Offshore supplies are tax free

The issue of taxability of 'offshore supply price' was settled by the Apex Court in the case of Ishikawa [288 ITR 408] wherein it was held that 'the entire transaction having been completed on the high seas, the profit on sale did not arise in India'. The Apex Court also observed that 'once the transaction relating of offshore supplies is excluded from the scope of taxation under the IT Act, the application of double taxation treaty would not arise.'The Hon'ble Court also held that 'where different severable parts of the composite contract are performed in different places, the principle of apportionment can be applied, to determine which fiscal jurisdiction can tax that particular part of the transaction. This principle helps determine, where the territorial jurisdiction of a particular State lies, to determine its capacity to tax an event.'

Source: Business Standard