Facts of the Case

The Revenue filed multiple writ petitions challenging the common order dated 9 May 2016 passed by the Authority for Advance Rulings (AAR). The AAR had ruled in favour of LS Cable & Systems Ltd Korea by holding that income from overseas/offshore supplies under the concerned contract was not taxable in India.

The respondent company had entered into a contract relating to manufacture and supply of 220, 132 kV XLPE insulated UG cables and accessories for the Hyderabad project. The dispute specifically related to the offshore supply portion of the contract.

The Revenue argued that unlike earlier cases involving separate contracts for offshore supply, onshore supply, and onshore services, the present contract was composite in nature and therefore distinguishable.

 Issues Involved

  1. Whether receipts arising from offshore supply of equipment and materials under a composite contract are taxable in India?
  2. Whether such receipts constitute income deemed to accrue or arise in India under Section 9 of the Income-tax Act, 1961?
  3. Whether the AAR correctly relied upon earlier judicial precedents on identical issues?

 Petitioner’s Arguments (Revenue)

  • The Revenue contended that the present contract was materially different from earlier cases.
  • It argued that earlier cases involved three separate contracts—offshore supply, onshore supply, and onshore services.
  • In contrast, the present arrangement was a composite contract involving both offshore and onshore elements.
  • Therefore, according to Revenue, the offshore supply income should be taxable in India.

 Respondent’s Arguments (Assessee)

  • The assessee maintained that the issue before the AAR was strictly confined to offshore supplies.
  • It argued that title to goods passed outside India and the offshore supply receipts did not accrue or arise in India.
  • Reliance was placed on earlier AAR rulings and Delhi High Court judgments involving similar facts.

 Court Findings / Order

The Delhi High Court held that:

  • The issue raised in the present matter was identical to earlier matters decided by the AAR.
  • The fact that the contract was composite in nature did not alter the character of the offshore supply component.
  • Since the assessee sought ruling only regarding offshore supplies, the taxability question remained confined to that issue.
  • Earlier judicial precedents already settled that offshore supply receipts under such circumstances were not taxable in India.

Accordingly, the Court found no error in the AAR’s order.

Result: The writ petitions filed by the Revenue were dismissed.

Sections Involved

  • Section 9, Income-tax Act, 1961 – Income deemed to accrue or arise in India
  • Authority for Advance Rulings (AAR) Provisions
  • India-Korea Double Taxation Avoidance Agreement (DTAA)
  • Taxability of offshore supply contracts in international taxation matters

 Important Clarification by Court

The Court clarified that merely because a contract contains both offshore and onshore elements, the offshore supply component does not automatically become taxable in India. Taxability must be independently examined based on the nature of offshore supply and the place where title and risk transfer.

 Link to download the order -

https://delhihighcourt.nic.in/app/case_number_pdf/2017:DHC:8243-DB/SMD26072017CW62962017_130215.pdf

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