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TMI Blog2010 (3) TMI 118X X X X Extracts X X X X X X X X Extracts X X X X ..... s are non-residents other than the applicant, the applicant is liable to pay tax in India on the amount received by it for the support services rendered through the branch office in India. The question is thus answered partly in affirmative and partly in negative. - 825 OF 2009 - - - Dated:- 12-3-2010 - Mr. Justice P.V. Reddi and Mr. J. Khosla, JJ. Present for the Applicant: Mr. N. Venkataraman, Mr. Achin Goel, Mr. Akhil Sanbhar, Mr. Gaurav Singhal, Mr. Gaurav Gupta. Present for the Department: Mr. Ashish Kumar. RULING : This application is filed under Section 245Q(1) of the Income Tax Act by Aramco Overseas Company B.V. (hereinafter referred to as the 'applicant' or AOC). It is a Company incorporated under the laws of the Netherlands in 1989. It is stated to be a tax-resident of the Netherlands. 2. The following facts are stated in the application: AOC is a subsidiary of the Saudi Arabian Oil Company (Saudi Aramco). It operates through it offices in Europe, Asia, Australia and Africa to render services in relation to supply chain management, technical support, finance support and administrative support to Saudi Aram Co and its group companies. In consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in India, or through the transfer of capital asset situate in India. Explanation 1 - For the purposes of this clause - (a) in the case of a business of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India; (b) in the case of a non-resident, no income shall be deemed to accrue or arise in India to him through or from operations which are confined to the purchase of goods in India for the purpose of export;" Section 5(2) may also be noted: Section 5: Scope of total income (1) xx xx xx xx xx xx xx xx (2) Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which - (a) is received or is deemed to be received in India in such year by or on behalf of such person ; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year. Explanation 1: Income accruing or arising outside India shall not be deemed to be received in India within the meaning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice extend not only to the purchases by Saudi AramCo but also by other undisclosed group companies. 6.1 We may also point out at this stage that the applicant has not filed any documents evidencing a typical transaction with details such as the placement of purchase order, the Indian supplier and the consignee abroad, the payment received by the Indian supplier and the source and modality of payment, the documents showing the realization of cost plus mark-up and above all the exact manner in which the applicant's Indian office dealt with the Indian supplier and its head office or some other affiliates. 7. There is one more aspect which we would like to point out. The Revenue has stated in its comments dated 9th October, 2009 that the applicant has not enclosed the agreement with Saudi AramCo under which it is authorized to provide the services. The applicant then filed a copy of the Service Agreement between "AramCo Overseas Co. (the applicant) and the Indian branch office located in Gurgaon. This agreement has not been referred to in the main application. Moreover, we do not find the date of the agreement in that document. We are, therefore, not inclined to refer to or rely on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Explanation 1 for the reasons to follow. 8.2 The legislative background in which cl.(b) of Explanation 1 to Section 9(1)(i) was enacted and the object of that provision was discussed by this Authority in the case of Mustaq Ahmed [307 ITR 401]. The following extracts from the said ruling throw light on this aspect: "Section 9(1)(i) of the present Act broadly corresponds to section 42(1) of the old Act without its provisos. Clause (a) of Explanation 1 to section 9(1)(i) is similar to section 42(3) of the old Act. A provision similar to clause (b) of Explanation 1 with which we are more concerned was not there in the old Act. There were decisions to the effect that even if the operations in British India were confined to purchase of goods, a portion of the profits can be reasonably attributed to such acts of purchase under section 42(3). In the case of Anglo-French Textile Co.Ltd. vs. CIT (No.2) [1953] 23 ITR 101 decided by the Supreme Court, two questions arose (page 106): "(i) Is mere purchase of raw material an 'operation' within the meaning of section 42(3) of the Act? (ii) Can any profit arise out of mere purchase of raw material?" The raw materials were purchased i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d every person who in someway or the other facilitates purchases by a non-resident for the purpose of export cannot be brought within the ambit of cl.(b) of Expl.1. The whole object of cl.(b) is to ensure that no attribution of income shall be made to the purchase operations if a non-resident makes such purchases for the purpose of ex port. The non-resident may effect purchases directly or through the media of an authorized representative such as an agent. 9.1 The applicant contends that the mere fact that the purchasing Company does not undertake the operations relating to purchases directly, but through a 'buying agent' cannot result in denial of benefit under cl.(b) of Expl.1 This contention begs the question whether the applicant can be regarded as buying agent of Saudi AramCo. and its group Companies. The answer to that question depends on many facts and factors. For instance, what is the Agreement between the applicant and Saudi AramCo. its affiliates? Did the applicant come face to face with those purchasing entities and communicate with them from time to time? Did the so-called agent (the applicant or its Indian branch) act according to instructions or the guidelines sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had to be raised. Every invoice made by the Indian supplier contained a reference to the assessee as the agent of affiliate and the goods were shipped at the price agreed to by the assessee subject to its approval and instructions. The Tribunal found on a consideration of the evidence on record that the assessee acted as an agent of various affiliates. It is pertinent to note that the assessee received commission from its affiliates on the basis of quantum of purchase made (vide paragraph 12 of the order). It is apparent that the facts of the case on hand stands on a different footing. The ratio of that decision cannot be pressed into service to support the contention of the applicant. As stated earlier, the applicant is neither a purchaser nor is there evidence to show that it acts as an agent of the non-resident buyers for the purpose of purchase of goods to be exported. The applicant's income is not coming out of the "operations confined to the purchase of goods in India for the purpose of export", but on account of certain support services rendered in connection with the purchases by third parties. The mark-up is not based on the volume or value of purchases, but is related to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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