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TMI Blog2013 (6) TMI 421X X X X Extracts X X X X X X X X Extracts X X X X ..... dence with the Head Office about the sales in India, as a part of liaison office, but not as a sales unit. There are monthly reports also given which indicate the budget, projected targets, achievements, but nowhere this indicate that assessee was involved in direct sales activity except coordinating and liaisoning with the various distributors and the doctors who are to use the products. These documents does not establish at all that assessee was involved in business activity before it became a branch office. Therefore, AO's contention that assessee was involved in business activity cannot be accepted. As in the earlier year also i.e. AY 1998-99 for which also assessee filed the return at Nil were accepted without any addition in that year and also the fact that assessee claimed various expenditures for the three month period from 1st January, 2000 in AY 2000-01 which was allowed by the CIT (A) on which there is no cross appeal, assessee was involved in liaison activities upto 31.3.1999 and not in sales activity as opined by AO. Therefore, there is no question of estimating the profits in AY 1999-2000 when assessee does not have any business connection or business activity thou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The appellant submits that AO be directed to delete the addition made by him to the total income treating the Appellant as a permanent establishment of St. jude Medical Inc. 2. Similar grounds were raised in AY 2000-01 also. 3. Briefly stated, assessee St. Jute Medical Hongkong Ltd (SJMH) is a Hongkong based company. It is wholly owned subsidiary of St. Jute Medical Inc. (SJMI), a US based company. SJMI is a pioneer in Heart Valves which is a life saving medical produce and is selling its products. SJMH is engaged in the business of selling heart valves in the Asian region including India. SJMH has set up a liaison office in India with the permission of the RBI. Even though it has a liaison office,SJMH as well as SJMI were conducting their sales through a network of distributors established over the years. Considering the potential in India of the life saving medical products, the liaison office was coordinating the market survey, propagation etc. as permitted by the RBI. Later on the company decided to close the liaison office and set up a branch office for which RBI has permitted vide letter dated 30.09.1998. The liaison office was closed on 31.12.1999 and branch office has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oth US Company and the Honkong Company. However, since the gross profit was estimated, he allowed 50% deduction of the amount determined by AO and accordingly confirmed 20% profit in AY 1999-2000 and 10% in AY 2000-01 as income. For the AY 2002-03, later year, assessee filed a regular return admitting business connection and offering income of the branch office. AO in line with his order in the previous years estimated the profits, assessee contended therein that the incomes of the U.S Co. cannot be estimated in assessee's hands. This contention was upheld by the CIT (A) on which there seems to be no Revenue appeal and consequent to that, assessee raised the additional grounds in these appeals contesting the inclusion of incomes attributable to PE of SJMI to be taxed in assessee's hands. These being legal grounds, they are admitted, after due consideration of rival contentions. 7. The learned Counsel reiterated the contentions placed in detail before the CIT (A) both on original grounds as well as on additional grounds. He placed on record certain additional documents which are not filed before the authorities in support of the contention that no incomes were earned during the ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nection the income accruing to the American company attributable to this branch would be taxable under the I.T. Act. But then, this taxability will require an independent entity to be made the vehicle of taxation. In the instant case, the branch office of the Hongkong company should have been considered as a permanent establishment of the American company and an independent assessment should have been made in respect of the income accruing to the American company from its direct operations in India attributable to the branch office of the Hongkong company and arising on account of the business connection which is not disputed. It is therefore held that to the extent of profit brought to tax accruing to St. Jude Medical Inc attributable to the branch under consideration cannot be taxed in the hands of the appellant, St. Jude Medical (Hongkong) Ltd. AO is accordingly directed to recomputed the income of the appellant in accordance with the above decision. I hasten to add that the income offered to tax in the return of income on account of management fee for managing direct sales of St. Jude Medical Inc. shall not be affected by this finding since it has been voluntarily offered by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tributor and the name of the distributors are also being informed. Some of the reports impounded by the Revenue are nothing but the correspondence with the Head Office about the sales in India, as a part of liaison office, but not as a sales unit. There are monthly reports also given which indicate the budget, projected targets, achievements, but nowhere this indicate that assessee was involved in direct sales activity except coordinating and liaisoning with the various distributors and the doctors who are to use the products. These documents does not establish at all that assessee was involved in business activity before it became a branch office. Therefore, AO's contention that assessee was involved in business activity cannot be accepted. 11. Even though the learned CIT DR relied on the various statements recorded from Mr. Alok Majumdar, the questions and answers do indicate that there is a clear distinction between the liaison activities and the branch activity. Even though some of the answers do overlap but these does not establish at all that assessee was involved in business activity when they are only permitted to do liaison activity by the RBI. Considering the fact that ..... 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