JIANGDONG FITTINGS EQUIPMENTS CO. LTD,GURGAON vs. ACIT, CIRCLE INTERNATIONAL TAXATION2(1)(2), NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘D’, NEW DELHI BEFORE SHRI G.S. PANNU, VICE-PRESIDENT AND SHRI SAKTIJIT DEY, VICE-PRESIDENT ITA Nos. 2290 & 2291/Del/2022 Assessment Years: 2018-19 & 2019-20 Jiangdong Fittings Equipments Versus ACIT, Circle 2(1)(2), Co., Unit No. 309, B.C.D. 3rd International Taxation, Floor, Magnum Tower I, Sector New Delhi. 58, Gurgaon. PAN:AADCJ6890K (Appellant) (Respondent) Assessee by : Sh. Kamal Sawhney, Advocate & Sh. Nishank Vashistha, Advocate Revenue by : Sh. Vizay B. Vasanta, CIT-DR Date of hearing : 10.11.2023 Date of pronouncement: 29.11.2023 ORDER

Captioned appeals by the assessee are against final assessment orders passed under section 143(3) read with section 144C(13) of the Income-tax Act, 1961 pertaining to assessment years 2018-19 and 2019-20, in pursuance to directions of learned Dispute Resolution Panel (DRP).

2 ITA Nos. 2290 & 2291/Del/2022

certain amounts received by the assessee towards offshore supplies of

goods and equipment. Of course, there are ancillary issues relating to

existence or otherwise of permanent establishment (PE) and attribution

of profits to the PE.

entity incorporated in China and a tax resident of China. The assessee

had entered into three contracts with Power Grid Corporation of India

Ltd. (PGCIL) and its two subsidiaries, viz., M/s. Power Grid Jabalpur

Transmission Ltd. (PGJTL) and M/s. Power Grid Parli Transmission

Ltd. (PGPTL). In terms with the contracts, the assessee manufactured

the goods and equipments in China and supplied them to PGCIL and

its subsidiaries in India on CIF (cost, insurance, freight) sale basis.

with the contracts, it was only involved in offshore supply of

goods/equipments to the Indian contractees. It was submitted, since

title over the goods/equipments were transferred to contractees

outside India and sale was completed outside India, the receipts from

sale of such goods and equipments are not taxable in India. It was

3 ITA Nos. 2290 & 2291/Del/2022

further submitted by the assessee that since it was not involved in any

onshore activities in India and the onshore activities were carried out

by its Indian subsidiary, viz., ZTT India Private Limited and income

from such activities was offered to tax in India by M/s. ZTT India

Private Limited, the assessee is not taxable in India in respect of PE.

materials on record, the Assessing Officer observed that as per terms

of the contract, in addition to supply of goods and equipments, the

assessee was required to provide technical knowledge, experience,

skill, knowhow or processes, managerial or consultancy services. He

submitted, the terms of all the contracts are more or less identical. He

observed that asessee’s Indian subsidiary, M/s. ZTT India Private

Limited is fully controlled by the assessee and the said subsidiary is

engaged in the business of manufacture, selling, importing or exporting

of optical fibres, optical fibre cables, electrical wires, power cables,

conductors and other relevant materials and accessories, active

devices, passive devices and other photo electronic devices,

communication equipments etc. Thus, he observed that Indian

subsidiary is engaged in the same nature of business, as the assessee

4 ITA Nos. 2290 & 2291/Del/2022

is. He further observed that the employees of Indian subsidiary were

working under direct control and directions of the assessee, which is

evident from the power of attorney given to employees in India. Thus,

he observed that M/s. ZTT India Private Limited can be considered as

a PE of the assessee in India. Having come to such a conclusion, the

Assessing Officer held that out of the total receipts from offshore

supply of equipments, 40% can be apportioned towards FTS and 60%

can be apportioned towards supply of equipments/goods. Thus, out

40% Revenue allocated towards supply of equipments, the Assessing

Officer attributed 25% as profit of the PE. So far as 60% allocated

towards FTS, the Assessing Officer treated the entire amount as

income of the assessee. Thus, he made an aggregate addition of

Rs.14,81,50,820/- while proposing the draft assessment order.

objections before learned DRP. However, learned DRP did not find

merit in the objections of the assessee and accordingly sustained the

additions made by the Assessing Officer. In terms with the directions of

learned DRP, impugned assessment orders were passed.

