IHI COPORATION, MUMBAI V. DEPUTY COMMISSIONER OF INCOME TAX(IT)-2(1)(2), MUMBAI

ITA 7392/MUM/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 0067 (ITAT-MUMBAI)
• Duration Of Justice: 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-09-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: L
• Assessment Year: 2014-2015
• Appeal Filed On: 27-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: JASMIN AMALS
• Keywords: Residential status; Double taxation relief; Services rendered outside India; Deemed to accrue or arise in india; Retrospective amendment; Permanent establishment; Advance ruling
• Section: 5(2)

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL L BENCH, MUMBAI BEFORE SHRI B.R. BASKARAN (AM) & SHRI RAMLAL NEGI (JM) I.T.A. NO. 7392 /MUM/ 2017 (ASSESSMENT YEAR 20 14 - 15 ) IHI CORPORATION C/O. SRBC & ASSOCIATES LLP, 14 TH FLOOR, THE RUBY 29, SENAPATI BAPAT MARG DAD AR WEST, MUMBAI 400 028. PAN : AAACI8016M V S . DY.CIT(INTERNATIONAL TAXATION) - 2(1)(2) 16 TH FLOOR AIR INDIA BUILDING NARIMAN POINT MUMBAI - 400021. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY SHRI NISHANT THAKKAR, SHRI HITEN CHANDE & MS. JASMIN AMALSADVALA DEPARTMENT BY SHRI SAMUEL DARSE DATE OF HEARING 4 .9 . 201 8 DATE OF PRONOUNCEMENT 19 . 9 . 201 8 O R D E R PER B.R. BASKARAN (AM) : THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ASSESSMENT ORDER DATED 31.10.2017 PASSED BY THE ASSESSI NG OFFICER U/S.143(3) READ WITH SECTION 144C(13) OF THE ACT IN PURSUANCE OF THE DIRECTION GIVEN BY LEARNED DRP. SOLITARY ISSUE URGED IN THIS APPEAL IS WITH REGARD TO TAXABILITY OF OFFSHORE SUPPLY MADE BY THE ASSESSEE. 2. THE ASSESSEE COMPANY IS A RESIDENT OF JAPAN AND HAS UNDERTAKEN TWO SEPARATE PROJECTS FROM TWO INDIAN COMPANIES NAMED GLL AND PLL. THE SCOPE OF PROJECT INCLUDES OFFSHORE SUPPLY OF COMPONENTS AND SERVICES, ONSHORE SUPPLY OF COMPONENTS, SERVICES, CONSTRUCTION AND ERECTION. THE COMPANY OFFERED FOR TAX, INCOME FROM ONSHORE SUPPLY OF COMPONENTS AND SERVICES. THE ASSESSEE CLAIMED FOR OFFSHORE SUPPLY OF COMPONENTS, SERVICES ARE NOT LIABLE TO TAX IN INDIA. IDENTICAL STAND WAS TAKEN BY THE ASSESSEE IN A.Y. 2002 - 03 & 2008 - 09. IHI CORPORATION 2 THE ASSESSEE TOOK SUPPORT OF THE DECISION RENDERED BY HON'BLE SUPREME COURT IN ITS OWN CASE VIZ. ISHIKAWAJIMA - HARIMA HEAVY INDUSTRIES LTD. VS. DIT (2007) 288 ITR 408. THE C LAIM OF THE ASSESSEE WAS REJECTED BY THE ASSESSING OFFICER AS WELL AS LEARNED DRP. IN A.Y. 