ITAT rules that profits from offshore supply contracts are not taxable in India when title, payment, and supply operations occur entirely outside India under section 5(2) and 9(1)(i) of the Income Tax Act.
ITAT Disallows Tax on Offshore Supply Profits for Toyota Tsusho
The Income Tax Appellate Tribunal (ITAT) has ruled that profits arising from offshore supply transactions by Toyota Tsusho Corporation are not taxable in India, where ownership (title), consideration, and performance of supply all occurred outside Indian territory.
The tribunal relied on a strict interpretation of section 9(1)(i) of the Income Tax Act, 1961, which taxes only such income that accrues or arises in India. The ITAT found that the contractual risk, delivery, and invoicing were executed abroad, with no part of the operations conducted within India. Therefore, the income could not be characterized as having Indian source.
"Where title passes, payment is made, and performance takes place outside India, the income cannot be said to arise in India."
This decision reinforces the principle that mere destination of goods in India, without nexus to Indian operations or economic activity, does not confer Indian taxability. The ruling supports taxpayers in structuring cross-border supply arrangements with clear segregation of contractual elements outside India.
Citations
- Income Tax Act, 1961, s. 5(2), s. 9(1)(i)
