Facts:
The Taxpayer, an Italian Co (FCo), entered into three separate contracts with an Indian Co (ICo) for offshore supply, onshore supply and onsite services in relation to setting up a fiber optic system in India.
FCo obtained requisite permission for execution of onshore supply and service contract and for setting up a project office in India.
FCo filed its return of income and offered to tax income from the contracts relating to onshore supplies and services contract while maintaining that the income from offshore supplies was not taxable in India as the same was concluded outside India.
The Tax Authority contended that the three contracts are to be treated as a single composite contract and the offshore supplies are also taxable in India.
On Appeal, the First Appellate Authority held that the offshore supplies was taxable in India, because the activities relating to signing of the contract, installation and training of employees of ICo was undertaken by the project office in India.
Held:
There is no dispute with reference to the fact that income from the offshore contract is taxable only to the extent of profits attributable to the operations in India which are clearly defined in the Act as well as the DTAA between India and Italy. This position does not change even if all the three contracts signed by the parent company are treated to be single or composite contract.
The project office was set up after the contract for offshore supplies was entered into and hence there is no corelation between the signing of the contract in India and the Project office. Consequently, no income accrues or arises to the PE in India due to signing of contract in India.
The offshore contract was merely for supply of cables and not for providing the service of installation and hence no part of the income can be attributable to the PE in India.
Further training provided to ICo’s employees was claimed to be incidental to the offshore supplies though a separate amount was charged for such training from ICo. Alternatively, even if training fee needs to be considered as part of Project office, the training work was outsourced and fee paid for outsourcing was more than the amount received from ICo for such training. Hence, no income was earned by FCo in this regard.