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TMI Blog2014 (1) TMI 986X X X X Extracts X X X X X X X X Extracts X X X X ..... n office in India for which permission of the RBI was taken. That the liaison office was established only as a communication channel between the assessee and its customers or prospective customers in India. That as per the condition put forth by the RBI while permitting the assessee to establish a liaison office in India, the liaison office was debarred from rendering any consultancy or any other services directly or indirectly. That the RBI had never alleged that the assessee has violated the conditions put forth by RBI while granting permission to establish a liaison office in India. He stated that the liaison office never rendered any services for procurement of order or sale of the product of the assessee company. Therefore, there was no income earned in India. He further stated that the liaison office is only receiving the reimbursement of expenses incurred from the head office. He, therefore, submitted that merely because the assessee company has opened the liaison office in India, it is not liable to be taxed. In this regard, he relied upon the following decisions:- (i) Angel Garment Ltd. - [2006] 287 ITR 341 (AAR). (ii) U.A.E. Exchange Centre Ltd. Vs. UOI & Another - [200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave carefully considered the submissions of both the sides and perused the material placed before us. The learned counsel for the assessee has argued at length to buttress his point that the liaison office of the assessee did not render any services in India so as to saddle with the liability of income tax in India and in support of which he relied upon the various decisions. Therefore, before adverting to the facts of the assessee's case, it would be important to see the ratio laid down in the various decisions relied upon by the learned counsel. 8. In the case of U.A.E. Exchange Centre Ltd. (supra), Hon'ble Jurisdictional High Court held as under:- "Under article 5(2)(c), amongst others, permanent establishment includes an office. However, article 5(3) which opens with a non obstante clause, is illustrative of instances where under the DTAA various activities have been deemed as ones which would not fall within the ambit of the expression "permanent establishment". One such exclusionary clause is found in article 5(3)(e) which is : maintenance of a fixed place of business solely for the purpose of carrying on, for the enterprise, any other activity of a preparatory or auxiliary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpanies within the parameters listed out by the RBI. Pursuant to the opening of the LO, the applicant entered into an agreement with Vodafone Essar South Ltd. (VESL), an Indian company which is also a telecommunication carrier/reseller, to provide certain services to each other. In the above backdrop, the applicant has sought advance ruling on question as to whether its LO in India constitutes a permanent establishment in terms of the aforesaid agreement. It contends that LO in India only carries out preparatory or auxiliary activities, such as: (i) holding of seminars, conferences; (ii) receiving trade enquiries from the customers; (iii) advertising about the technology being used by the applicant in providing the wired/wireless services and to answer the queries of the customers; (iv) collecting feedback from the prospective customers/consumers, trade organizations, etc., and it has neither played any role in pre-bid survey, etc., before entering into the agreement with VESL nor has involved itself in the technical analysis of any project, and, therefore, it cannot be considered to be a PE in terms of clauses (d), (e) and (f ) of Para 4 of article 5 of the Treaty between India an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat Form No.44 dated 13.9.2002 filed U/s 592 of the Companies Act, 1956 notifying establishment of place of business in India with effect from 31.7.2002 by M/s Brown & Sharpe INC. Company originally incorporated in U.S.A. has been registered. Given under my hand at New Delhi this day of 14th Nov. Two Thousand Two." 13. The assessee itself filed the return of income on 28.11.2003 declaring net loss of Rs. 38,86,255/-. The computation of income is at page 26 of the paper book from which it is evident that the loss is computed under the head 'profits & gains of business & profession". In the computation, the assessee added back the depreciation which was debited to the books of account as per Companies Act and claimed the depreciation as per the Income-tax Act. Thus, the assessee itself took a stand that it derives income from business or profession in India. On these facts, none of the decisions relied upon by the learned counsel would be applicable because in the case of U.A.E. Exchange Centre Ltd. (supra), the liaison office of the assessee in India was only to download information which was contained in the main server located in UAE based upon which the cheques were drawn in In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vehemently contended that the liaison office has only received the reimbursement of the expenses and, under no circumstances, the reimbursement of expenses can be termed as the income of the assessee. In support of this contention, the learned counsel relied upon the decision of Hon'ble Jurisdictional High Court in the case of Industrial Engineering Projects Pvt. Ltd. (supra), wherein their Lordships held as under:- "Held, (i) that reimbursement of expenses can, under no circumstances, be regarded as a revenue receipt and in the present case the Tribunal had found that the assessee received no sums in excess of expenses incurred. The Tribunal was, therefore, justified in deleting the disallowance under section 37(2A) of the Income-tax Act, 1961, and rule 6D of the Income-tax Rules, 1962." (emphasis by underlining supplied by us) 15. There cannot be any dispute with the legal contention of the learned counsel that the reimbursement of the expenses can never be income. Hon'ble Jurisdictional High Court has also held that the reimbursement of expenses can under no circumstances be regarded as a revenue receipt. However, in this case, as a matter of fact, what the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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