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In [2021] 432 ITR 338 (AAR) the assessee had set up a project office in India to set up a plant for an Indian client. Further on the assessee declared in the return the revenue received from services rendered in India as fees for technical service or royalty. Later it applied to AAR to gain an understanding of the taxation of lump-sum turnkey contracts incomes.
As regards the question on sourcing of supply of equipment the AAR held that there was no role of the permanent establishment ( project office) in the offshore supply part of the contract. Hence it held that no income arising in the hands of the assessee from the offshore supply of equipment and materials was chargeable to tax in India, under the Income-tax Act, 1961, as the sale was completed outside India and there was no accrual or deemed accrual in India.
The AAR further held that the consideration paid to the assessee in respect of “basic engineering” and “detailed engineering” services, designing, construction, erection, installation, commissioning, and testing of the plant had accrued in India and were inextricably connected with the setting up of the plant and were rendered through this permanent establishment hence chargeable under 9(1)( i) instead of section 9(1)(Vi/vii).
The AAR did not find any need to examine whether or not they were also covered under article 13 of the DTAA for the composite nature of contract where the same had to be read as a whole and the purpose of contract had to be ascertained from the terms of the contract.

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