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Recently, the Delhi High Court in the case of Linde AG, Linde Engineering Division and Anr. (the taxpayer) dealt with issues relating to the taxability of offshore and onshore supply and services under the composite contract and consortium vis-a-vis Association of Person. The High Court held that the consortium between the taxpayer and Samsung was not forming an AOP. Further, the contract between them was divisible.
Offshore supply was not taxable in India since the property was transferred outside India and the contract was not providing business connection in India.
In relation to the taxability of offshore services under the Income-tax Act, 1961, it was held that if such services linked with the manufacture and fabrication of the material and equipment to be supplied overseas and form an integral part of the said supplies then such services would not be taxable in India.
Further under the India-Germany tax treaty if taxpayer had a Permanent Establishment (PE) in India at the time when offshore services were being rendered by it which were attributable to the PE, the same would be considered as business profits and taxed accordingly.
Accordingly, the matter was remanded back to the AAR to deal with this issues afresh.