Off-shore supply of equipment and design and drawings not taxable in India

Recently the Kolkata bench of the Income-tax Appellate Tribunal (Tribunal), in the case of a German entity, held that income earned from off-shore supply of equipment and from sale of designs and drawings was not subject to tax in India.

The Tribunal reached this conclusion on the basis that since the title of equipment was transferred outside India, and no service was provided in India on account of supply of equipment, no income could be taxed in India as per both, the Income-tax Act, 1961 as well as the Double Taxation Avoidance Agreement between India and Germany. The Tribunal also held that the designs and drawings were supplied by way of outright sale. Furthermore, the designs and drawings were used for internal business purposes of the taxpayer's Indian customers, and not for commercial exploitation. Hence, income earned by the taxpayer from supply of designs and drawings did not constitute royalty, and was thus not taxable in India.