The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has delivered a significant ruling in a long-running international tax dispute involving Paul Wurth Italia S.p.A., an Italian tax resident, holding that profits from offshore supply of equipment, drawings and designs could not be attributed to India merely because the assessee undertook supervisory activities in India.
The Tribunal also held that supervisory receipts connected with an admitted supervisory Permanent Establishment (PE) were taxable as business profits under Article 7 of the India-Italy Double Taxation Avoidance Agreement (DTAA) and could not be re-characterised as Fees for Technical Services (FTS).
The decision was pronounced on August 7, 2026, following a hearing on May 11, 2026, and disposed of a consolidated batch of nine appeals relating to Assessment Years 2010-11, 2012-13, 2013-14, 2014-15 and 2015-16.
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Paul Wurth Italia S.p.A. is an Italian company engaged in the supply of plant and equipment, integrated designs and drawings, designs for indigenous equipment and civil works, spare parts and related services for iron-making and blast-furnace projects. It had supplied equipment and designs to several Indian customers, including Tata Steel Ltd., Rashtriya Ispat Nigam Ltd., Bhushan Steel Ltd., Steel Authority of India Ltd., Bhushan Power and Steel Ltd. and JSW Steel Ltd.
The contracts separately dealt with manufacture and delivery of equipment and integrated designs, designs for indigenous equipment, designs for civil works, supervision of erection and commissioning, and technical assistance. The equipment was designed, manufactured and fabricated at the assessee’s facilities outside India, while the assessee contended that title and risk in the equipment, spare parts and designs passed outside India.
The assessee accepted that its supervisory activities in India resulted in a supervisory PE under Article 5(2)(j) of the India-Italy DTAA. It followed the Completed Contract Method for recognising supervisory revenue and offered such income to tax as business profits under Article 7 in the year in which the relevant projects were completed.
The Assessing Officer, however, took a broader view. According to the assessment orders, the assessee had a fixed-place PE in India in addition to the supervisory PE. The AO relied upon the presence of the assessee’s Indian group entity and the Indian customer project sites and concluded that profits from offshore supplies were attributable to an Indian PE.
The AO also treated the separate contractual arrangements for supply of equipment, designs, installation, commissioning and supervision as components of a larger integrated project. For AY 2010-11, the AO considered approximately ₹251.05 crore received from offshore supplies of equipment, spares and drawings/designs for determining the profit attributable to the alleged Indian PE. Applying a weighted average profit margin of 4.9%, the AO determined project profits at about ₹12.42 crore and attributed 50% thereof, or ₹6.21 crore, to the alleged Indian PE.
The Revenue further relied on the so-called force of attraction principle under Article 7 of the India-Italy DTAA to contend that once a PE existed in India, profits from similar business activities could also be brought to tax in India.
The Commissioner (Appeals) partly disagreed with the AO. The CIT(A) held that the Indian entity did not constitute a fixed-place PE and granted relief concerning offshore supply of equipment, designs and spare parts.
However, the CIT(A) rejected the assessee’s position that its supervisory activities constituted a supervisory PE. Having reached that conclusion, the CIT(A) re-characterised supervisory receipts as FTS under Article 13, instead of business profits under Article 7.
In subsequent assessment years, the CIT(A) followed the same approach and additionally treated consideration received for designs relating to indigenous equipment and civil works as royalty/FTS under Article 13 of the DTAA.
This resulted in appeals from both sides: the Revenue challenged the relief granted in relation to offshore supplies, while Paul Wurth Italia challenged the treatment of supervisory receipts and design-related receipts as FTS/royalty.
The Tribunal rejected the Revenue’s principal contention that Paul Wurth Italia had a fixed-place PE in India through its Indian group entity or the premises of its customers.
The Tribunal noted that the Indian entity was a related party and not a subsidiary of the assessee, and there was no evidence establishing that the Indian entity assisted the assessee in securing contracts for offshore sales.
Significantly, the Tribunal also found that the Revenue had not produced evidence showing that the assessee exercised the degree of control over the Tata Steel premises necessary to constitute a fixed-place PE. The Tribunal relied upon the principle that mere presence at a customer’s site does not automatically create a fixed-place PE; there must be sufficient control over the premises.
The Tribunal referred to the Supreme Court’s decision in Formula One World Championship Ltd. v. CIT, observing that a site can constitute a fixed-place PE where there is dominant control over the site. According to the Tribunal, no such evidence was brought on record in the present case.
One of the most important findings was that the existence of a supervisory PE did not automatically make the assessee’s offshore equipment sales taxable in India.
The Tribunal observed that the offshore supply activities were completed outside India and that the supervisory activities constituted a subsequent stage. It found no evidence that the supervisory PE had any role in the offshore supply of equipment, drawings and designs.
