Wednesday, 30 April 2014

High Court Explains Important law On AOP Formation + Taxation Of Offshore Supply And Services

Linde A. G. vs. DDIT (Delhi High Court)

Entire law on formation of AOP & taxability of off-shore supply & services explained

(d) As regards taxability, the principle of apportionment of income on the basis of territorial nexus is now well accepted. Explanation 1(a) to section 9(1)(i) of the Act also specifies that only that part of income which is attributable to operations in India would be deemed to accrue or arise in India. It necessarily follows that in cases where a contract entails only a part of the operations to be carried on in India, the assessee would not be liable for the part of income that arises from operations conducted outside India. In such a case, the income from the venture would have to be appropriately apportioned. Merely because a project is a turnkey project would not necessarily imply that for the purposes of taxability, the entire contract be considered as an integrated one. Where the equipment and material is manufactured and procured outside India, the income attributable to the supply thereof could only be brought to tax if it is found that the said income therefrom arises through or from a business connection in India. It cannot be concluded that the Contract provides a “business connection” in India and accordingly, the Offshore Supplies cannot be brought to tax under the Act (Ishikawajima-Harima Heavy Industries 288 ITR 408 (SC) and Hyundai Heavy Industries 291 ITR 482 (SC) followed)

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