9911796707
TMI Blog2014 (11) TMI 508X X X X Extracts X X X X X X X X Extracts X X X X ..... epresentatives who visited India from the overseas office - The Tribunal rightly relied upon relevant documentary material in arriving at the conclusion that the activities of the liaison office established that it was promoting the sales of the assessee in India and the AO was justified in holding that the income attributable to the liaison office was taxable in India - the activity of the liaison office during the year relevant to the AY was not of a preliminary or preparatory nature so as to attract the exclusion under Article 5(3)(e) of the DTAA – thus, no substantial question of law arises for consideration – Decided against assessee. Article 7(1) of the DTAA provides that if an enterprise carries on business in the other contracting State through a permanent establishment situated therein, "the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to" (a) that permanent establishment; (b) sales in the other State of goods or merchandise of the same or similar kind as those sold through that permanent establishment; or (c) other business activities carried on in the other State of the same or similar kind as those effected thr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcumstances of the case, the decision arrived at by the Tribunal is such that no reasonable person correctly informed of the position in law could come to; and, 6. Whether on the facts and circumstances of the case, the findings arrived at by the Tribunal are perverse. The assessee is a company incorporated in the US. The Registrar of Companies issued a certificate of registration to the assessee under Section 591 of the Companies Act, 1956 on 14 November 2002. During the accounting year, the assessee had received an approval from the Reserve Bank of India on 30 May 2002 for establishing a liaison office in India subject inter alia to the following conditions: (i) Except the proposed liaison work, the office in India will not undertake any other activity of a trading, commercial or industrial nature nor shall it enter into any business contracts in its own name without our prior permission. (ii) No commission/fees will be charged or any other remuneration received/income earned by the office in India for the liaison activities rendered by it or otherwise in India. (iii) The entire expenses of the office in India will be met exclusively out of the funds received fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India and that the assessee was, in fact, carrying on business activities. On this basis, the income of the assessee was computed at ₹ 24.86 lacs, comprising of the receipts of ₹ 63.72 lacs less the expenses of ₹ 38.86 lacs, which was taken as the profit from business activities carried on in India. The Commissioner of Income Tax (Appeals)4 confirmed the order of the Assessing Officer. The Tribunal by its judgment and order dated 17 January 2014 has come to the conclusion that the activities of the assessee which were carried on by its liaison office were to promote the sales of the assessee in India and that the Assessing Officer was justified in holding that the income attributable to the liaison office was taxable in India. The Tribunal has also held that the liaison office had received an amount in excess of what was actually incurred by way of expenditure and hence, the Assessing Officer had correctly taxed the amount received by the assessee over and above the reimbursement of the expenses. The assessee is in appeal. Learned counsel appearing on behalf of the assessee submits that: (i) under Article 5(3)(e) of the Indo-US Double Taxation Avoidance Agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng on behalf of the Revenue has submitted that: (i) The Assessing Officer has proceeded on the basis of the admitted factual position as it emerged from the answers which were furnished by the representative of the assessee during the course of the assessment proceedings. The material disclosed by the assessee would make it clear that the activity of the liaison office in India was not merely to carry on work of a preparatory or auxiliary nature but was to promote the products of the assessee and hence, the assessee directly engaged in marketing activities. This is evident from the replies furnished by the Chief Representative Officer of the assessee which have been extracted in the order passed by the Assessing Officer; (ii) In the present case, the assessee had a permanent establishment in India within the meaning of Article 5 of the DTAA, since it had a fixed place of business through which the business of the enterprise is partly or wholly carried on. The expression permanent establishment includes 'an office' under Article 5(2)(c) of the DTAA. The exclusion contemplated under Article 5(3)(e) of the DTAA is not attracted since the activity which was carried on w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cle. Under Article 7 of the DTAA, where an enterprise of a contracting State results in profits, these profits are taxable only in that contracting State unless the enterprise carries on business in the other contracting State through a permanent establishment situated therein. The expression permanent establishment is governed by Article 5 of the DTAA, which reads as follows, insofar as is material: ARTICLE 5- Permanent establishment- 1. For the purpose of this Convention, the term permanent establishment means a fixed place of business through which the business of an enterprise is wholly or partly carried on. 2. The term permanent establishment includes especially: (a) a place of management; (b) a branch; (c) an office; (d) a factory; (e) a workshop; ...... ........ ...... ........ 3. Notwithstanding the preceding provisions of this Article, the term 'permanent establishment' shall be deemed not to include any one or more of the following: (a) the use of facilities solely for the purpose of storage, display, or occasional delivery of goods or merchandise belonging to the enterprise; (b) the maintenance of a stock of goods or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether the company of USA has deputed their agent in India to procure the order and got supplied the goods or have maintained their own office for this purpose in India, if so give the details of the both. ANSWER M/s Brown Sharpe INC has maintained a liaison office in India which is called Brown Sharpe INC India liaison office. There was one agent during the year 2002-03 only but thereafter there is no agent. The liaison office explain about the product/ the machine to the buyer and according to their requirement intimation is sent, the technician to discuss the commercial issue comes, thereafter order is placed by the buyer direct to the factory. QUESTION NO. 9. What is your activities in the company in India. ANSWER My activities is to visit prospective clients and inform them about Brown Sharpe INC and its products and organize further technical discussion with the client. QUESTION NO. 14 How the employee of the liaison office justify their expenses to the parent company of USA. Is there any minimum performance to the undertaken by the employee or any incentive has to be given, if the better performance is shown in providing/procuring the order to get supplied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e number of direct orders that the assessee received and by the extent of awareness of the assessee that was generated in India. The assessee had an incentive plan, and it is not in dispute, as was disclosed by the Chief Representative Officer, that in the sales incentive plan an employee was allowed to receive upto 25% of its annual remuneration as SIP. Whether or not any incentive was, in fact, paid to an employee during the year in question, is not material. What is relevant is that the nature of the incentive plan would clearly indicate that the purpose of the liaison office in India was not merely to advertise the products of the assessee or to act as a link of communication between the assessee and a prospective buyer but involved activities which traversed the actual marketing of the products of the assessee in India because it was on the basis of the orders generated that an incentive was envisaged for the employees. The assessee sought to explain away the incentive plan by stating before the Assessing Officer that the incentive which was provided for in the letters of the appointment was only standard language of the appointment letter of the company , which had inadverte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h its employees, to whom a sales incentive plan was provided for achieving a sales target and the performance of the employees was being judged by the orders secured by the assessee. Similarly, in an earlier decision of the Delhi High Court in Director of Income Tax v. Noikia Networks OY7 it was held by the Tribunal that the liaison office was not carrying on any business activity for the assessee in India and that its role was only to assist the assessee in preliminary and preparatory work. In contrast, in the present case the activity of the liaison office during the year relevant to the assessment year was not of a preliminary or preparatory nature so as to attract the exclusion under Article 5(3)(e) of the DTAA. For these reasons, we hold that Question Nos. 1, 2, 5 and 6 will not give rise to any substantial question of law. We now deal with the alternative submission. Article 7(1) of the DTAA provides that if an enterprise carries on business in the other contracting State through a permanent establishment situated therein, the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to (a) that permanent establishment ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