The Tribunal specifically noted that the supervisory PE came into existence only after the offshore supplies were completed. Therefore, profits arising from offshore supplies could not simply be attributed to that PE.
The Tribunal also relied upon the Delhi High Court’s decision in DIT v. LG Cable Ltd., where the PE established for onshore services was held to have no role in the execution of the offshore supply contract.
The Revenue argued that Article 7(1) of the India-Italy DTAA incorporated a force-of-attraction principle under which profits from similar sales and business activities in India could be taxed once a PE existed.
The Tribunal rejected the argument in the factual circumstances of the case. It held that the application of Article 7 and the force-of-attraction principle presupposes that the enterprise carries on business in India through a PE situated there.
Since the Tribunal had already concluded that the assessee did not have a fixed-place PE in India, and that the admitted supervisory PE could not be used to attribute profits from offshore supplies, the force-of-attraction argument could not be invoked to tax those offshore profits.
Consequently, the Tribunal upheld the deletion of the ₹6,21,36,765 attributed by the AO to the alleged Indian PE for AY 2010-11 and dismissed the Revenue’s appeal. The same reasoning was applied to the Revenue’s appeals for AYs 2012-13, 2013-14 and 2014-15.
The Tribunal then turned to the assessee’s challenge against the CIT(A)’s treatment of supervisory receipts as FTS.
For AY 2010-11, the assessee had received approximately ₹22.96 crore towards supervision from Tata Steel and RINL. The assessee had maintained that its supervisory activities continued beyond six months and consequently constituted a supervisory PE under Article 5(2)(j) of the India-Italy DTAA.
The Tribunal agreed.
It noted that Article 5(2)(j) of the India-Italy DTAA specifically includes a building site, construction, installation or assembly project or supervisory activities connected with such activities where the relevant project or supervisory activity continues for more than six months.
Since the assessee’s supervisory activities continued for more than six months, the Tribunal held that the supervisory PE existed. Consequently, the supervisory receipts were required to be taxed as business profits under Article 7, rather than as gross-basis FTS under Article 13.
For AY 2010-11, the Tribunal accordingly deleted the CIT(A)’s enhancement concerning supervisory receipts of ₹3.27 crore received from Tata Steel and ₹19.69 crore received from RINL. The assessee’s appeal was allowed on this issue.
The Tribunal subsequently applied the same reasoning to the supervisory revenue involved in the other assessment years. For example, in AY 2012-13, supervisory revenue of approximately ₹44.48 crore was similarly held to be governed by the Tribunal’s decision for AY 2010-11.
Another important issue concerned consideration received for designs for indigenous equipment and civil works.
For AY 2012-13, the CIT(A) had treated approximately ₹26.80 crore received for designs for indigenous equipment and ₹9.66 crore received for civil-work designs as royalty/FTS and subjected the receipts to tax at 10%.
The assessee argued that these were imported designs supplied from outside India and constituted the sale of a product rather than a licence to use intellectual property. The designs were intended for the customer’s own plant and could not be commercially exploited by the customer. The assessee also contended that the designs were integral to the imported equipment and were prepared outside India.
The Tribunal accepted this position.
It referred to the contractual terms under which the designs were supplied for the purpose of completing, operating and maintaining the plant, rather than granting the customer commercial exploitation rights over the underlying intellectual property.
The Tribunal also considered earlier decisions involving similar supplies of designs and drawings, including decisions holding that where designs are supplied as products for use in setting up a customer’s plant, the receipts may constitute business income rather than royalty or FTS.
Following those principles, the Tribunal categorically held that receipts of ₹26,80,49,996 for drawings for indigenous equipment and ₹9,66,08,320 for drawings for civil works did not fall within either royalty or FTS. It therefore reversed the CIT(A)’s order on the issue.
The same finding was applied to corresponding design receipts in the other assessment years.
The Tribunal also considered challenges relating to interest under Sections 234A, 234B and 234C of the Income-tax Act.
For AY 2012-13, relying on the Supreme Court’s decision in DIT v. Mitsubishi Corporation, the Tribunal held that interest under Section 234B could not be charged against the non-resident assessee for the relevant assessment year. The Assessing Officer was consequently directed not to levy Section 234B interest for AY 2012-13.
On Section 234A interest for AY 2014-15, the Tribunal noted the assessee’s submission that its return had been filed on November 29, 2014, before the statutory due date of November 30, 2014. The AO was directed to verify the factual position and, if the claim was correct, not to levy interest under Section 234A.
For AY 2015-16, the Tribunal directed that Section 234B interest be levied in accordance with law and left the Section 234C issue academic in view of its other findings.
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