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TMI Blog2014 (2) TMI 976X X X X Extracts X X X X X X X X Extracts X X X X ..... gnificantly, with the AO itself finding the Appellant not liable under Section 9(1)(c) of the FERA on the ground that there was no debt owed by the Appellant to the parent company, it could not have held that there was a liability owed by the LO to the parent company for the purposes of Section 8 (1) (b). AO dated 10th February 2004 and the impugned order dated 30th October 2007 of the AT set aside - Decided in favor of appellant. - CRL. A. No. 40 of 2008 - - - Dated:- 3-2-2014 - S. Muralidhar,JJ. For the Appellant : Mr. Parag P. Tripathi, Senior Advocate with Mr. Avinash Mody, Ms. Ritika Pal and Ms. Monisha Handa, Advocates. For the Respondent : Mr. P. K. Sharma, Advocate. JUDGMENT 1. This appeal is directed against the impugned order dated 30th October 2007 passed by the Foreign Exchange Appellate Tribunal ( AT ), dismissing the Appellant s Appeal No.348 of 2004 directed against the adjudication order ( AO ) dated 10th February 2004 passed by the Special Director, Enforcement Directorate ( ED ) which held that the Appellant had contravened Section 8(1) of the Foreign Exchange Regulation Act ( FERA ), 1973 and imposed a penalty of Rs. 2,00,00,000 on it un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were also furnished. 5. The ED, by a letter dated 26th May 2002, asked the LOs to furnish further details including whether the salaries paid abroad to the expatriated employees had been reflected in the applications made to the RBI by the Appellant seeking repatriation of profits/surplus funds abroad and whether the salaries paid abroad have been reflected in the tax returns. 6. By a letter dated 29th May 2002, Mitsubishi, on behalf of the LOs, clarified to the ED that it had never been engaged in the trade of business activity in India and that the LOs are solely dependent on the remittances from the Head Office to meet the expenses of the Liaison Offices. It was clarified that they have no source of income/profit in India and therefore there is no possibility of any repatriation of income/profit abroad. It was further clarified that The salaries of the Indian employees and payment to the employees deputed/seconded by the Head Office to India were paid in Indian Rupees from the remittance received from the Head Office. 7. A show cause notice was issued on 31st May 2002 by the ED to the LOs stating that a portion of the salaries paid abroad to the seconded employees wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 9 (1)(c) FERA, it was held that since the LO was only a representative of the parent company and both the offices are one and the same, the question of the amounts paid as salaries to the employees of Mitsubishi by the HO being repaid by the LO to the HO did not arise. Therefore, it could not be said that the noticee company had created and acknowledged, a debt and that the foreign parent company had a right to receive the payment of the same amount from them. Accordingly, it was held that the ingredients of Section 9(1)(c) of the FERA were not satisfied. The AO then proceeded to hold the Appellant liable to penalty under Section 50 of the FERA and imposed a penalty of Rs. 2,00,00,000. 11. The AT, in the impugned order dated 30th August 2007, first held that in terms of Section 2 (p)(iii) read with Section 73 of the FERA, the employees seconded to the Indian LOs of Mitsubishi were persons resident in India. They were temporary residents. It was further held that the LO was a branch office and, therefore, deemed to be a corporate body. As the LO was also a subordinate office of the foreign principal, they will engage in the business activities. Since both the branch office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s by the parent corporation. He clarified, however, that this should not be constued to be an admission by the Appellant of its liability to pay such salaries. According to him, there was a fundamental error in both the AO passed by the Special Director, ED, as well as the impugned order of the AT in treating the employees of the parent corporation, seconded to the LO, as employees of the LO. The consequent error was in holding that the liability to pay the salaries of the seconded employees of Mitsubishi was that of the Appellant. Such conclusion had no factual basis. 16. Mr. Tripathi stated that although in the grounds of appeal, the Appellant has seriously contested the finding that the Appellant was a person resident in India , in terms of Section 2 (p)(iii) read with Section 73(1)(d) FERA, the Appellant was prepared, on the basis of the present proceedings, to assume, without admitting, that it was a person resident in India. Even if the Appellant was presumed to be a person resident in India, there was no violation of Section 8(1) of the FERA in the facts and circumstances of the case. 17. In order to appreciate the above submissions, an analysis is proposed to be undert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the basis that M/s. Mitsubishi Corporation have to repay the amount of Rs. 20,52,92,700 to their principal/head office being the salary payable to the expatriated employees during the financial year 1996-97 and 1997-98. As noticed hereinbefore, there was no such obligation on the Appellant to repay any amount to the HO. In fact, Notification No.FERA 1/74 dated 1st January 1974 states that Section 8 (1) of the FERA shall not apply to the maintenance of and operations on account, expressed in a foreign currency, by foreign citizens in or resident in India but not permanently resident therein. Para 11.A.13 of the FECM provides that foreign nationals who are resident but not permanently resident in India are exempted from maintenance of and operations on their foreign currency bank accounts outside India. Further, the RBI clarified in a letter dated 3rd December 1999 addressed to M/s. Arthur Andersen Co. that in the case of employees deputed by foreign companies to Indian entities where the Indian company is not required to pay any remuneration to such persons except for their local expenses, the entire remuneration can be paid abroad by the overseas company. 21. The Court fi ..... 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