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TMI Blog2011 (1) TMI 158X X X X Extracts X X X X X X X X Extracts X X X X ..... s carried out on 20.1.2006 in the premises of the assessee. The survey party has recorded he findings as under : "3.1 M/s M Fabrikant and Sons Inc is a company based in USA and is in the business of sale of loose diamonds and diamond jewellery. The India Liaison office (LO) has been opened in 1980 for purchase of finished loose diamonds from Indian Market. The Principals in the USA send their requirements to the LO most via-e-mails or sometime through telephone. One Mr. Shailesh Jhaveri is the Constituted Attorney of M/s Fabrikant and Sons Inc. and is the main person in charge. He receives the requirement of Principals. The requirement contains details of size and quality of diamonds, the carats and the price in US Dollars. The price quoted is not the final price at which the Principals want to buy, but is indicative and the LO has to negotiate the price. Mr. Shailesh Jhaveri has been given the power to negotiate the price up to a certain level. This fact is established by the statements of approvers/assorters recorded during the course of survey. After receipts of requirements from the Principals, the same is displayed by the LO at the office board, which is placed outside the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of information from the principals, the LO gets the rights quality, size and carats from the supplier, After this, the prices are negotiated to obtain the best price as per the requirement and to get the best price negotiations with supplier are done; (ii) after negotiating the price, the parcel is assorted. The LO has almost 63 assorters, who are assorting the diamonds received from the suppliers for getting the rights selection and taking out the rejections. The LO has one more premises on the third floor of the same building wherein some of the assorters are stationed. The junior approvers, who are involved in the process of examination of diamonds are experts in their respective fields e. Ms. Blanch Fernandes Junior Approver, is an expert in checking TTLB and TTBNT category of diamonds and when any requirements is received regarding this quality of diamonds, she examines diamonds after preliminary check by Shri Jhaveri and advises Mr. Shailesh Jhaveri regarding the price at which such diamonds should be purchased. After the rights price is obtained from the supplier, the diamonds are assorted and the right selection is taken and rejection is being back to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2003-04. In view of the survey, the AO has also reopened the assessment for the assessment years 1999-2000 to 2002-03 and completed the re-assessment on similar line as for the assessment year 2003-04. 3.2 On appeal, the CIT(A) held that the LO is not making sale or involved in the manufacturing or production of article, therefore, no profit accrued or arises in India. He has relied upon the Board Circular No. 29 dated 7.7.1964. The CIT(A) has further held that in view of the provisions of Article 5(3)(d) of DTAA between India and USA, the appellant's Liaison office in India cannot be considered as PE in India. 3.3 Before us, the learned DR has referred the finding of the survey party and submitted that the LO is not doing merely the activity of purchase on behalf of the principal but it was doing the activities of preliminary check of diamonds, negotiation of price, assortion of diamonds, packing of diamonds and, storage of diamonds and delivery of the diamonds to the custom house etc. He has pointed out that the LO has around 63 assorters, who are assorting the diamonds received from the suppliers for getting the rights selection and taking out the rejections. Thus, the LO invo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entire expenses of the office in India will be met exclusively out of remittances received from abroad through normal banking channels and no commission/fee will be charged or any other remuneration received for the liaison activities to be undertaken by the office. The LO shall not enter into any contract relating to the export from India. Thus, the LO of the assessee is only meant for purchase activities. He has referred the circular No. 23 dated 23.7.1969 and submitted that as per paragraphs 5 and 7 of the said circular it has been clarified by the Board that 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 nonresident has an office or an agency in India for this purpose. Further as per paragraph 7 of the said circular Section 9 does not seek to bring into tax the net the profits of a non-resident which cannot reasonably be attributed to operations carried out in India. Thus, even if there be a business connection in India, only that portion of the profit which can reasonably be attributed to the operations of the business carried out in India will be deemed to be accrued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rough LO and all the activities carried out by the LO are basic and preliminary requirement of the purchasing process/operation. Selection of right goods and negotiation of price as per the instructions of the assessee are essential part of the purchasing activity. Thus, the case is fully covered by the clause (b) of explanation (1) to section 9(1)(i) of the Act. Further in view of the circular nos. 23 and 163, the board has clarified as under : Circular No. 23 "(5) NON-RESIDENT PERSON PURCHASING GOODS IN INDIA - 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. Where a resident person acts in the ordinary course of his business in making purchases for a non-resident party, he would not normally be regarded as an agent of the non-resident under section 163. But, where the resident person is closely connected with the non-resident purchaser and the course of business between them is so arranged that the resident person gets no profits or less than the ordinary profits which might be expected to arise in that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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