Income from offshore services isn’t taxable if provided outside India without any connection with PE in India

The assessee, a Japanese company, was a manufacturer of heavy machinery, providing technology oriented products and services to industrial, private and public sectors. It had been awarded Engineering, Procurement, Construction and Commissioning contracts by Petronet LNG Ltd. in India. The assessee offered the income received from onshore activities to tax in India with the claim of applicability of India Japan tax treaty but had not offered income from offshore supply and offshore services to tax in India on the ground that income from offshore supply was not received in India, as its actual place of business was outside India and, hence, it had neither accrued or arisen in India.

Decision of the Tribunal

The Appellate Tribunal held that the income from identical services rendered by the assessee in respect of the contract under consideration cannot be characterized differently. The income from offshore services, though chargeable under section 9(1)(vii) but exempt under the DTAA, cannot be charged to tax in the light of section 90(2). It was further held that the provisions of section 90(2) is very clear that where the Central Government has entered into an agreement with the Government of any country outside India or specified territory outside India, as the case may be, under sub-section (1) for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee.