per the DTAA [Article 5(2)].
2.2 That the entire order has been passed by the Ld. AO based on conjectures and surmises that the Assessee has a PE in India in connection with offshore supplies made by the Assessee in India without appreciating and considering factual submission made by the Assessee.
2.3 The Ld. AO/DRP erred both on facts and in law in not appreciating that Assessee does not satisfy the prescribed conditions/principles for determination of PE in India.
2.4 The Ld. AO while referring to the annual maintenance receipts received by the branch of the Assessee from a third party 'Cochin International Airport Ltd' has erred in stating that the Assessee has a PE in India and has linked the entire consideration from different contracts (Mangalore Port Trust, Airports authority of India and Cochin International Airport) to such PE in India without establishing and demonstrating the role of negotiation and execution of these contracts.
4.1 Without prejudice to the above fact, the Ld. AO has wrongly placed reliance on Article 14 of the Multilateral Convention (MLI) which prohibits artificial splitting of contracts for avoidance of PE status since the other contracting state (Singapore) has reserved the right for the entirety of Article 14 not to apply to its Covered Tax Agreements.
2.5 Ld. AO/Ld. DRP erred in concluding that the entire arrangement is akin to having a Joint venture (JV) of Assessee with its Indian entity in India, without providing any legal basis or judicial precedents on the same.
2.6. Ld. AO/Ld. DRP erred in not following up the decision of Hon'ble ITAT in Assessee's own case for AY 2019-20 wherein complete additions with respect to offshore sales were deleted.
3. Taxability of offshore supply of equipment under the Income Tax Act
3.1 That the Ld. AO erred both on facts of the case and in law, in holding that the Assessee has a business connection in India as per the Income Tax Act.
3.2 The Ld. DRP/AO erred in not considering the detailed submission filed by the Assessee in which it is stated that since no activities have been performed in India and therefore, receipts are not taxable in India in view of Explanation 1 to Section 9 (1).
3.3 The Ld. AO without discussing the facts of the case of the Assessee concluded that the Assessee's case is that of 'business in' in India as against 'business with' and considered the entire offshore sale as business income.
3.4 The Ld. AO has grossly erred in law by relying upon judicial precedents viz [RD Agrawal (56 ITR
