A composite contract for installation & commissioning cannot be split so as to exempt the profits from offshore supply of goods
The Applicant entered into a contract with ONGC for “services for supply, installation and commissioning of 36 manometer gauges”. The applicant claimed that the contract, though composite, had to be split into various components in line with Ishikawajima-Harima Heavy Industries 288 ITR 408 (SC), Hyundai Heavy Industries 291 ITR 482 (SC) & Hyosung Corporation 314 ITR 343 (AAR), and that the income attributable to the supply of manometer gauges was not taxable in India because the title to the goods had passed outside India & the payment was received outside India. HELD by the AAR rejecting the plea:
Though in Ishikawajima-Harima, a two judge bench of the Supreme Court had adopted a dissecting approach by dissecting a composite contract into two parts and holding one of the parts not amenable to taxation in India, this cannot be followed in view of the 3 Judge verdict in Vodafone International Holdings vs. UOI 345 ITR 1 (SC) where it was held that a transaction had to be “looked at and not looked through” and seen as a whole and not by adopting a “dissecting approach”. A contract for sale of goods differs from a contract for installation and commissioning of a project. The tests relevant for considering where the title to the equipment, passed would not be relevant while construing the terms of a supply and erection contract. On facts, the contract is for erection and commissioning of 36 manometer gauges and not one for sale of equipment or erection of the equipment. It is a composite & indivisible contract for supply and erection at sites within the territory of India and cannot be split. The income accrued in India and was assessable u/s 44BB.