5 ITA Nos. 2290 & 2291/Del/2022

contracts with PGCIL and its subsidiaries, learned counsel appearing

for the assessee submitted that they clearly demonstrate that the title

over goods have passed outside the territory of India. Therefore, he

submitted, the receipts cannot be taxed in India. In support, he relied

upon the decision of coordinate Bench in case of DDIT vs. Mitsui & Co.

(2020) 118 taxmann.com 379 (Delhi). He submitted, the terms of

contracts and nature of transaction in case of the assessee and in

case of Mitsui & Co. (supra) are identical. He submitted, PGPTL, which

is a public sector undertaking, has clarified in the bid data sheet that

Income-tax is not payable in India on sale of goods, as the title over

the goods passes outside India in terms of the offshore contract. In this

context, he drew our attention to the relevant clauses of the contract.

He submitted, when the contract between the parties are for CIF sale,

which is an incoterm used in the contract to transfer the goods at the

port of origin, which in this case is China, then it demonstrates that

transfer of goods has taken place outside India at the port of origin in

China. In support of such contention, the assessee relied upon the

decision of coordinate Bench in case of Schindler China Elevator

6 ITA Nos. 2290 & 2291/Del/2022

Company Ltd. (2023) 103 ITR (Trib) 567. He submitted, the allegation

of the departmental authorities that offshore and onshore contracts are

composite is merely based on cross-fall breach clause in the offshore

contract, which suggests that any breach of terms in offshore contract

leads to violation of onshore contract and vice versa. Thus, the

assessee was responsible for overall execution of both onshore and

offshore contracts. He submitted, for buttressing such allegation, the

departmental authorities have introduced theory of ZTT India Private

Ltd., being a PE of the assessee in India. He submitted, the

observations of the departmental authorities on the face of it are

erroneous, as they are in the teeth of the ratio laid down by Hon’ble

Supreme Court in case of Ishikawajma Harima Heavy Industries v. DIT

(2007) 288 ITR 408, the decision of Hon’ble Delhi High court in case of

DIT v. Ericsson AB (ITA No. 397/2007) and the decision of Tribunal in

case of DIT vs. LG Cable (2011) 237 CTR 438 and DDIT vs. Mitsui &

Co. (2020) 118 taxxmann.com 379 (Delhi). He submitted, in case of

the assessee, admittedly, the contracts for offshore and onshore

activities are separate. He submitted, even assuming for the

arguments’ sake that ZTT India is the PE, there is not a single

7 ITA Nos. 2290 & 2291/Del/2022

evidence on record to suggest that ZTT India Private Limited had any

role to play in supply of goods from outside India. Thus, he submitted,

when the PE had no role to play in offshore supply, no part of such

income can be attributed to the PE.

which, the Assessing Officer attributed 60% of the offshore revenue

towards FTS. He submitted, it is fairly well settled that when the

activities relating to design and manufacturing of goods, testing of

goods etc. are incidental to the supply of goods, the same cannot be

considered as FTS. Drawing our attention to the bid details under the

contract, he submitted, in case of a foreign contractor, both offshore

and onshore contracts are separate with separate consideration. He

submitted that in view of the factual position on record, it cannot be

alleged by the Revenue that these are composite contracts. Thus, he

submitted, there is no reasonable basis for splitting up the receipts

between business income and FTS. In this context, he relied upon the

decision of coordinate Bench in case of Tata Steel Limited vs. ITO (ITA

No. 1086/Mum/2017. Thus, he submitted, the receipts under no

circumstance can be taxed in India.

