L. G. Cable Ltd vs. DDIT (6.2 MB) (ITAT Delhi)

Where the assessee, a Korean company, had entered into two contracts, one for on-shore execution of a fiber optic system and the other for offshore supply and services and it had a project office in India and the question arose whether any part of the profits from offshore supply was taxable in India, HELD:

(1) The primary question is whether the provisions of the Act are applicable or not. If there is no liability under the Act, the question of considering the applicability of the DTAA cannot arise. A DTAA can never create a liability if there is none under the Act;

(2) The fact that the assessee had undertaken to erect and commission the equipment in India (for separate consideration) did not mean that the profits from the off-shore supply became taxable. Under Expl. 1 to s. 9 (1) (1), profits that are not attributable to activities carried out in India are not chargeable to tax in India;

(3) In accordance with s. 23 of the Sale of Goods Act, title to goods passed outside India as soon as the equipment was loaded on the ship and the Bill of Lading was handed over to the bank issued the Letter of Credit;

(4) The fact that under the erection agreement the assessee had on-shore obligations towards completion of the fiber optic project did not mean that title to the off-shore equipment passed only after the completion of such obligations. The off-shore transfer of title to the buyer was complete and unequivocal and all that the assessee retained, in the event of non-payment of the price by the purchaser was the rights of an unpaid seller u/s 46 of the Sale of Goods Act;

(5) The fact that the assessee had to test and commission the equipment and undertake warranty obligations and that there were other clauses in the contract to protect the buyer’s interest did not have affect the fact that transfer of title took place outside India.