2006 (10) TMI 103 - AAR - Income Tax

Applicant, a non-resident company is proposing to set up a liaison office in India to purchase of goods for the purpose of export - Looking to the nature of the proposed activities to be carried on by and the nature of the powers of the liaison office which is proposed to be set up in India by the applicant, a non-resident company, it cannot be held to have earned any income taxable in India under the provisions of the Income-tax Act, 1961.

Summary

Issues:
1. Whether the applicant, a non-resident company, can be held to have earned any income taxable in India based on the proposed activities of the liaison office to be set up in India.

Analysis:
The judgment pertains to an application under Section 245Q(1) of the Income Tax Act, 1961, where a non-resident company from Hong Kong, M/s Angel Garments Ltd., sought an advance ruling regarding the taxability of income in India from the proposed activities of its liaison office in India. The applicant intended to establish a liaison office in India to engage in activities such as collecting information, coordinating with Indian exporters, and facilitating the export of goods to its head office in Hong Kong. The applicant clarified that the liaison office would not conduct commercial activities, earn income in India, or enter into contracts to generate revenue within India.

The jurisdictional Commissioner acknowledged that there is no Double Taxation Avoidance Agreement (DTAA) with Hong Kong and agreed that the activities described by the applicant may not result in taxable income in India. The applicant's representative argued that the case falls under clause (b) of explanation 1 to Section 9(1)(i) of the Act, emphasizing that no taxable income accrues to the applicant in India. The Commissioner's representative concurred with this position, stating that the proposed liaison office activities would not create a tax liability for the applicant in India.

The ruling considered clause (b) of explanation 1 to Section 9(1)(i) of the Act, which exempts non-residents from income deemed to accrue or arise in India through operations limited to purchasing goods in India for export purposes. As the proposed activities of the liaison office were solely focused on purchasing goods for export, the judgment concluded that the applicant, being a non-resident company, would not have earned any taxable income in India under the provisions of the Income Tax Act, 1961. The ruling was pronounced on October 30, 2006, by the Authority for Advance Rulings, comprising Hon'ble Mr. Justice Syed Shah Mohammed Quadri, Mr. A.S. Narang, and Mr. A. Sinha.