ISHIBKAWAJIMA HARIMA HEAVY INDUSTRIES CO LTD Vs. STATE

JUDGEMENT

(1.) SYED Shah Mohammed Quadri, J. (Chairman) 1. This application, under section 245Q(1) of the Income-tax Act, 1961 (for short "the Act"), is by a nonresident company, incorporated in and a tax resident of Japan. The applicant along with five other enterprises formed a consortium which was awarded by Petronet LNG Limited (for short "Petronet"), a contract of turnkey project for setting up a liquefied natural gas (LNG) receiving, storage and regasification facility at Dahej, Gujarat. The contract specified the role and responsibility of each member of the consortium and the consideration to be paid separately for the respective work of each member. The project work which fell to the share of the applicant involves to develop, design, engineer, procure equipment materials and supplies ; to erect, construct storage tanks of a 5 MMTPA opacity with potential expansion to a 10 MMTPA capacity at the specified temperatures (-200 degrees celsius) including marine facilities (jetty and island break water) for transmission and supply of the LNG to purchasers ; to test and commission the facilities relating to receipt and unloading, storage and regasification of LNG and to send out regasified LNG by means of a turnkey fixed lump-sum price time certain engineering procurement, construction and commission contract. The project is required to be completed in 41 months. The description of the work allotted to the applicant is categorised thus : (1) offshore supply, (2) offshore services, (3) onshore supply, (4) onshore services ; and (5) construction and erection. The price is payable for offshore supply and offshore services [(1) and (2)] in US dollars, for onshore supply (3) in Indian rupees and for two items [(4) and (5)], namely, onshore services and construction and erection partly in US dollars and partly in Indian rupees. The price of offshore supply of equipment and material (including cost of engineering, if any, involved in the manufacture of such equipment and material), supplied from outside India on CFR basis, was received by the applicant by credit to its bank account in Tokyo and the property in the goods passed to Petronet on high seas outside India (exhibit D 2.1). Though the applicant unloaded the goods, cleared them from Customs and transported them to the site, it was for and on behalf of Petronet and the expenditure including customs duty was reimbursed to it. The price of offshore services for design and engineering including detail engineering in relation to supplies, services and construction and erection and the cost of any other services to be rendered from outside India, was also paid in US dollars in Tokyo. The Government of the Republic of India concluded a Convention with the Government of Japan for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to taxes on income which was notified on March 1, 1990 (hereinafter referred to as "Treaty"), was given effect to from December 29, 1989. On these facts, the applicant proposed the following five questions for pronouncement of rulings by the Authority : 1. On the facts and circumstances of the case, whether the amounts received/receivable by the applicant from Petronet LNG for offshore supply of equipment, materials, etc., are liable to tax in India under the provisions of the Act and India-Japan tax Treaty ?

(2.) If the answer to (1) is in the affirmative, in view of Explanation (a) to section 9(1)(i) of the Act and/or article 7(1) read together with the protocol of the India-Japan tax Treaty, to what extent are the amounts reasonably attributable to the operations carried out in India and accordingly taxable in India ?

(3.) IF the answer to (3) above is in the affirmative, to what extent would the amounts received/receivable for such services be chargeable to tax in India under the Act and/or the India-Japan tax Treaty ?