2009 - 10, LEARNED D RP HAS ANALYZED APPLICABILITY OF ARTICLE 12(2) OF DTAA ENTERED BETWEEN INDIA - JAPAN AND HAS TAKEN THE VIEW THAT SERVICES IN THIS CASE ARE NOT EFFECTIVELY CONNECTED WITH THE PE. HOWEVER, ITAT HAS REVERSED THE DECISION OF LEARNED DRP BY FOLLOWING THE DECISION RENDERED BY HON'BLE SUPREME COURT REFERRED (SUPRA) AND FURTHER TAKEN VIEW THAT ARTICLE 12(5) READ WITH ARTICLE 7 OF INDIA - JAPAN TREATY WILL BE APPLICABLE IN THIS CASE. THE ASSESSING OFFICER TOOK THE VIEW , DURING THE YEAR UNDER CONSIDERATION, THAT THE REVE NUE HAS NOT TAKEN ANY SPECIFIC GROUND IN APPLICABILITY OF ARTICLE 12(2) OR EFFECTIVE CONNECTION OF OFFSHORE SUPPLY AND SERVICES WITH THE PE OF ASSESSEE IN INDIA IN INDIA - JAPAN TREATY BEFORE HON'BLE HIGH COURT IN A.Y. 2009 - 10. ACCORDINGLY, THE ASSESSING OFF ICER HELD THAT INCOME FROM OFFS HORE SUPPLY IS TAXABLE IN INDIA. 3. AT THE TIME OF HEARING, LEARNED AR SUBMITTED THAT HON'BLE SUPREME COURT HAS CONSIDERED THE TERMS EFFECTIVELY CONNECTED AND ATTRIBUTABLE TO, IN RESPECT OF OFFSHORE SUPPLY IN THE ORDER P ASSED IN THE CASE OF ISHIKAWAJIMA - HARIMA HEAVY INDUSTRIES LTD. (SUPRA). HE SUBMITTED THAT THE ITAT HAS ALSO CONSIDERED THIS POSITION AND HELD THAT INCOME FROM OFFSHORE SUPPLY IS NOT LIABLE TO BE TAX IN INDIA IN ITS OWN CASE VIDE ITS ORDER DATED 13.3.2013 PASSED IN ITA NO. 7227/MUM/2012 RELATING TO A.Y. 2009 - 10. 4. ON THE CONTRARY, LEARNED DR SUPPORTED THE ORDER PASSED BY THE ASSESSING OFFICER. 5. HAVING HEARD THE RIVAL CONTENTIONS, WE ARE OF THE VIEW THAT THE ISSUE URGED IN THIS APPEAL IS FULLY COVERED BY THE DECISION RENDERED BY THE COORDINATE BENCH IN A.Y. 2009 - 10, WHEREIN QUESTION OF EFFECTIVE CONNECTION HAS ALSO BEEN DISCUSSED. FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE DECISION RENDERED BY THE COORDINATE BENCH IN A.Y. 2009 - 10 : - IHI CORPORATION 3 4. WE HAV E HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. AS THE ASSESSEE HAS ASSAILED THE TAXABILITY OF THE AMOUNT BOTH UNDER THE DOMESTIC LAW AS WELL AS THE DTAA, WE WOULD CONSIDER THE POSITION ONE BY ONE UNDER BOTH THE COMPARTMENTS. (I) POSITION UNDER THE ACT: 5.1. THE ASSESSEE IS ADMITTEDLY A NON - RESIDENT. SECTION 5(2) PROVIDES THAT THE TOTAL INCOME OF ANY PREVIOUS YEAR OF A PERSON WHO IS A NON - RESIDENT INCLUDES ALL INCOME FROM WHATEV ER SOURCE DERIVED WHICH - (A) IS RECEIVED OR IS DEEMED TO BE RECEIVED IN INDIA IN SUCH YEAR BY OR ON BEHALF OF SUCH PERSON; OR (B) ACCRUES OR ARISES OR IS DEEMED TO ACCRUE OR ARISE TO HIM IN INDIA DURING SUCH YEAR, SUBJECT TO THE PROVISIONS OF THIS ACT. SECTION 9 DEALS WITH THE INCOMES DEEMED TO ACCRUE OR ARISE IN INDIA. SECTION 9(1)(VII) , WHICH IS RELEVANT FOR OUR PURPOSE, PROVIDES THAT INCOME BY WAY OF FEES FOR TECHNICAL SERVICES PAYABLE BY .....(B) A PERSON WHO IS A RESIDENT, EXCEPT WHERE THE FEES ARE PAYABLE IN RESPECT OF SERVICES UTILIZED IN A BUSINESS OR PROFESSION CARRIED ON BY SUCH PERSON OUTSIDE INDIA ETC., SHALL BE DEEMED TO ACCRUE OR ARISE I N INDIA. GOING BY THE MANDATE OF THIS PROVISION, IF ANY PERSON WHO IS RESIDENT OF INDIA PAYS AN INCOME BY WAY OF FEES FOR TECHNICAL SERVICES TO A NON - RESIDENT, SUCH INCOME SHALL BE DEEMED TO ACCRUE OR ARISE TO SUCH NON - RESIDENT SUBJECT TO THE FULFILMENT OF THE OTHER REQUISITE CONDITIONS AS STIPULATED. THE HON'BLE SUPREME COURT HAS HELD IN ASSESSEE'S OWN CASE THAT OFFSHORE SERVICES RENDERED IN CONNECTION WITH THE TURNKEY PROJECT DID NOT FALL WITHIN THE PURVIEW OF SECTION 9(1)(VII) AS THE ENTIRE SERVICES WERE RENDERED OUTSIDE INDIA THOUGH UTILIZED IN INDIA. IT FURTHER HELD THAT SECTION 9(1)(VII) ENVISAGES THE FULFILMENT OF TWO CONDITIONS VIZ. THE SERVICES WHICH ARE THE SOURCE OF INCOME MUST BE UTILIZED IN INDIA AND SUCH SERVICE MUST BE RENDERED IN INDIA. AS THE SERVICES PROVIDED BY THE ASSESSEE WERE UTILIZED IN INDIA BUT NOT RENDERED IN INDIA, THE HON'BLE SUPREME COURT HELD THAT THE AMOUNT WOULD GO OUT OF THE PURVIEW OF SECTION 9(1)(VII) . 5.2. AT THIS JUNCTURE, IT WOULD BE RELEVANT TO NOTE THAT THE FINANCE ACT , 2010 HAS SUBSTITUTED EXPLANATION BELOW SECTION 9(2) WITH RETROSPECTIVE EFFECT FROM 01.06.1976, WHICH RUNS AS UNDER: - 'EXPLANATION. -- FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED THAT FOR THE PURPOSES OF THIS SECTION, INCOME OF A NON - RESIDEN T SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA UNDER CLAUSE (V) OR CLAUSE (VI) OR CLAUSE (VII) OF SUB - SECTION (1) AND SHALL BE INCLUDED IN THE TOTAL INCOME OF THE NON - RESIDENT, WHETHER OR NOT, -- IHI CORPORATION 4 (I) THE NON - RESIDENT HAS A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CONNECTION IN INDIA; OR (II) THE NON - RESIDENT HAS RENDERED SERVICES IN INDIA.' 