8 ITA Nos. 2290 & 2291/Del/2022

assessment proceedings, neither did the assessee appear nor

furnished any information/details in response to various queries raised

by the Assessing Officer. Therefore, he submitted, the Assessing

Officer proceeded to complete the assessment to the best of his

judgment by invoking the provision of section 144 of the Act. Drawing

our attention to the contract executed with PGPTL placed in the paper

book, learned Departmental Representative submitted that the

assessee is responsible for end to end completion of project and

assessee’s responsibilities do not cease on supply of goods and

equipments. He submitted, this is evident from the fact that final 10%

of the payment to be made towards supply of goods is to be cleared on

receipt of goods at site and on submission of invoice supported by the

material acceptance certificate issued by purchaser’s representative.

He submitted, the contract also provides that payment towards port

clearance, port handling, insurance etc. shall be initially borne by M/s.

ZTT India Private Limited on behalf of the assessee and subsequently,

such expenses are reimbursed by the contractee directly to ZTT India

Pvt. Ltd. based on the authorisation letter issued by the assessee to

9 ITA Nos. 2290 & 2291/Del/2022

the purchaser. Thus, he submitted, assessee’s responsibilities do not

end merely with establishment of supply of goods from port at China,

but also existence of various other activities in India. He submitted, the

assessee is ultimately liable for breach in any of the terms of either of

the contracts. Thus, he submitted, these facts clearly indicate that both

offshore supplies and onshore activities are part of a composite

contract. Learned Departmental Representative submitted, the fact that

ZTT India Private Limited has discharged various activities relating to

supply of goods in India, for which, it has not only been reimbursed the

actual expenses, but even received commission @ 0.01% of total CIF

price from the assessee, reveals that both the assessee and ZTT India

Private Limited have a principal-agent relationship. Therefore, ZTT

India Private Limited can be treated as a dependent agent of the

assessee, hence, will constitute a PE in India. Thus, he submitted, the

Assessing Officer was justified in taxing the income in India.

from the fact that the revenue earned from onshore activities have

been taxed at the hands of ZTT India Private Limited, clearly

demonstrates that offshore and onshore activities are under separate

10 ITA Nos. 2290 & 2291/Del/2022

contracts, hence, independent of each other. Therefore, it cannot be

treated as part of a composite contract.

relied upon and perused materials on record. The first issue, which

requires to be decided, is regarding the taxability of amounts received

by the assessee towards supply of goods and equipments. As

discussed earlier, the assessee has entered into three separate

contracts with three Indian public sector undertakings. The

nomenclature of contract with PGPTL is ‘Offshore Contract

Agreement’, a copy of which is placed at page 1 of the paper book. On

going through the terms of the contract, it is observed that the contract

is for design, manufacture, testing and CIF supply of composite

insulators associated with certain power project. It is observed that the

contract is signed by the Chief Representative of the assessee. On

going through the contract as a whole, it is observed that the

goods/equipments are to be supplied on CIF sale basis from a port at

China. 90% of the CIF price shall be paid progressively through

irrevocable letter of credit in favour of the assessee after dispatch of

goods and on submission of the documents, such as bill of lading,

11 ITA Nos. 2290 & 2291/Del/2022

invoices, insurance policy, guarantee certificate, material inspection

clearance certificate, testing certificate, certificate of origin etc.,

balance of the CIF price shall be paid to the assessee on receipt of

goods at site after a acceptance certificate by the purchaser’s

representative. This, in our view, is only for ensuring that the

goods/equipments are free from any defect. It is also a fact that though

the responsibility of inland transportation, insurance and other services

to be performed in India, such as clearance, handling at port etc. shall

be on ZTT India Private Limited, however, the entire cost is reimbursed

by the contractee. The other contracts are also couched in similar

terms and conditions.

transfer of title over the goods have not only taken place outside India

with all associate risks and liabilities, but the payments have also been

made outside India. In fact, as per the specific terms of the contract

and understanding between the parties, the ownership over the goods

to be imported to India shall be transferred to the purchaser upon

loading on to the mode of transport to be used to convey the goods

from the country of origin and upon endorsement of the dispatch

12 ITA Nos. 2290 & 2291/Del/2022

documents in favour of the purchaser. In the bid data details forming

part of the contract, it has been clearly mentioned that as per

purchaser’s understanding and as per the extant provisions, Indian

Income Tax is not payable on sale of goods, if the contract is on

principal to principal basis and the title of the goods passes to the

purchaser outside India.

goods, for which the assessee has received the payment, was

transferred outside India and the sale was completed outside India. By

relying upon certain clauses of the contract in isolation and out of

context, the departmental authorities have held that the amount

received by the assessee towards supply of goods, being related to the

activities of the PE, is taxable in India. In our view, the departmental

authorities have arrived at such conclusion without any rational basis

and backed by evidence. Merely because the assessee has a

subsidiary/related entity in India, which has performed some onshore

activities under a distinct and separate contract with the very same

contractee, that by itself, would not make the offshore and onshore

contracts composite. Though, it may be a fact that assessee’s group

13 ITA Nos. 2290 & 2291/Del/2022

entity in India has received commission from the assessee for doing

certain work related to the supply of goods, such as payments towards

port clearance, port handling, inland transportation, insurance etc,

which was subsequently reimbursed by the contractee and has

received commission from the assessee on certain percentage at CIF

price, that does not make ZTT India Private Limited a dependent agent

PE of the assessee. This is so because, there is no material on record

to even remotely indicate that ZTT India Private Limited is involved in

any manner in the work of design, manufacture, testing and supply of

goods on CIF basis from China. Merely because, there is cross-fall

breach clause in the contract to ensure seamless execution of the

contract, it cannot be said that two different and distinct contracts are

composite in nature.

Hon’ble Supreme Court has laid down the ratio that where the sale of

goods has taken place overseas, no taxable event happens in India.

The same view was expressed by Hon’ble jurisdictional High Court in

case of DIT vs. Ericsson AB (supra). In case of DDIT vs. Mitsui & Co.

(supra), wherein, facts involved are more or less similar to assessee’s

14 ITA Nos. 2290 & 2291/Del/2022

case, the coordinate Bench after examining various clauses of the

contract has held as under :

“30. An analysis of the various clauses of the contract between the assessee and WBSEB and NHPC and in the case of LG Cables Ltd., show that the same are similar. We find, in the case of LG Cables Ltd., it has entered into a contract with Power Grid Corporation of India Ltd. And has entered into two contracts. One was for offshore supplies and services and the second one was for onshore services. This contract was entered into on 26th February, 2001 and PGCIL was under Ministry of Power as is the case of the assessee where NHPC is also under Ministry of Power and the contract was entered into on 6th December, 2001. The terms of the contracts are similar as these contracts are drafted and vetted by the Ministry of Law, Government of India. The issue raised in the assessment order by the AO were also the issues in the case of LG Cables which is evident from the table in the order passed by the Hon’ble High Court comprising the two contracts entered into by the LG Cables with PGCIL. A perusal of the decision of the Hon’ble High Court shows that in this contract of LG Cables with PGCIL, the contractor was overall responsible to ensure the execution of the two contracts to achieve successful completion. There was a cross fall breach clause in the contract also. In para 11 of the decision, the court has taken note of the arguments of the ld. counsel that property in equipment passed to the buyer only in India and this property did not pass till equipment was erected and yielded satisfactory performance in India. In para 18, the Hon’ble High Court has categorically held that none of the stipulations of the on shore contract could postpone the transfer of property supplied under the offshore contract. xxx xxx xxx 39. In the present case, a perusal of clause 31.1 and 31.2 clearly shows that the property in goods will pass when it is loaded on to the mode of transport in the country of origin. Thus, there is no ambiguity and this clause will clearly be applicable. We find the Hon’ble Delhi High Court on this very issue at para 18 of the order has observed as under:- “18. Furthermore, as noticed above, the scope of work under the onshore contract was under a separate agreement and for separate consideration. There is, therefore, in our opinion no justification to mix the consideration for the offshore and onshore contracts. None of the stipulations of the onshore

