Business profits of a foreign company cannot be taxed unless there exists a PE.
Baker Hughes Energy Technologies UK Ltd. Versus ACIT
Case No.: ITA No.521/Del./2023
- The appellant/assessee is a company incorporated in and a tax resident of the United Kingdom (UK). It is a part of the Baker Hughes Group of companies. In this case, the return of income for AY 2020–21 was e-filed on March 31, 2021, declaring a total income of Rs. 83,91,03,650/-, and later on a revised return of income was filed at Rs. 2,35,640.
- The assessee, along with four other consortium members, was awarded a contract by ONGC. It was contended before the AO that under the contract, the assessee was required to manufacture and supply subsea production system components. AO treated it as a composite contract.
- The assessee contended that the offshore manufacture and supply of equipment and parts to ONGC is not taxable in India since neither the assessee had a permanent establishment (PE) in India nor could the provisions of Section 44BB be applied to the sale of equipment made from outside India.
- The AO held that the “consortium member is working on behalf of the assessee company, which forms the PE of the assessee company.” The AO held that the assessee was also involved in the survey, installation, and commissioning of the equipment in India, and since the payments were not bifurcated, the entire receipt of the assessee was taxable in India under Section 44BB.
Note: Section 44BB of the Income Tax Act deals with the Income of a foreign company engaged in the business of civil construction or the business of erection of plant or machinery or testing or commissioning in connection with turnkey power projects shall be computed on a presumptive basis.
ITAT Delhi held as under:
- The AO has not mentioned as to which consortium member constitutes the PE of the assessed in India.
- As referred in the Hon. SC judgement of E- Funds (2018) 13 SCC 294, the burden of proving the existence of PE lies on the revenue, which has not been discharged.
- It is a settled proposition that unless Revenue is able to prove that the assessee has a PE in India, its business profits cannot be subject to tax in India.
The copy of the order is attached herewith as under: