Case: Deputy Commissioner of Income Tax, Circle-2(2)(2), International Taxation, New Delhi v. Paul Wurth Italia SPA & connected appeals
Court/Tribunal: Income Tax Appellate Tribunal, Delhi Bench “D”, New Delhi
Assessment Years: 2010-11, 2012-13, 2013-14, 2014-15 and 2015-16
Date of Pronouncement: 07 August 2026
Coram: Shri Vikas Awasthy, Judicial Member and Shri Brajesh Kumar Singh, Accountant Member
Principal Provisions: Sections 9, 28, 234A, 234B and 234C of the Income-tax Act, 1961; Articles 5, 7 and 13 of the India-Italy DTAA.
The Income Tax Appellate Tribunal, Delhi Bench, in a consolidated order concerning Paul Wurth Italia SPA, examined significant international taxation issues involving offshore supply of equipment and designs, existence and scope of a Permanent Establishment, application of the force-of-attraction principle under Article 7 of the India-Italy DTAA, and the characterisation of supervisory receipts and imported designs. The nine connected appeals covered assessment years 2010-11 to 2015-16.
Paul Wurth Italia SPA, an Italian tax resident, was engaged in supplying plant and equipment, integrated designs, designs for indigenous equipment and civil works, spare parts and supervisory services for blast furnace projects undertaken for Indian customers. The assessee maintained that equipment and related offshore designs were manufactured, fabricated and supplied outside India and that title and risk passed outside India. It separately admitted the existence of a supervisory PE in India under Article 5(2)(j) in relation to qualifying supervisory activities.
Offshore Supply of Equipment, Drawings and Designs
The principal dispute raised by the Revenue concerned whether profits arising from offshore supply of equipment, integrated drawings and designs could be attributed to a Permanent Establishment in India. The Assessing Officer had treated Paul Wurth India and the premises of Indian customers as constituting a fixed place PE and attributed 50% of the profits from offshore supplies to India.
The Tribunal rejected this approach. It held that Paul Wurth India did not constitute a fixed place PE of the assessee and that the Revenue had not established the degree of disposal or dominant control necessary to treat the customers’ premises as a fixed place PE. The Tribunal further held that the admitted supervisory PE could not, merely by its existence, be used to attribute profits arising from offshore equipment, drawings and designs supplied outside India.
The Tribunal consequently upheld the CIT(A)’s deletion of the addition representing profits attributed to offshore supplies. In the lead assessment year, the addition of ₹6,21,36,765, taxed by the Assessing Officer as attributable business profits, was deleted and the Revenue’s appeal was dismissed.
Force of Attraction Under Article 7
The Revenue had also relied on the force-of-attraction provisions contained in Article 7(1) of the India-Italy DTAA. The Tribunal observed that application of Article 7 required the relevant business to be carried on through a PE situated in the other Contracting State. Since no fixed place PE was established in relation to the offshore supply activity, the admitted supervisory PE could not be invoked to tax profits arising from offshore equipment and designs supplied outside India. The Revenue’s force-of-attraction argument was therefore rejected on the facts.
Supervisory Services: Business Profits, Not FTS
A separate issue concerned the CIT(A)’s treatment of onshore supervisory receipts as Fees for Technical Services under Article 13. The assessee had acknowledged that its supervisory activities constituted a supervisory PE under Article 5(2)(j), since the relevant activities exceeded the treaty threshold, and had offered the corresponding profits under Article 7 using the completed contract method.
The Tribunal accepted this position. It held that the assessee had a supervisory PE in India and that supervisory fees received in relation to the Indian projects were taxable as business profits under Article 7 rather than as FTS under Article 13. The Tribunal accordingly reversed the CIT(A)’s enhancement treating such receipts as FTS. In the lead year, supervisory fees received from Tata Steel Ltd. and RINL were held taxable under Article 7 as offered by the assessee.
Designs for Indigenous Equipment and Civil Works
The Tribunal also considered whether receipts from imported designs and drawings relating to indigenous equipment and civil works could be taxed as royalty or FTS.
Following judicial precedents concerning the distinction between exploitation of intellectual property and sale of a copyrighted article/product, the Tribunal held that the receipts from such designs did not fall within the scope of either royalty or FTS. The receipts were characterised as business income. In the relevant assessment year, receipts of ₹26,80,49,996 for drawings relating to indigenous equipment and ₹9,66,08,320 for civil-work drawings were held outside the scope of royalty and FTS, and the CIT(A)’s contrary finding was reversed.
The same legal conclusion was applied to corresponding design-and-drawing issues arising in the subsequent assessment years.
Interest and Consequential Issues
For assessment year 2014-15, the Tribunal directed the Assessing Officer to verify the assessee’s contention that its return had been filed before the statutory due date and, if verified, not to levy interest under Section 234A. Certain TDS-credit issues were also restored to the Assessing Officer for verification.
For assessment year 2015-16, interest under Section 234B was directed to be levied in accordance with law, while the Section 234C issue was treated as academic in view of the Tribunal’s substantive findings.
Key Legal Principle
The ruling distinguishes an admitted supervisory PE from a fixed place PE connected with offshore sales. The existence of a supervisory PE in India does not automatically permit attribution of profits from equipment and designs manufactured and supplied outside India where that PE is not involved in the offshore supply activity. At the same time, supervisory services satisfying Article 5(2)(j) are effectively connected with the supervisory PE and are taxable as business profits under Article 7 rather than as gross-basis FTS under Article 13.
Verdict
The Revenue’s appeals for assessment years 2010-11, 2012-13, 2013-14 and 2014-15 were dismissed. Paul Wurth Italia SPA’s appeal for assessment year 2010-11 was allowed; its appeals for assessment years 2012-13, 2013-14 and 2015-16 were partly allowed; and its appeal for assessment year 2014-15 was allowed.
The decision therefore grants substantial relief to the assessee on offshore supplies, supervisory-fee characterisation and imported designs, while leaving certain consequential interest and TDS matters for verification.