15 ITA Nos. 2290 & 2291/Del/2022

contract could conceivably postpone the transfer of property of the equipments supplied under the offshore contract, which, in accordance with the agreement, had been unconditionally appropriated at the time of delivery, at the port of shipment. When the equipment was transferred outside India, necessarily the taxable income also accrued outside India, and hence no portion of such income was taxable in India.” 40. So far as the decision of the Hon’ble Andhra Pradesh High Court in the case of L&T Ltd. (supra), relied on by the ld. DR is concerned, it has been noted that risk, prima facie, passes with the property unless otherwise agreed. Thus, it is the agreement between the parties which determines the passing of the title, therefore, the said decision, in our opinion, is not applicable. So far as the decision of the Tribunal in the case of Baker Hughes Asia Pacific Ltd. (supra) is concerned, a perusal of para 155 of the order of the Tribunal shows that it has taken note that “it is not correct to say that risk and title pass simultaneously. There may be agreement for passing of risk before passing of title per se. as per section 19 of the Sale of Goods Act, it is primarily the intention of the parties when the title to the goods is to pass.” Thus, this judgment also endorses the settled law that ownership shall pass as per the intention of the parties. Thus, it is the intention of the agreement and in the present case in clause 31.1 and 31.2 of the agreement, it is clearly stipulated that ownership passes upon loading on to the mode of transport from the country of origin i.e., Japan. Therefore, there cannot be any dispute about the transfer of ownership having taken place in Japan. 41. So far as the decision in the case of Mahavir Commercial Co. Ltd. Vs. CIT, reported in 86 ITR 417 (SC) is concerned, we find the Hon’ble Supreme Court in the said decision has held that: “intention of the parties is, therefore, one of the important elements in determining the situs where the property passes to the buyer in pursuance of the contract.” Thus, in this judgment it is clear that it is the intention of the parties which will determine the situs where the property will pass on. In the present case clause 31.3 shows that the property will pass on in Japan. This is an agreement entered into between the parties which reflect their intention and there is no dispute about such intention between the parties. xxx xxx xxx 46. In view of the above discussion, we are of the considered opinion that the ld.CIT(A) is correct in holding that the income from offshore supplies is not liable to tax in India both u/s 44BBB as well as under the provisions of Article 7 r.w. para 6 of DTAA between India and

16 ITA Nos. 2290 & 2291/Del/2022

Japan. Accordingly, grounds No.1 and 2 raised by the Revenue are dismissed.”

dealing with an identical issue, the coordinate Bench has held as under

:

13........We find that in a case, wherein the assessee made an offshore supply of equipment on a CIF basis at an Indian port, the coordinate bench of the Tribunal in JCIT vs Siemens Aktiengesellschaft, [2009] 34 SOT 16 (Mumbai) observed as under: “12. From the above clause of the contract it is patent that BPL acquired the absolute right in the property when it was delivered to the carrier at the port of shipment i.e., in Germany. The reference of the learned D.R. to the invoice for depicting that it was on CIF basis at Bombay and hence the right of the buyer in the property should be construed as getting vested in Bombay, is not acceptable. The INCO Terms, 1990 explains various relevant terms. Page 755 of it mentions that :— "'Cost, Insurance and Freight' means that the seller has the same obligation as under CFR but with the addition that he has to procure marine insurance against the buyer's risk of loss of or damage to the goods during the carriage. The seller contracts for insurance and pays the insurance premium. The buyer should note that under the CIF term the seller is only required to obtain insurance on minimum coverage. The CIF term requires the seller to clear the goods for export. CFR, in turn, has been explained as "Cost and Freight" means that the seller must pay the cost and freight necessary to bring the goods to the named port of destination but the risk of losses of or damage to the goods, as well as any additional costs due to events occurring after the time the goods have been delivered on board the vessel, is transferred from the seller to the buyer when the goods pass the ship's rail in the port of shipment. It has further been explained

