Director of Income Tax (International Taxation) vs Xelo Pty. Ltd.

In the present Appeal, the Revenue has raised the following questions of law:

(1) Whether on the facts and in the circumstance of the case and in law the Tribunal was right in holding that revenues earned by the assessee company on account of offshore supply in respect of Metro Rail Contract is not taxable in India, as the sale of equipment is concluded outside India ignoring the fact

(a) that the contract concluded between M/s. Olex Pty Land and Metro Rail was a single contract for onshore as well as offshore supply of equipment involving designs, supply and supervision of installation and testing commission of integrated optical fibre communication system between Dumdum Tollygunj Section of Metro Railway Calcutta and

(b) that as per 7(1)(b) of DTAA between India and Australia, the force of attraction is applicable, hence offshore supplies or business activities of the same or similar type although performed from outside India would be attributable to the P.E. in India and would be taxable?

(2) Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in holding that when duty is cast on the payer to pay lax at source, on failure on the part of the payee, no interest u/s 234B can be imposed on the payee assessee ignoring the fact that it is the liability of the payee to pay advance tax even on the amount which had not been deducted at source under sec. 195 of the IT Act, 1961?

The assessee is a resident of Australia. The Assessment Year involved herein is A.Y. 1995-96.

The first question relates to the taxability of the amounts received by the assessee on account of offshore supplies. The assessee had entered into a contract with the Metro Railways for supply of equipments and services offshore as well as onshore. Since there was one single contract for supply of equipments and services offshore/onshore, the Assessing Officer was of the opinion that the amounts received by the assessee from Metro Rail in respect of offshore supplies were taxable in India.

The ITAT, relying upon the judgment of the Apex Court in the case of Ishikawajma-Harima Heavy Industries Ltd. Vs. Director of Income Tax, Mumbai, , held that though there was one composite contract, the terms of the contract distinctly set out the quantum of offshore supplies to be made by the assessee to the Metro Railways and also the quantum of payment to be received by the assessee from Metro Railways outside India. In our opinion, if the composite contract specifically records the quantum of goods to be supplied outside India and even the payment is made outside India, then no fault can be found with the decision of ITAT in holding that the income arising from offshore supplies are not taxable in India. Once it is held that the amounts in question are not taxable in India, then the question of applying the Double Taxation Avoidance Agreement between India & Australia does not arise at all. Accordingly, the first question raised by the revenue cannot be entertained.

As regards the question No.2 is concerned, Counsel for the parties state that the said question stands answered against the Revenue by the decision of this Court in the case of The Director of Income Tax (International Taxation) Vs. NGC Network Asia LLC, . Hence, the second question cannot be entertained.

Accordingly, the Appeal is dismissed.