GE Hydro France v. Dy. CIT (IT) (2024)

⚙️ GE Hydro France v. Dy. CIT (IT) – Delhi ITAT on Offshore Supply, Absence of Permanent Establishment & Inapplicability of Section 44BBB under India–France DTAA (2024)

📌 Background

In cross-border infrastructure and engineering projects, foreign contractors often face disputes regarding taxation of offshore supplies and the applicability of Section 44BBB of the Income-tax Act, 1961—a special provision for taxation of profits and gains of foreign companies engaged in the business of civil construction related to turnkey power projects.

The Delhi ITAT, in GE Hydro France v. Dy. CIT (IT) [(2024) 116 ITR 42 (SN) (Delhi)(Trib)], reaffirmed its earlier stance that offshore supply of equipment executed outside India cannot be taxed in India in the absence of a Permanent Establishment (PE). The Tribunal ruled that Section 44BBB does not automatically apply to such contracts unless the income is deemed to accrue or arise in India under Section 9(1)(i) and the foreign enterprise has a business connection or PE in India.

The Tribunal, following its earlier decision for the assessee in preceding years, held that there was no fixed place or dependent agent PE, and hence, the addition under Section 44BBB and interest under Section 234B were unjustified.

📂 Facts of the Case

• Assessee: GE Hydro France, a company incorporated in France, engaged in the manufacture and supply of hydropower equipment and services.
• Assessment Year: 2020–21.
• Nature of Contract:
  • The assessee entered into a composite contract with an Indian power utility for the supply of hydropower generation equipment.
  • The contract had two distinct components:
    1. Offshore supply of equipment and materials from France; and
    2. Onshore services and installation, executed by GE’s Indian affiliates.
  • The offshore supplies were delivered outside India, and title and risk transferred at the port of shipment.
• Revenue’s Allegations:
  • The Assessing Officer (AO) alleged that the contract was artificially split to evade taxes.
  • It was argued that Section 44BBB applied since the project related to civil construction of a turnkey power project, and that GE Hydro France had a business connection and PE in India.
  • The AO attributed profits on offshore supplies to India and levied interest under Section 234B.

The assessee appealed before the CIT(A), which upheld the AO’s view. The matter then reached the ITAT, Delhi.

❓ Core Issue

Whether the income from offshore supply of hydropower equipment by GE Hydro France, a non-resident, could be taxed in India under Section 9(1)(i) and Section 44BBB, and whether there existed any Permanent Establishment (PE) under Article 5 of the India–France DTAA.

📑 Assessee’s Submissions

1. Offshore Supply Executed Outside India:
   • The entire supply of equipment was made from France; title and risk passed outside India.
   • Payments were received abroad, and no part of the transaction occurred within India.
2. No Fixed Place or Construction PE:
   • The assessee did not maintain any office, factory, or site in India.
   • All installation activities were undertaken by a separate Indian affiliate under independent contracts.
3. Independent Agent Relationship:
   • The Indian affiliate was an independent contractor, not a dependent agent PE (DAPE).
   • It acted in its own name, bore its own risks, and was remunerated at arm’s length.
4. Section 44BBB Inapplicable:
   • Section 44BBB applies only to foreign companies engaged in civil construction or erection in India related to turnkey power projects.
   • The assessee was only supplying equipment, not performing civil construction in India.
5. No Artificial Contract Splitting:
   • The offshore and onshore components were separately priced, with distinct scope of work and contractual obligations.
   • The contract structure was commercially justified and not designed to obtain a tax advantage.
6. DTAA Protection:
   • Under Article 7 of the India–France DTAA, only profits attributable to a PE are taxable in India.
   • Since no PE existed, offshore supply income was outside India’s taxing rights.

📑 Revenue’s Submissions

1. Artificial Split of Contract:
   • The Revenue alleged that the contract was artificially divided into offshore and onshore parts to minimize tax exposure in India.
   • The entire contract should be treated as a single, indivisible project, taxable under Section 44BBB.
2. Business Connection and PE:
   • It was claimed that the assessee had a business connection in India through its affiliates performing local services.
   • The affiliates acted as dependent agents, thereby creating a PE.
3. Section 44BBB Automatically Applicable:
   • Since the contract related to a turnkey power project, the AO argued that Section 44BBB automatically applied to compute profits at 10% of gross receipts.
4. Levy of Interest:
   • Interest under Section 234B was levied for non-payment of advance tax on income deemed to accrue in India.

