9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2022 (9) TMI 528 - AT - Income TaxIncome deemed or accrue or arise in India - liaison office as Permanent Establishment ( PE ) of the assessee in India under Article 5 of India and Japan Double Taxation Avoidance Agreement ( DTAA ) - HELD THAT - As per Article 7 of DTAA, profit of foreign enterprise shall be taxable in India only if such enterprise carries on business in India through a permanent establishment situated therein. Article 5 of the DTAA defines the term permanent establishment. Further, as per the provisions of Article 5(6)(e), maintenance of a fixed place of business solely for the purpose of carrying on, for the foreign enterprise, any other activity of a preparatory or auxiliary character shall not be considered as permanent establishment. Nothing has been brought on record to suggest that the RBI has found activities of the liaison office as being non-compliant with the terms and conditions of its permission and, therefore, the said aspect supports the assertion of the assessee that liaison office was performing activities as permitted by the RBI, which were preparatory and auxiliary in nature and not the core business activity independent of the Head Office. Apart from the aforesaid documents impounded during the course of survey action, neither statement of the employees of the liaison office or the agents/customers in India was recorded nor any information under section 133 (6) of the Act was sought by the AO in order to support its conclusion that the liaison office constitutes PE of the assessee in India. Revenue though vehemently submitted that liaison office was negotiating price and doing sales activity in India, however, has not brought any sales agreement in support of the claim. It is highly doubtful that sales transaction of such a large scale can be conducted internationally without any written agreement. Therefore we are of considered opinion that the liaison office in Mumbai does not constitute PE of the assessee in India under the provisions of DTAA. Accordingly, ground no. 1 raised in assessee s appeal is allowed. Levy of interest under section 234B - HELD THAT - In view of decision of Hon ble Supreme Court in DIT v. Mitsubishi Corporation 2021 (9) TMI 875 - SUPREME COURT ground No. 4, raised in assessee s appeal, is allowed.
Issues Involved:
1. Consideration of Liaison Office as Permanent Establishment (PE) under Article 5 of the India-Japan Double Taxation Avoidance Agreement (DTAA). 2. Attribution of profits to the Indian operations of the assessee. 3. Computation of profits attributable to the PE in accordance with Article 7(1) and 7(2) of the India-Japan tax treaty. 4. Levy of interest under section 234B of the Income Tax Act, 1961. Issue-wise Detailed Analysis: 1. Consideration of Liaison Office as Permanent Establishment (PE): The primary issue was whether the liaison office of the assessee in India constituted a PE under Article 5 of the India-Japan DTAA. The assessee argued that the liaison office was engaged only in preparatory and auxiliary activities, thus not constituting a PE. The Assessing Officer (AO), however, concluded that the liaison office was involved in business activities, including sales in India, based on documents and books of account impounded during a survey under section 133A. The learned CIT(A) upheld the AO's findings, leading to an addition of taxable profit. However, the Tribunal, after examining the impounded documents and previous decisions in the assessee's own case, concluded that the liaison office was only providing support services and acting as a communication channel, not engaging in core business activities. Therefore, it was held that the liaison office did not constitute a PE in India. 2. Attribution of Profits to Indian Operations: The assessee contended that only the profits attributable to its Indian operations should be considered taxable in India. Since the Tribunal held that the liaison office did not constitute a PE, this issue became academic and was rendered infructuous. 3. Computation of Profits Attributable to the PE: The AO had treated 10% of the total turnover from India as taxable profit under Rule 10, while the learned CIT(A) reduced this to 4.29%. The Tribunal, having decided that the liaison office did not constitute a PE, rendered this issue academic and dismissed it as infructuous. 4. Levy of Interest under Section 234B: The Tribunal, referring to the Supreme Court's decision in DIT v. Mitsubishi Corporation, allowed the assessee's appeal on this ground, stating that the levy of interest under section 234B was not applicable. Conclusion: The Tribunal partly allowed the appeals by the assessee for the assessment years 2001-02 and 2003-04, holding that the liaison office did not constitute a PE in India. Consequently, the issues regarding the attribution and computation of profits became academic. The appeal concerning the levy of interest under section 234B was allowed in favor of the assessee. Appeals by the Revenue were dismissed as infructuous due to the principal finding that the liaison office was not a PE.
|