5.3. BY MEANS OF THIS EXPLANATION, THE INCOME FROM FEES FOR TECHNICAL SERVICES SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA TO A NON - RESIDENT WHETHER OR NOT, INTER ALIA , THE NON - RESIDENT HAS RENDERED SERVICES IN INDIA. THE SUBSTITUTION OF THIS EXPLANATION HAS DILUTED THE TWIN CONDITIONS FORMULATED BY THE HON'BLE SUPREME COURT IN THE ASSESSEE'S OWN CASE, BEING THE RENDERING OF SERVICES AND UTILIZATION OF SUCH SERVICES IN INDIA AS A PRE - REQUISITE FOR THE ATTRACTABILITY OF SECTION 9(1)(VII) . WITH THIS SUBSTITUTION, THE RENDERING OF SERVICES EVEN OUTSIDE INDIA WOULD BE A GOOD CASE FOR BRINGING THE INCOME OF NON - RESIDENT FR OM FEES FOR TECHNICAL SERVICES WITHIN THE PURVIEW OF SECTION 9(1)(VII) IF SUCH SERVICES ARE UTILIZED IN INDIA. ADMITTEDLY, THERE IS NO DISPUTE ON THE FACT THAT THE INSTANT PAYMENT RECEIVED BY THE ASSESS EE IS IN THE NATURE OF FEES FOR TECHNICAL SERVICES AND THE SERVICES WERE RENDERED OUTSIDE INDIA. AS SUCH SERVICES WERE UTILIZED IN INDIA, THE RENDITION OF SUCH SERVICES OUTSIDE INDIA CAN NOW NO MORE BE CLAIMED AS A RELEVANT CRITERIA TO PUSH SUCH INCOME OUT SIDE THE AMBIT OF SECTION 9(1)(VII) . IN VIEW OF THE AMENDMENT TO THE RELEVANT PROVISIONS BY MEANS OF THE SUBSTITUTION OF EXPLANATION TO SECTION 9(2) GOVERNING THE YEAR UNDER CONSIDERATION ALSO, WE ARE OF THE CONSIDERED OPINION THAT THE INCOME FROM OFFSHORE SERVICES RENDERED OUTSIDE INDIA WOULD FALL WITHIN THE DOMAIN OF SECTION 9(1)(VII) OF THE ACT. THIS CONTENTION RAISED ON BEHALF OF THE ASSESSEE IS JETTISONED. (II) POSITION UNDER THE DTAA 6.1. NOW LET US EXAMINE THE POSITION UNDER THE DTAA. ARTICLE 12 ENCOMPASSES THE INCOME FROM ROYALTY AND FEES F OR TECHNICAL SERVICES; AND ARTICLE 7 DISCUSSES THE BUSINESS PROFITS. PARA 1 OF ARTICLE 12 PROVIDES THAT ROYALTY AND FEES FOR TECHNICAL SERVICES ARISIN G IN A CONTRACTING STATE AND PAID TO A RESIDENT OF THE OTHER CONTRACTING STATE MAY BE TAXED IN THAT OTHER CONTRACTING STATE. ARTICLE 12(2) PROVIDES THAT THE FEES FOR TECHNICAL SERVICES MAY ALSO BE TAXED IN THE CONTRACTING STATE IN WHICH THEY ARISE. PARA 4 OF THIS ARTICLE DEFINES THE TERM 'FEES FOR TECHNICAL SERVICES', WHICH IS NOT DISPUTED. PARA 5 OF THIS ARTICLE IS A CENTRE OF CONTROVERSY BETWEEN THE ASSESSEE AND THE REVENUE, WHICH IS REPRODUCED AS UNDE R: - ' ARTICLE 12(5) 5. THE PROVISIONS OF PARAGRAPHS 1 AND 2 SHALL NOT APPLY IF THE BENEFICIAL OWNER OF THE ROYALTIES OR FEES FOR TECHNICAL SERVICES, BEING A RESIDENT OF A CONTRACTING STATE, CARRIES ON BUS INESS IN THE OTHER CONTRACTING STATE IN WHICH THE ROYALTIES OR FEES FOR TECHNICAL SERVICES ARISE, THROUGH A PERMANENT ESTABLISHMENT SITUATED THEREIN, OR PERFORMS IN THAT OTHER CONTRACTING STATE INDEPENDENT PERSONAL SERVICES FROM A FIXED BASE SITUATED THERE IN, AND THE RIGHT, PROPERTY OR CONTRACT IN RESPECT OF WHICH THE ROYALTIES OR FEES FOR TECHNICAL SERVICES ARE PAID IS EFFECTIVELY IHI CORPORATION 5 CONNECTED WITH SUCH PERMANENT ESTABLISHMENT OR FIXED BASE. IN SUCH CASE, THE PROVISIONS OF ARTICLE 7 OR ARTICLE 14 , AS THE CASE MAY BE, SHALL APPLY.' 