Loading judgment…
Facts
Sondex Wireline Ltd., a UK tax resident, engaged in the offshore supply of equipment and standard software to Indian entities for mineral oil extraction. For AY 2022-23, the Assessing Officer (AO) taxed receipts of Rs. 2.50 crore, presuming the assessee had a Permanent Establishment (PE) in India under Article 5 of the India-UK DTAA and attributed 38.28% of the profit. The assessee challenged this, asserting no PE in India and that offshore transactions with payments received outside India are not taxable.
Held
The Tribunal held that the onus to prove the existence of a PE in India lies with the Assessing Officer. The AO failed to provide reasons or identify a specific PE, merely making a bald observation under Article 5 of the India-UK DTAA. Citing established jurisprudence (Ishikawajima Harima Heavy Industries Ltd.), the Tribunal ruled that offshore supply transactions, where transfer of ownership and payments occur outside India, are not taxable in India.
Key Issues
Whether the Assessing Officer validly established a Permanent Establishment (PE) for the assessee in India under Article 5 of the India-UK DTAA, and whether receipts from offshore supply of goods and standard software are taxable in India in the absence of such a PE.
Sections Cited
143(3), 144C(13), Article 5 of India-UK DTAA
AI-generated summary — verify with the full judgment below
Detected automatically from the text. The count shows how many other judgments on BharatTax rely on the same authority.
Income Tax Appellate Tribunal, DELHI BENCH “D”, DELHI
(A.Y.2022-23) Sondex Wireline Ltd., Cody Technology Park, Builing X107, Range Road, Farnborough, Foreign, ...... अपीलार्थी/Appellant United Kingdom GU14OFG PAN AAQCS-9766E बिाम Vs. Assistant Commissioner of Income Tax, Circle International Tax 3(1)(2), Civic Centre, ..... प्रनिवादी/Respondent Minto Road, New Delhi 110002 अपीलार्थी द्वारा/ Appellant by : Shri Sachit Jolly, Sr. Advocate with S/Shri Sohum Dua, Abhudaya Shankar Bajpai (Through VC) & Ms. Mansha Anand, Advocates प्रधिवािीद्वारा/Respondent by : Ms. Ekta Jain, CIT(DR) सुिवाई की निथर्थ/ Date of hearing : 03/12/2025 घोषणा की निथर्थ/ Date of pronouncement : 03/12/2025 आदेश/ORDER PER VIKAS AWASTHY, JM:
This appeal by the assessee is directed against the Assessment Order dated 09.01.2025 passed u/s. 143(3) r.w.s. 144C(13) of the Income Tax Act,1961 (hereinafter referred to as ‘the Act’), for Assessment Year 2022-23.
Shri Sachit Jolly, Sr. Advocate appearing on behalf of the assessee at the outset submitted that he is not pressing ground of appeal no. 2 & 3 assailing validity of the assessment order on the ground of limitation. In light of the statement made by ld. Counsel for the assessee at Bar, ground no. 2 & 3 of appeal are dismissed as not pressed.
The ld. Counsel submitted that the solitary issue in the present appeal for consideration of the Bench is taxability of receipts received in respect of off shore supply of goods and standard software on erroneous presumption by the AO that the assessee has a Permanent Establishment (PE) in India under the India-UK Double Taxation Avoidance Agreement (DTAA).
