2011 (3) TMI 1348 - AT - Income Tax

Non-resident person purchasing goods in India- Through Liasion Office-Taxability of purchases- Held that -A non-resident will not be liable to tax in India on any income attributable to operations confined to purchase of goods in India for export, even though the non-resident has an office or an agency in India for this purpose. Liasion Office carrying on the activities which are basic and preliminary requirement of the purchasing process/operation cannot be considered as a permanent establishment in India and no profits can be attributed to the permanent establishment as no profit accrued or arises in India. Decided in favor of the assessee.

Summary

Issues:
1. Whether the assessee's liaison office can be considered a permanent establishment in India.

Analysis:
The Appellate Tribunal ITAT Mumbai heard appeals by the Revenue against the orders of the Commissioner of Income Tax (Appeals). The central issue in both appeals was whether the assessee's liaison office could be deemed a permanent establishment in India. The Tribunal considered the arguments presented by both sides. The assessee's counsel relied on a previous decision by the ITAT Mumbai Bench in the assessee's case for assessment years 1999-2000 to 2003-04. The Tribunal noted that the activities of the liaison office, involving assorting diamonds and price negotiation, were part of the purchasing process and did not result in any physical or qualitative change to the goods purchased. These activities were considered essential and preliminary to the purchasing operation for export. The Tribunal referred to relevant circulars to support its decision.

The Tribunal highlighted that the case fell under the clause of the Income Tax Act regarding non-residents purchasing goods in India for export, where no tax liability arises on income attributable to such operations. The circulars clarified that the mere existence of an agency in India for purchasing goods for export does not automatically create tax liability for the non-resident. The Tribunal emphasized the need for a business connection in India to attribute profits to operations carried out in the country. The Tribunal found that the facts of the current cases were similar to previous years, and no new information indicated a change in the previous decision. As the Departmental Representative did not present any contradictory decisions, the Tribunal upheld the orders of the Commissioner of Income Tax (Appeals) for both years and dismissed the revenue's appeals.

In conclusion, the Appellate Tribunal ITAT Mumbai ruled that the assessee's liaison office could not be considered a permanent establishment in India for tax purposes based on the activities performed, which were essential to the purchasing process for export. The Tribunal's decision aligned with previous judgments and relevant provisions of the Income Tax Act and circulars.