⚖️ Tribunal’s Findings & Legal Reasoning

1. Offshore Supply Income Not Taxable in India

• The ITAT found that all elements of the offshore supply contract—supply, transfer of title, and payment—occurred outside India.
• Relying on Ishikawajima-Harima Heavy Industries Ltd. v. DIT (2007) 288 ITR 408 (SC), the Tribunal held that no income accrues or arises in India when:
  • The sale is completed offshore, and
  • No part of the transaction takes place in India.

💬 “The contract is not artificially split for gaining any tax advantage… there is no business connection of the assessee in India.”

2. No Fixed Place or Construction PE

• The Tribunal observed that the assessee had no fixed place of business in India and did not carry out construction or supervisory activities beyond the threshold period under Article 5(3) of the India–France DTAA.
• Accordingly, there was no Construction PE or Fixed Place PE.

⚖️ “There did not exist a fixed place permanent establishment or construction permanent establishment of the assessee in India.”

3. Independent Indian Affiliate – No DAPE

• The Indian affiliate (GE India) was an independent contractor, performing local tasks at arm’s length remuneration.
• The Revenue failed to show that the affiliate habitually concluded contracts or acted under direct control of the assessee.
• Hence, no Dependent Agent PE (DAPE) was established.

4. Section 44BBB Not Applicable

• The Tribunal categorically held that Section 44BBB per se could not be invoked because:
  • The assessee was not engaged in construction or erection in India; and
  • The contract pertained to offshore supply of equipment, not turnkey project execution.
• The Revenue could not demonstrate any civil construction activity performed by the assessee in India.

5. Interest under Section 234B

• The ITAT held that interest under Section 234B was consequential in nature.
• Since the primary addition was deleted, there was no basis for levy of interest.

6. Consistency with Prior Year Orders

• The Tribunal followed its own decision in the assessee’s earlier assessment years, where identical issues were decided in favour of the assessee.
• The Revenue could not show any change in facts or law.

🏁 Held

The Delhi ITAT held that:

✅ Section 44BBB did not apply to the assessee’s offshore supply contract.
✅ The contract was not artificially split to evade taxes.
✅ There was no business connection or Permanent Establishment (fixed place, construction, or dependent agent) in India.
✅ Accordingly, additions made under Section 44BBB were deleted.
✅ Interest under Section 234B was consequential and thus not leviable.

✅ Practical Implications for Multinational Enterprises

• Offshore supply immunity: Offshore equipment supply is not taxable if title and risk pass outside India.
• Section 44BBB limits: The section applies only where foreign entities undertake civil construction or erection in India, not mere supply.
• Contract structuring: Legitimate segregation of offshore and onshore components is permissible and not “artificial splitting.”
• PE analysis critical: Absence of fixed place or dependent agent PE shields foreign entities from Indian tax liability.

🔑 Key Takeaways

1. Section 44BBB not automatic: It applies only to actual onshore construction or erection activity.
2. DTAA protection prevails: Offshore supplies unconnected with a PE remain outside India’s taxing rights.
3. Independent affiliates ≠ PE: Indian subsidiaries or affiliates acting independently do not create a DAPE.
4. Interest under Section 234B: Not applicable when the primary tax addition is invalid.

📢 Why This Case Matters

The GE Hydro France (2024) ruling is a significant reaffirmation of India’s commitment to OECD-aligned PE principles and fair taxation of cross-border projects. It provides clear guidance that offshore supply transactions, when structured commercially and executed outside India, cannot be artificially taxed under Section 44BBB or attributed to a PE.

For foreign EPC contractors and engineering companies, this judgment ensures legal certainty in structuring contracts involving offshore supply and onshore services, reinforcing the importance of clear contractual demarcation and DTAA protection.

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