17 ITA Nos. 2290 & 2291/Del/2022

that in the case of CIF the seller must 'deliver the goods on board the vessel at the port of shipment on the date or within the period stipulated'. Clause A.5 also states that "Subject to the provisions of clause B.5, bear all risks of loss of or damage to the goods until such time as they have passed the ship's rail at the port of shipment." Clause B.5 in turn states that the buyer must 'bear all risks of loss of or damage to the goods from the time they have passed the ship's rail at the named port of shipment'." 14. As of the above it follows that in the case of CIF, the property in goods passes on to the buyer at the port of shipment. Though the Cost, Insurance and Freight etc. is met by the seller but the property in the goods gets transferred to the buyer at the port of shipment. The buyer incurs all risks of loss of or damage to the goods from the port of shipment. Therefore, it can be precisely seen that when the assessee made offshore supply of equipment to BPL on CIF Bombay basis against the stated consideration, the property in the equipment passed on to BPL on the port of Germany itself. It is trite law that income accrues at the place where the title to goods passes to the buyers on the payment of price. Our view is fortified by the judgment of the Hon'ble Supreme Court in Seth Pushalal Mansighka (P.) Ltd. v. CIT [1967] 66 ITR 159. As it is the case of offshore supply of equipment, it is axiomatic that this transaction got completed outside India. Thus no income accrued to the assessee in India towards this transaction.”

has held as under :

18 ITA Nos. 2290 & 2291/Del/2022

deemed as a default or breach of this „First contract‟ and also vice-versa. xxx xxx xxx 19. The contention of the learned counsel for the Revenue during the course of arguments that offshore supplies are not taxable only in the case of sale of goods simpliciter, and that the contract is a turnkey contract split/divided into offshore and onshore supplies at the instance of the respondent-assessee, in our considered opinion, is not sustainable in view of the authoritative pronouncement of the Supreme Court in the case of Ishikawajma (supra) wherein it has been held that offshore supplies are not taxable even in the case of a turnkey contracts as long as the title passes outside the country and payments are made in foreign exchange. The Supreme Court in this regard observed as follows: - "The fact that it has been fashioned as a turnkey contract by itself may not be of much significance. The project is a turnkey project. The contract may also be a turnkey contract, but the same by itself would not mean that even for the purpose of taxability the entire contract must be considered to be an integrated one so as to make the appellant to pay tax in India. The taxable events in execution of a contract may arise at several stages in several years. The liability of the parties may also arise at several stages. Obligations under the contract are distinct ones. Supply obligation is distinct and separate from service obligation. Price for each of the component of the contract is separate. Similarly offshore supply and offshore services have separately been dealt with. Prices in each of the segment are also different." xxx xxx xxx 27. Applying the aforesaid law enunciated by the Supreme Court in the case of Ishikawajma (supra), there can be no manner of doubt that the offshore supplies in the instant case are not chargeable to tax in India. The instant case, in fact, in our view stands on a better footing as two separate contracts have been entered into between the parties, albeit on the same day, one for the offshore supply and the other for the onshore services, but even assuming that both these contracts need to be read together as a composite contract, the issue in controversy is nevertheless squarely covered by the decision of the Supreme Court in Ishikawajma (supra)...... 28. As regards the payment for the performance of the activities within India, the contract price aggregating to INR 59982,160 plus US

