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Facts
The assessee, a French company, supplied seismic equipment to ONGC and claimed the receipts as exempt. The AO, however, treated the income as taxable in India by establishing a Permanent Establishment (PE) based on the contract duration.
Held
The Tribunal held that the contract was for the supply of equipment manufactured outside India, not for services. The duration of the contract alone is not sufficient to establish a PE in India. Therefore, the receipts are not taxable in India.
Key Issues
Whether the supply of equipment manufactured outside India, with installation and commissioning, creates a Permanent Establishment (PE) in India, and if the income is taxable in India.
Sections Cited
143(3), 144C(13), 142(1), 195, 9(1)(i), 44BB
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH ‘DB’: NEW DELHI
Before: SHRI SATBEER SINGH GODARA & SHRI S. RIFAUR RAHMAN
A.Y. 2020-21 M/s. SERCEL SA Vs. DCIT, 13 Tower, 4-A, Circle-2, Race Cource Road, DDN Dehradun, Dehradun Dehradun Uttarakhand PAN: AAOCS6358N (Appellant) (Respondent) Assessee by Shri Sanjay Agarwal, CA & Sh. Taranpreet Singh, Adv. Revenue by Sh. Mohan Lal Joshi, Sr. DR Date of Hearing 14/01/2026 Date of Pronouncement 13/03/2026 ORDER
PER S. RIFAUR RAHMAN, AM
This appeal has been filed by the assessee against the final assessment order dated 15.06.2023 passed u/s 143(3) r.w.s.144C(13) of the Income Tax Act, 1961 (hereina�er called ‘the Act’) subsequent to the direc�ons of the Ld. Dispute Resolu�on Panel (DRP)/TPO vide order dated 25.05.2023 for Assessment Year 2020-21.
The brief facts of the case are, during the assessment proceedings, the Assessing Officer (‘AO’) noticed that the assessee has claimed refund of Rs. 59,79,820/- against TDS amounting to Rs. 59,79,820/-. Such TDS was deducted by Oil and Natural Gas Corporation Limited (ONGS) u/s 195 of the Act, in it’s ITR. The assessee has reported an amount of Rs. 108,27,23,947/- as exempt in the Schedule EI: Exempt Income. In order to examine the veracity of the assessee’s claims, notices u/s 142(1) along with questionnaires were issued to it from time to time.
The assessee is a company incorporated under the laws of France. It operates in the seismic acquisition industry. It is engaged in the business of manufacturing seismic equipment required for hydrocarbon exploration in land, transition zone, ocean-bottom cable, marine, and downhole environments. The assessee is submitted its Tax Residency Certificate (TRC) issued by the Government of France for the year 2020 & 2021. During the year under consideration, the assessee was engaged in executing supply and installation contracts with the Oil exploration company ONGC. The assessee has received an amount of ₹108,27,23,947/- from ONGC on account of offshore supply of equipments and spares. The above-said receipts were claimed as not chargeable to tax in India.
3.1 During the course of proceedings, the assessee was asked to submit complete copy of the tender document issued by ONGC, a complete copy of the contract signed with ONGC and details of personnel who visited in India in connection with the work related to installation and commissioning. After considering the details submitted by the assessee, which are reproduced at page number 2 to 7 of the assessment order. After considering the above submissions, the Assessing Officer was of the view that the offshore supply receipt from ONGC is taxable in India for the reason that the Letter of Award was issued to the assessee by ONGC on 20.03.2018, through an Amendment No. 3 dated 12.11.2018, the period of completion of the project was extended to 30.11.2018. Therefore, the overall contract period was from 20.03.2018 to 30.11.2018. This period of 255 days exceeds six months.
3.2 With the above observation, the Assessing Officer relied on Article 5 of the India–France DTAA and Section 9(1)(i) of the Act to conclude that the assessee is having a Permanent Establishment (PE) in India. Therefore, the profit is attributable to the PE, whether directly or indirectly, is chargeable to tax in India. With the above observation, by applying special provision for computing profits and gains in connection with the business of exploration of mineral oils under Section 44BB of the Act, he determined that 10% of the funds received by the assessee from ONGC is attributable to the PE in India to the extent of Rs. 10,82,72,395, accordingly, he passed a draft assessment order.
Aggrieved, the assessee preferred an objection before the DRP. After considering the submissions of the assessee, the learned DRP sustained the additions made by the assessing officer. Based on the directions of the DRP, the final assessment order was passed.