Narrating facts of the case, the ld. Counsel submits that the assessee company was incorporated under the laws of United Kingdom (UK) and is a tax resident of UK. The assessee is a part of Baker Hughes Group and is engaged in the business off shore supply of equipment and standard software, provision of services in connection with and supplying plant and machinery on hire basis to be used in prospecting for, extraction, production of mineral oil, etc. During the period relevant to assessment year under appeal, the assessee entered into various contracts with Indian entities engaged in prospecting, extracting, production of mineral oil, etc. The assessee received Rs.2,50,99,018/- on account off shore supplies of goods and standard software from Indian entities. Since, off shore supply of equipment to the Indian entities were on FOB basis, and the payments were received outside India, the receipts relating to off shore supplies and standard software are not chargeable to tax in India. The assessee in its reply dated 15.02.2024 during Draft assessment proceedings categorically stated that the assessee does not have any PE in India as per the tax treaty. Still, the Assessing Officer (AO) in para 9 of the Draft Assessment Order records that the assessee has deemed PE in India as per Article 5 of the India-UK DTAA without giving any reason and further held that some portion of profit from off shore supply of equipment including standard software is taxable in India. The AO in an arbitrary and unjustified manner attributed 38.28% of the operating profit margin to the Indian PE.
The ld. Counsel submitted that in AY 2013-14, the assessee was part of General Electric Group and subsequently it was acquired by Baker Hughes Group. In assessment order for AY 2013-14 similar finding with regard to assessee having deemed PE in India was returned by the AO and 1% of profit from off shore supply of equipment was attributed to the Indian PE. The assessee did not contest in AY 2013-14 purely with a view to avoid protracted litigation and to buy peace with the Income Tax Department. However, in the impugned assessment year factual matrix has changed since AY 2013-14 as there has been change in the ownership. The assessee filed objections before the Dispute Resolution Panel (DRP) inter alia objecting to finding of the AO holding that the assessee has deemed PE in India. The DRP without appreciating the facts and submissions of the assessee confirmed findings of the AO. Thus, the Final Assessment Order was passed in accordance with the directions of the DRP.
5.1. The ld. Counsel submitted that except for making bald observation that the assessee has deemed PE in India, no reason has been given by the AO to come to such conclusion. The ld. Counsel thus prayed for quashing the impugned assessment order.
Per contra, Ms. Ekta Jain representing the department strongly supported the impugned assessment order and prayed for dismissing the assessee’s appeal. The ld. DR submitted that the assessee in AY 2013-14 had accepted that the assessee has deemed PE in India and also the profit attribution to the India PE.
We have heard the submissions made by rival sides and have examined the impugned assessment order and directions of the DRP. The fact that the assessee is engaged in off shore supply of equipment and standard software is not disputed by the Revenue. Further, that the assessee is a tax resident of UK is also not under dispute. The primary issue for consideration is: Whether the assessee has PE in India as per Article 5 of India-UK DTAA?
The onus to prove that the assessee has PE/deemed PE in India is on the Assessing Officer. From perusal of the assessment order, we find that the AO has merely assumed that the assessee has deemed PE in India as per Article 5 of India-UK DTAA. No reasoning whatsoever has been given by the AO to come to a conclusion that the assessee has PE India. Article 5 of India-UK DTAA sets out certain conditions to hold that the foreign entity has PE in India. No effort has been made by the AO to examine whether the conditions set out in Article 5 of India-UK DTAA are satisfied before coming to the conclusion that the assessee has deemed PE in India. Moreover, the AO has not identified or named the entity which according to him is PE/deemed PE of assessee. Thus, in light of our above observation, we hold that the AO has failed to discharge its onus in proving PE of assessee in India.
7. In so far as provision of off shore supply of equipment and standard software, the contention of the assessee is that no activities in respect off shore
supply of equipment and standard software were carried out in India. The payments for supply of off shore goods were also received outside India. It is no more res integra that where the entire transaction of off shore supply of goods i.e. the transfer of ownership of goods as well as the payments thereof are carried outside India, such transactions carried outside India are not taxable in India. (RE: Ishikawajima Harima Heavy Industries Ltd. v. Director of Income Tax, 288 ITR 408 (SC)]. Thus, in the facts of the case and documents on record, we find merit in ground of appeal no. 4 to 11, hence, the same are allowed.
In the result, appeal of the assessee is partly allowed.
Order pronounced in the open court on Wednesday the 03rd day of December, 2025.