19 ITA Nos. 2290 & 2291/Del/2022

Dollars 88,400/- was specifically and separately fixed by Article (2) of the contract titled "Contract price in terms of payment". This consideration was separate from the consideration for the supply of equipment and there appears to be no justification to intermingle the two. The consideration for the offshore supply of equipment, it is repeated at the risk of repetition, accrued when the goods were sold. The performance of duties as envisaged in the second contract, viz., the Erection Contract, by no stretch of imagination can be conceived to postpone the transfer of property under paragraph 31.2 of the agreement, which property passed on to the buyer simultaneously with the "loading on to the mode of transport to be used to convey the plant and equipment from the country of origin to the country of import." Although the entire consideration was not paid on shipment of equipment, but non- payment of a part of the price could not prevent the transfer of equipment. The passing of the property to the purchaser, as rightly held by the Tribunal had, nothing to do with the payment of the entire price of the equipment to the seller.”

High Court has held as under :

“44. The aforesaid analysis will bring forth the legal position that the place of negotiation, the place of signing of agreement, or formal acceptance thereof or overall responsibility of the assessee are irrelevant circumstances. Since the transaction relates to the sale of goods, the relevant factor and determinative factor would be as to where the property in the goods passes. In the present case, the finding is that property passed on the high seas. Concededly, in the present case, the goods were manufactured outside India and even the sale has taken place outside India. Once that fact is established, even in those cases, where it is one composite contract (though it is not found to be so in the present case) supply has to be segregated from the installation and only then would question of apportionment arise having regard to the expressed language of section 9(1)(i), which makes the income taxable in India to the extent it arises in India.”

20 ITA Nos. 2290 & 2291/Del/2022

decisions, it would become clear that merely because there is cross-

fall breach clause in some of the contracts, it will not tantamount to

making distinct and separate contracts composite contract and to tax

the income accruing outside India taxable in India. When, there is no

dispute over the fact that transfer of title over the goods have passed

outside India, which in fact has passed, the receipts certainly cannot

be taxed in India.

manner in which the receipts from offshore supplies are brought to tax.

As discussed earlier, the Assessing Officer has attributed 60% of the

receipts towards FTS and 40% towards price of goods/materials. This,

in our view, is totally irrational and perfunctory. On what basis, the

Assessing Officer has bifurcated the receipts between FTS and

business income is unknown. When the price payable by the

contractee is for design, manufacture, testing and CIF supply and is a

consolidated price, the basis for allocation of 60% towards FTS is not

understood. In fact, the Assessing Officer has not given any reason for

quantifying 60% of the receipts towards FTS, as no such bifurcation

21 ITA Nos. 2290 & 2291/Del/2022

has been provided in the contract documents. In any case of the

matter, the price paid by the contractee for supply of goods and

equipments, design and testing etc. is certainly part of the manufacturing activities and cannot be considered de hors such

activity. Thus, in our view, the artificial segregation of receipts between

supply of goods and FTS is without any basis, hence, unacceptable.

Though, the Assessing Officer has made an attempt to link the supply

of goods to the alleged PE in the form of ZTT India Private Limited,

however, such inference drawn by the Assessing Officer is not based on any evidence at all. There is nothing on record to suggest that ZTT

India Private Limited has undertaken or was in any way involved with

the design, manufacturing and testing of supplied goods. Thus, even

assuming that ZTT India Private Limited constitutes a PE, however, in

our view, it is in no way involved with the supply of goods and equipments from China.

onshore contracts are concerned, there is no dispute that they have

been taxed in India at the hands of ZTT India Private Limited. Thus, in

our considered opinion, the sale incident in respect of supply of goods

22 ITA Nos. 2290 & 2291/Del/2022

having completed outside India and the transfer of title over the goods,

having passed from the assessee to the contractees outside India in

terms with the contract, the receipts from such supply of goods and

equipments cannot be made taxable in India. Accordingly, we direct

the Assessing Officer to delete the additions.

Order pronounced in the open court on 29.11.2023.

Sd/- Sd/- (G.S. PANNU) (SAKTIJIT DEY) VICE-PRESIDENT VICE-PRESIDENT

Dated: 29.11.2023 *aks/-