Aggrieved by the above order, the assessee is in appeal before us raising following grounds :-
“1. That on the facts and circumstances of the case, the Ld. AO/DRP has erred in law and on facts in charging the revenues arising from offshore supplies to tax in India.
2. That on the facts and circumstances of the case, the Ld. AO/DRP has erred in erroneously assuming that the appellant has PE within the meaning of Article 5 of India-France DTAA since the period of operation of the appellant exceeds 6 months in India.
3. That on the facts and circumstances of the case, the Ld. AO/DRP has erred in attributing receipts from offshore supply of equipments to such PE in India.
4. That on the facts and circumstances of the case, the Ld. AO/DRP has erred in wrongly invoking the provisions of section 44BB of the Act whilst determining the taxable income of the appellant at 10% of gross revenues and in holding that appellant is not eligible to claim lower profits as per section 44BB of the Act 5. That on the facts and circumstances of the case, the Ld AO/DRP while issuing the final assessment order has not followed the well settled 'judicial principle of consistency' which holds that unless there is a material change in facts and circumstances of the case, the Revenue authority will not depart from its previous decisions at their own sweet will. 6. That on the facts and circumstances of the case, the Ld. AO had not framed the final assessment order in complete conformity with the directions of the Ld. DRP. That the Appellant reserves its right and prays to the Hon'ble Tribunal to permit the Appellant to add, alter. amend, vary or substitute any of the aforesaid ground(s) of Appeal before or at the time of hearing of the present appeal”
At the time of hearing, the learned AR of the assessee brought to our notice the relevant facts of the case and submitted that the assessee is a French company which supplies machineries from offshore to the ONGC, and the supply is purely offshore and the ownership and risks are already passed on to the ONGC outside India. Therefore, the assessee has received payment towards such offshore supply. Therefore, he submitted that the assessee supplies the machineries and only does the installation work in India for those machineries supplied by it.
Further, he brought to our notice the assessment order under section 143(3) of the Act for Assessment Year 2016–17 and he submitted that the assessee is a regular supplier of machineries from offshore and supplies the same to ONGC on regular contracts, and in the above said assessment year, the same was accepted. He submitted that the facts are exactly similar to the assessment year under consideration and the revenue cannot take different stands for the same facts on record or take different views. He prayed that there is no PE exist in India and the supply of machinery from outside India is already declared in its business receipts outside India. Therefore, the provisions of section 9(1) and Article 5 of the DTAA has no application in the present case.
On the other hand, the learned DR brought to our notice page 7 of the assessment order and heavily relied on the findings of the lower authorities.
Considered the rival submissions and the material placed on record, we observed that the assessee is a company incorporated under the laws of France and is engaged in executing supply and installation contracts with ONGC. The assessee has been in this business for the past several years and it is also a fact 6 on record that it is a tax resident of France, and the relevant TRC for the year under consideration was duly filed by the assessee. The fact is that the assessee has supplied various machineries relating to seismic equipment in the field of oil exploration to ONGC and the same was supplied on the basis of ex-works from the terms of delivery, we observed that the assessee has supplied the complete material on CFR (Cost and Freight) basis from the designated sea port to sea ports in India. As per the terms of supply, the installation and commissioning of equipment shall be completed within 60 days from the date of intimation by ONGC. The payments are made in US dollars, and 20% of the payment are made after completion of installation and commissioning.
From the above, it is clear that the assessee is only supplying machineries to the ONGC which are manufactured and supplied from outside India. For the supply of machinery and equipment which are manufactured outside India, there is no document brought on record by the Assessing Officer to prove that their exist any PE in India. Further, we observed that the assessee is a regular supplier of machineries to ONGC, and all these years those supplies were accepted and only this assessment year, the Assessing Officer observed that the assessee has claimed refunds of taxes. He proceeded to investigate and came to the conclusion that the assessee has PE in India on the basis of duration of the contract given to the assessee to supply the machineries. The duration of contract cannot be the reason to determine the existence of PE in India what is relevant is in substance whether the contract are awarded for supply of equipment or supply of service. In the given case, the contract/ tender was awarded for supply of equipment which are manufactured outside India. Therefore, we are inclined to allow the grounds raised
by the assessee.
11. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on this 13th March, 2026.