6.2. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE CASE OF THE ASSESSEE CANNOT BE CONSIDERED UNDER PARA 5 OF ARTICLE 12 BECAUSE THE FEES FOR OFFSHORE SERVICES CANNOT BE CONSIDERED AS 'EFFECTIVELY CONNECTED' WITH THE PERMANENT ESTABLISHMENT. HE SUBMITTED THAT THE WORDS USED HERE ARE `EFFECTIVELY CONNECTED' AND NOT CA SUALLY `CONNECTED'. IT WAS ACCENTUATED THAT UNLESS THE INCOME DIRECTLY RESULTS FROM THE PERMANENT ESTABLISHMENT, IT CANNOT BE CONSTRUED AS EFFECTIVELY CONNECTED TO IT. HIS WHOLE EMPHASIS WAS ON THE DIRECT LINK BETWEEN THE INCOME AND THE PERMANENT ESTABLISH MENT AS A SINE QUA NON FOR THE ESTABLISHMENT OF EFFECTIVE CONTROL. AS THE FEES FOR TECHNICAL SERVICES HAD NO DIRECT AND LIVE LINK WITH THE PERMANENT ESTABLISHMENT IN THE PRESENT CASE, THE LD. DR ARGUED THAT IT SHOULD NOT BE HELD TO BE `EFFECTIVELY CONNECTE D' WITH THE PERMANENT ESTABLISHMENT SO AS TO THROW IT IN THE SCOPE OF ARTICLE 7. 6.3. PER CONTRA, THE LEARNED AR STATED THAT THE OFFSHORE SERVICES WERE RENDERED BECAUSE OF THE COMPOSITE 'CONTRACT', WHOSE REMAINING PARTS ARE EFFECTIVELY CONNECTED WITH THE PERMANENT ESTABLISHMENT IN INDIA. IT WAS SUBMITTED THAT IF THE EFFECTIVE CONNECTION OF THE FEES FOR TECHNICAL SERVICES AND THE PERMANENT ESTABLISHMENT IS ESTABLISHED, THEN THE INCOME GOES BACK TO ARTICLE 7 INSTEAD OF STAYING IN ARTICLE 12. THE LEARNED AR ARGUED THAT THE HON'BLE SUPREME COURT HAS HELD THAT THE INCOME FROM OFFSHORE SERVICES FALLS UNDER AR TICLE 7. IT WAS ALSO SUBMITTED THAT THE NATURE OF CONTRACTS BEFORE THE HON'BLE SUPREME COURT WAS ADMITTEDLY SIMILAR TO THAT UNDER CONSIDERATION, WHICH FACT HAS NOT BEEN CONTROVERTED BY THE ASSESSING OFFICER AS WELL. ONCE INCOME FROM OFFSHORE SERVICES COME S WITHIN THE SCOPE OF ARTICLE 7 , THE SAME CANNOT BE TAXED BECAUSE OF CLAUSE 6 OF PROTOCOL AS PER WHICH THE PROFITS OF THE ENTERPRISE CAN BE TAXED IN THE OTHER STATE ONLY SO MUCH OF THEM AS ARE APPROPRIAT E TO THE PART PLAYED BY THE PERMANENT ESTABLISHMENT IN THESE TRANSACTIONS. SINCE THE PERMANENT ESTABLISHMENT DID NOT PLAY ANY ROLE IN RENDERING SUCH OFFSHORE SERVICES, THE LEARNED AR CONTENDED SUCH INCOME FROM OFFSHORE SERVICES WOULD ESCAPE TAXATION AS HAS BEEN HELD BY THE HON'BLE SUPREME COURT AND FURTHER THE HON'BLE JURISDICTIONAL HIGH COURT IN THE ASSESSEE'S OWN CASES. 