9911796707
TMI Blog2013 (8) TMI 194X X X X Extracts X X X X X X X X Extracts X X X X ..... the requirement of the buyer and even if it is held, though the goods are supplied to the buyer, it is deemed to be supplied to the assessee, the whole object of this transaction is to purchase goods for the purpose of export. Once the entire operations are confined to the purchase of goods in India for the purpose of export, the income derived therefrom shall not be deemed to accrue or arise in India and it shall not be deemed to be an income under Section 9 of the Act - Following decision of Commissioner of Income-Tax, Punjab v. R.D. Agarwal and Company [1964 (10) TMI 9 - SUPREME Court]. The activities of the assessee in assisting the Indian manufacturer to manufacture the goods according to their specification is to see that the said goods manufactured has an international market, therefore, it could be exported. In the process, the assessee is not earning any income in India. If at all he is earning income outside India under a contract which is entered outside India, no part of their income could be taxed in India either under Section 5 or Section 9 of the Act. - Decided against the Revenue - IT Appeal Nos. 976, 978, 979 & 982 of 2008 & 341 to 344 of 2009 - - - Dated:- 7- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I. In its approval the RBI had directed the assessee to file an annual certificate from the auditors that it had not earned any income in India, details of remittances received from abroad supported by inward remittance certificates, certified copy of the audited final accounts of the office in India, annual report of the work done by the office in India giving details of actual export or import and the number of staff engaged/appointed etc. along with their duties. The restrictions further were that the liaison office will not render any consultancy or any other services directly/indirectly with or without any consideration. The further restriction was that the liaison office will not have signing or commitment powers except that are required for normal functioning as liaison office. Accordingly, the assessee opened the liaison office and employed persons in various categories defining qualifications for each post and this was with reference to its main activity of purchase or procurement of apparels from India for the purpose of export by those manufacturers directly to the various subsidiaries of the assessee spread at various places in the world. For all these activities in Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the dispatch of the goods including the actual buyer and the place for export. 4. A survey was conducted under Section 133A of the Income Tax Act, 1961 (for short hereinafter referred to as 'the Act') in the premises of Nike Inc. - Liaison Office on 21.12.2002. The activities carried on by the company through its office in India were verified. As return of income for the year was not filed by the assessee company, detailed reasons were recorded under Section 147 and notice under Section 148 of the Act was issued on 30.03.2004. In response to the said notice, the assessee company filed return of income on 05.05.2004 declaring Nil income. The assessee contended that its activity is to carry on activities that are ancilliary and auxiliary to the activities of its Head Office and other group companies and to act as a communication channel between the Head Office and parties in India. It further contended that in terms of explanation (b) to Section 9(1)(i) of the Act, no income is deemed to accrue or arise in India to a non-resident from operations that are confined to the purchase of goods in India for the purposes of export. Further, in terms of Central Board of Direct Taxes Circula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ller to the purchaser. It held that since the assessee is not involved in purchase, it is not entitled to the exemption enumerated in Section 9(1) of the Act and proceeded to uphold the order of Assessing Officer, thereby, dismissing the appeal. 6. Aggrieved by these two orders, the assessee preferred an appeal to the Tribunal. The Tribunal, on reconsideration of the entire material on record and after referring to the statutory provisions and also referring to the judgments relied on, held that it is a case of assessee purchasing the goods for the purpose of exports. In the absence of there being any prima facie contract between the assessee and the local manufacturer, the only relationship is that of buyer's agent and the local manufacturer knows the assessee only as the agent of the buyers. The local manufacturers know that the agent of the buyer, i.e., the assessee, has placed the orders on it with a view to buy the goods in the course of export and as directed, export it to various affiliates of the assessee. Therefore, the Explanation (1)(b), purchase for the purpose of export clearly applies to the assessee and hence, no income is derived by it in India through its operati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice is expected to identify the manufacturers and assist the affiliates of the assessee to purchase manufactured goods from the manufacturers in India according to the specifications provided by them. The entire expenditure of the liaison office is met by the income transmitted from America to India. No contract between the assessee and its affiliates or buyers is entered in India and no part of any amount is paid by such affiliates to the assessee in India and therefore, no amount has accrued or arisen or is deemed to have accrued or arisen in India so as to attract liability to tax under Section 5(2)(b) as contended by the Revenue. The transaction in question clearly demonstrates that it is a case of purchase of goods for the purpose of export. Even if it is held that any income has accrued in India, the liability to pay tax is not attracted as rightly held by the Tribunal in view of Clause (b) of Explanation 1 to Section 9(1)(i). 10. Section (5) of the Act deals with scope of total income. Sub-Section (1) of Section 5 of the Act deals with sources of income which a person earns which is liable to tax. Sub-Section (2) of Section 5 of the Act deals with the income of a non-resid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urchase of goods or merchandise for the non-resident; or (b) has no such authority, but habitually maintains in India a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the non-resident; or (c) habitually secures orders in India, mainly or wholly for the non-resident or for that non-resident and other non-residents controlling, controlled by, or subject to the same common control, as that non-resident: Provided that such business connection shall not include any business activity carried out through a broker, general commission agent or any other agent having an independent status, if such broker, general commission agent or any other agent having an independent status is acting in the ordinary course of his business : Provided further that where such broker, general commission agent or any other agent works mainly or wholly on behalf of a non-resident (hereafter in this proviso referred to as the principal non-resident) or on behalf of such non-resident and other non-residents which are controlled by the principal non-resident or. have a controlling interest in the principal non-resident or are subject to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income attributable to operations confined to purchase of goods in India for export, even though the non-resident has an office or agency in India for the purpose, or the goods are subjected by him to any manufacturing process before being exported from India. 14. The Apex Court in the case of Anglo-French Textile Company Limited v. Commissioner of Income-Tax, Madras reported in 1953 ITR Vol. XXIII Page 101 explaining the meaning of the word "Business Connection" held : "Activities which are not well-defined or are of a casual or isolated character would not ordinarily fall within the ambit of the word "Business Connection". Distribution of profits on different business operations or activities ought only to be made for sufficient and cogent reasons and the observations made here are limited to the facts and circumstances of the case". "An isolated transaction between a non-resident and a resident in British India without any course of dealings such as might fairly be described as a business transaction does not attract the application of Section 42, but when there is a continuity of business relationship between the person in British India who helps to make the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vious year is taxable by Section 4(1)(a) and (c) of the Act, whether the person earning it's a resident or non-resident. If the agent of a non-resident receives that income or is entitled to receive that income, it may be taxed in the hands of the agent by the machinery provision enacted in Section 40(2). Income not taxable under Section 4 of the Act of a non-resident becomes taxable under Section 42(I) if there subsists a connection between the activity in the taxable territories and the business of the non-resident, and if through or from that connection income directly or indirectly arises''. 16. In the background of this legal position when we examine the facts of this case, the assessee is not carrying any business in India. They have established a liaison office. The object of establishing the said office is to identify the manufacturers, give them the technical know-how and see that they manufacture goods according to their specification which would be sold to their affiliates. The person who purchases the goods pays the money to the manufacturer, in the said income, the assessee has no right. The said income cannot be said to be a income arising or accruing in the Tax Ter ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
