ITAT Delhi Deletes ₹99.50 Crore Addition Against Baker Hughes, Finds No Permanent Establishment In India

On 27 May, the New Delhi Bench of the Income Tax Appellate Tribunal (ITAT) held that Section 44BB of the Income Tax Act could not be invoked to tax offshore supply receipts in the absence of a Permanent Establishment (PE) in India and deleted an addition of Rs.99.50 crore made against Baker Hughes Energy Technology UK Ltd.

Judicial Member Vikas Awasthy and Accountant Member Renu Jauhri observed:

“The burden of establishing existence of a PE rests upon the Revenue. Not a single piece of evidence has been brought on record by the Assessing Officer to establish that the assessee had any kind of PE in India in the year under consideration.”

The taxpayer, a UK-based company, had entered into a consortium arrangement with ONGC for offshore supply of Subsea Production System (SPS) components. It filed its return declaring income of Rs. 3.22 crore.

The Assessing Officer held that the taxpayer had a fixed place PE in India through its project office and also a deemed PE under Article 5 of the India-UK DTAA. On that basis, the AO invoked Section 44BB and brought Rs. 99.50 crore to tax.

Before the Tribunal, the taxpayer argued that the issue stood covered by orders passed in its own case for AYs 2020-21 and 2021-22, where the Tribunal had held that no PE existed in India and offshore supply receipts were not taxable under Section 44BB.

The Tribunal noted that the Dispute Resolution Panel had itself recorded that the factual matrix for the year under consideration remained identical to the earlier assessment years.

Referring to its earlier decisions, the Bench observed that the taxpayer's role under the ONGC contract was confined to manufacturing and offshore supply of SPS components, while project management, engineering, fabrication, transportation, testing, installation and other onshore activities were carried out by other consortium members.

The Bench further noted that the Revenue attempted to portray the facts differently from earlier years without placing any fresh material on record. Relying on its orders for AYs 2020-21 and 2021-22 and the decision of the Supreme Court in ADIT v. E-Funds IT Solution Inc., the Tribunal reiterated that the burden to establish the existence of a PE lies on the Revenue.

Accordingly, the ITAT held that since the taxpayer did not have a PE in India, Section 44BB could not be invoked to tax receipts from offshore supply of goods and directed deletion of the addition of Rs. 99.50 crore.

For Assessee: Shri Ravi Sharma, Advocate; Shri Kshitij Bansal, CA; and Ms. Supriya Mehta, CA

For Revenue: Shri Rohit Garg, CIT-DR