6.4. HAVING HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD, THE FIRST QUESTION WHICH ARISES FOR OUR CONSIDERATIO N IS AS TO WHETHER THE ISSUE OF INCOME FROM OFFSHORE SERVICES AS PER THE DTAA HAS BEEN DECIDED OR NOT BY THE HON'BLE SUPREME COURT? THE LEARNED DEPARTMENTAL REPRESENTATIVE VEHEMENTLY ARGUED THAT THERE IS NO DECISION BY THE HON'BLE SUPREME COURT ON THIS ASP ECT. HE PUT FORTH IHI CORPORATION 6 THAT EVEN IF SOME REFERENCE WAS TO BE FOUND TO SUCH ISSUE IN THE JUDGMENT, IT WOULD NOT MEAN THE DECISION OF THE HON'BLE SUPREME COURT BECAUSE OF THERE BEING NO DISCUSSION OF THE ISSUE IN THE BODY OF THE JUDGMENT AS TO WHETHER THE FEES FO R TECHNICAL SERVICES WAS `EFFECTIVELY CONNECTED' WITH THE PERMANENT ESTABLISHMENT. 6.5. IN ORDER TO ANSWER THIS QUESTION, WE FIND IT USEFUL TO REPRODUCE THE JUDGMENT OF THE HON'BLE SUPREME COURT ON THIS ISSUE, WHOSE RELEVANT PART IS AS UNDER: - 'RE : OFFSHO RE SERVICES : (1) SUFFICIENT TERRITORIAL NEXUS BETWEEN THE RENDITION OF SERVICES AND TERRITORIAL LIMITS OF INDIA IS NECESSARY TO MAKE THE INCOME TAXABLE. (2) THE ENTIRE CONTRACT WOULD NOT BE ATTRIBUTABLE TO THE OPERATIONS IN INDIA VIZ. THE PLACE OF EXECUTI ON OF THE CONTRACT, ASSUMING THE OFFSHORE ELEMENTS FORM AN INTEGRAL PART OF THE CONTRACT. (3) SECTION 9(1)(VII) OF THE ACT READ WITH THE MEMO CANNOT BE GIVEN A WIDE MEANING SO AS TO HOLD THAT THE AMENDM ENT WAS ONLY TO INCLUDE THE INCOME OF NON - RESIDENT TAXPAYERS RECEIVED BY THEM OUTSIDE INDIA FROM INDIAN CONCERNS FOR SERVICES RENDERED OUTSIDE INDIA. (4) THE TEST OF RESIDENCE, AS APPLIED IN INTERNATIONAL LAW ALSO, IS THAT OF THE TAXPAYER AND NOT THAT OF THE RECIPIENT OF SUCH SERVICES. (5) FOR SECTION 9(1)(VII) TO BE APPLICABLE, IT IS NECESSARY THAT THE SERVICES NOT ONLY BE UTILIZED WITHIN INDIA, BUT ALSO BE RENDERED IN INDIA OR HAVE SUCH A 'LIVE LINK' WITH INDIA THAT THE ENTIRE INCOME FROM FEES AS ENVISAGED IN ARTICLE 12 OF THE DTAA BECOMES TAXABLE IN INDIA. (6) THE TERMS 'EFFECTIVELY CONNECTED' AND 'ATTRIBUTABLE TO' ARE TO BE CONSTRUED DIFFERENTLY EV EN IF THE OFFSHORE SERVICES AND THE PERMANENT ESTABLISHMENT WERE CONNECTED. M/S.IHI CORPORATION. (7) SECTION 9(1)(VII)(C) OF THE ACT IN THIS CASE WOULD HAVE NO APPLICATION AS THERE IS NOTHING TO SHOW THA T THE INCOME DERIVED BY A NON - RESIDENT COMPANY IRRESPECTIVE OF WHERE RENDERED, WAS UTILIZED IN INDIA. (8) ARTICLE 7 OF THE DTAA IS APPLICABLE IN THIS CASE, AND IT LIMITS THE TAX ON BUSINESS PROFITS TO TH AT ARISING FROM THE OPERATIONS OF THE PERMANENT ESTABLISHMENT. IN THIS CASE, THE ENTIRE SERVICES HAVE BEEN RENDERED OUTSIDE INDIA, AND HAVE NOTHING TO DO WITH THE PERMANENT ESTABLISHMENT, AND CAN THUS NOT BE ATTRIBUTABLE TO THE PERMANENT ESTABLISHMENT AND THEREFORE NOT TAXABLE IN INDIA. (9) APPLYING THE PRINCIPLE OF APPORTIONMENT TO COMPOSITE TRANSACTIONS WHICH HAVE SOME OPERATIONS IN ONE TERRITORY AND SOME IN OTHERS, IS ESSENTIAL TO DETERMINE THE TAXABILITY OF VARIOUS OPERATIONS. (10) THE LOCATION OF THE S OURCE OF INCOME WITHIN INDIA WOULD NOT RENDER SUFFICIENT NEXUS TO TAX THE INCOME FROM THAT SOURCE. (11) IF THE TEST APPLIED BY THE AUTHORITY FOR ADVANCE RULINGS IS TO BE ADOPTED HERE TOO, THEN IT WOULD ELIMINATE THE DIFFERENCE BETWEEN THE IHI CORPORATION 7 CONNECTION BETWEE N INDIAN AND FOREIGN OPERATIONS, AND THE APPORTIONMENT OF INCOME ACCORDINGLY. (12) THE SERVICES ARE INEXTRICABLY LINKED TO THE SUPPLY OF GOODS, AND IT MUST BE CONSIDERED IN THE SAME MANNER.' 6.6. FROM THE ABOVE JUDGMENT IT IS DISCERNIBLE THAT THE HON'BLE S UPREME COURT HAS RENDERED A POSITIVE DECISION ON THIS ASPECT BY HOLDING IN PARA (8) ABOVE THAT ARTICLE 7 OF THE DTAA IS APPLICABLE IN THIS CASE INSOFAR AS THE INCOME FROM OFFSHORE SERVICES IS CONCERNED. IT HAS FURTHER BEEN HELD THAT SINCE THE ENTIRE SERVICES WERE RENDERED OUTSIDE INDIA HAVING NOTHING TO DO WITH THE PERMANENT ESTABLISHMENT, THERE CAN BE NO TAXABILITY OF THIS AMOUNT IN INDIA. FURTHER IN PARA (12) IT HAS BEEN HELD THAT THE OFFSHORE SERVICES ARE INEXTRICABLY LINKED TO THE SUPPLY OF GOODS, SO IT MUST BE CONSIDERED IN THE SAME MANNER. IN VIEW OF THE ENUNCIATION OF LAW BY THE HON'BLE SUPREME C OURT IN ASSESSEE'S OWN CASE, IT BECOMES VIVID THAT THE INCOME FROM IDENTICAL SERVICES RENDERED BY THE ASS ESSEE IN RESPECT OF THE CONTRACT UNDER CONSIDERATION CANNOT BE CHARACTERIZED DIFFERENTLY AS ARGUED ON BEHALF OF THE REVENUE. IT IS FURTHER RELEVANT TO NOTE THAT THE TRIBUNAL IN ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEAR 2003 - 2004 CONSIDERED SIMILAR ISSUE. FOLLOWING THE ABOVE JUDGMENT OF THE HON'BLE SUPREME COURT, IT WAS HELD THAT THE INCOME FROM OFFSHORE SERVICES CANNOT BE TAXED IN TERMS OF SECTION 9(1)(VII) OF THE ACT. THE REVENUE ASSAILED THIS ORDER BE FORE THE HON'BLE JURISDICTIONAL HIGH COURT BY CONTENDING THAT EXPLANATION ADDED BY THE FINANCE ACT , 2010 WITH RETROSPECTIVE EFFECT FROM 1ST JUNE, 1976 HAS CHANGED THE POSITION. THE HON'BLE JURISDICTIONAL HIGH COURT VIDE ITS JUDGMENT IN ITA NO.239 OF 2011 DATED 6TH NOVEMBER, 2012 UPHELD THE TRIBUNAL ORDER BY NOTING THAT THE APEX COURT IN THE ASSESSEE'S OWN CASE HAS HELD THAT APART FROM NON - APPLICABILITY OF SECTION 9(1) IN THE PRESENT CASE, ARTICLE 7 OF THE DTAA IS ALSO APPLICABLE AND HENCE THE INCOME ARISING ON ACCOUNT OF OFFSHORE SERVICES WOULD NOT BE TAXABLE. 6.7. IN VIEW OF THE FOREGOING DISCUSSION I T IS ABUNDANTLY MANIFEST THAT THE HON'BLE SUPREME COURT AS WELL AS THE HON'BLE JURISDICTIONAL HIGH COURT HAVE HELD IN UNEQUIVOCAL TERMS IN THE ASSESSEE'S OWN CASE FOR THE EARLIER YEARS THAT THE INCOME ON ACCOUNT OF OFFSHORE SERVICES IS NOT CHARGEABLE TO TA X AS PER ARTICLE 7 OF THE DTAA. 7. SECTION 90(2) OF THE ACT PROVIDES THAT WHERE THE CENTRAL GOVERNMENT HAS ENTERED INTO AN AGREEMENT WITH THE GOVERNME NT 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 APPLIE S, THE PROVISIONS OF THIS ACT SHALL APPLY TO THE EXTENT THEY ARE MORE BENEFICIAL TO THAT ASSESSEE. THE HON'BLE SUPREME COURT IN CIT VS. P.V.A.L. KULANDAGAN CHETTIAR (2004) 267 ITR 654 (SC) HAS HELD THAT THE PROVISIONS OF SECTIONS 4 AND 5 ARE SUBJECT TO THE IHI CORPORATION 8 CONTRARY PROVISION, IF ANY, IN DTA. THE CRUX OF THE MATTER IS THAT THE PROVISION OF THE ACT OR OF THE DTA, WHICHEVER IS MORE BENEFICIAL TO THE ASSES SEE, SHALL APPLY. 8. WE, THEREFORE, OVERTURN THE IMPUGNED ORDER ON THIS ISSUE BY HOLDING THAT THE INCOME FROM OFFSHORE SERVICES, ALBEIT CHARGEABLE U/S 9(1)(VII) BUT EXEMPT UNDER THE DTAA, CANNOT BE CHARGED TO TAX IN THE LIGHT OF SECTION 90(2) AS DISCUSSED ABOVE. THE IMPUGNED ORDER IS, THEREFORE, SET ASIDE TO THIS EXTENT. 6. CONSISTENT WITH THE VIEW TAKEN BY THE COORDINATE BENCH, WE HOLD THAT INCOME FROM OFFSHORE SUPPLY IS NOT LIABLE TO BE TAXED IN THE HAN DS OF THE ASSESSEE DURING THE YEAR UNDER CONSIDE R ATION . ACCORDINGLY WE SET ASIDE THE ORDER PASSED BY THE ASSESSING OFFICER ON THIS ISSUE. 7. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER HAS BE EN PRONOUNCED IN THE COURT ON 19 . 9 . 20 1 8 . SD/ - SD/ - (RAMLAL NEGI) (B.R.BASKARAN) J U DICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 19 / 9 / 20 1 8 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RES PONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( SENIOR P RIVATE S ECRETARY ) PS ITAT, MUMBAI