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TMI Blog2015 (5) TMI 345X X X X Extracts X X X X X X X X Extracts X X X X ..... P. Boaz JJ. For the Appellant : Shri K.R. Vasudevan, Adv. For the Respondent : Shri Farhat Hussain Qureshi, CIT (D.R) ORDER Per Bench : These five appeals by Revenue are directed against the orders of the Dispute Resolution Panel, Bangalore ( DRP ) for Assessment Years 2008-09 to 2012-13 passed under Section 144C(5) of the Income Tax Act, 1961 (in short 'the Act') vide separate orders dt.2.6.2014. The assessee has also preferred Cross Objections (C.O) in respect of the orders of the DRP for these five years. Common and inter-connected issues being involved, these appeals and C.Os were heard together and we therefore deem it fit to dispose off the same by way of this common order. 2. The facts of the case, briefly, are as under :- 2.1 Tesco International Sourcing Ltd., Hong Kong ( TESCO, Hong Kong ) was established in Hong Kong to act as a buying agent for the Tesco Group companies (Affidavits). Tesco, Hong Kong sources products for the Tesco group companies and ensures that the prices are competitive, while maintaining the quality standards prescribed by the Tesco Group. Tesco International Sourcing Ltd., - India Liason Office ( L.O ), the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontentions by relying on the decision of the co-ordinate bench of this Tribunal in the assessee's own case for Assessment Years 2003-04 to 2007-08 in IT(IT)A No1323 to 1327/Bang/2011 dt.10.1.2014. IT(IT)A Nos.1169 to 1173/Bang/2014 - Revenue s Appeals for Assessment Years 2008-09 to 2012-13. 4. Aggrieved by the separate orders of the DRP, Bangalore, all dt.2.6.2014 for Assessment Years 2008-09 to 2012-13, the Revenue has preferred these appeals before the Tribunal raising the following common grounds for all these assessment years, and therefore only those pertaining to Assessment Year 2008-09 are extracted as under :- The Hon'ble DRP is not right in law in allowing the activities of Tesco International Sourcing Limited - India Liaison Office (LO) - as confined to procurement of goods for the purpose of exports and it was entitled to the benefit granted under Section 9(1)(i) and deleting additions made by the Assessing Officer treating the LO as PE of the assessee. The Hon'ble DRP is not right in law and facts in allowing the claim of the assessee in spite of the fact that buying agency agreement for non-food products between TISL and Tesco Stor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epresentative submitted that in the case of Jebon Corporation India (supra), the Hon'ble High Court had held that the activities of the LO constituted a PE in India and that this case was not considered while deciding the issue in the case of Nike Inc. (supra). 5.2.1 Per contra, the learned Authorised Representative placed reliance on the decision of this co-ordinate bench of this Tribunal in the assessee's own case for Assessment Years 2003-04 to 2007-08 (supra) and supported the decision in the impugned orders of the DRP, as the facts are the same for all the impugned Assessment Years 2008-09 to 2012-13. It was also submitted by the learned Authorised Representative, that Revenue s appeals preferred against the Tribunal s orders for Assessment Years 2003-04 to 2007-08 have been dismissed by the Hon'ble High Court of Karnataka in its orders in ITA Nos.231 to 234/2014 dt.5.1.2015. A copy of the Hon'ble High Court s order (supra) has been produced and placed on record. 5.2.2 As regards the plea of Revenue that the decision in the case of Jebon Corporation, India (supra) ought to have been followed by the DRP, rather than the decision in the case of Nike Inc., ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same to the respective manufacturers. With a view to spread its wings mainly from the point of view of procurement of various apparels from manufacturers, it opened a liaison office in India. The rate or price of each apparel was negotiated by the LO with manufacturers and the quality of each apparel was also indicated. The LO only proposed and gave its opinion about the reasonability of the price etc., and the US office decided about the price, quality, quantity, to whom to be shipped, billed etc. The local manufacturer in India was conveyed the decision of the USA office and once it was accepted, the local manufacturer carried on his activity. The LO kept a close watch on the time schedule to be followed and rendered such assistance as may be required in the dispatch of the goods including the details of the buyer and the place for export. For all these activities in India, the LO were receiving funds through banking channels from USA. For the relevant AYs, the assessee filed its returns of income declaring nil income with a claim that its activities were to carry on activities which were ancillary and auxiliary to the activities of its HO and other group companies and to act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the entire expenses of the liaison office. The buyer who is a non-resident may in turn pay some consideration to the assessee outside India. Therefore, even if any income arises or accrues to the assessee, it is outside India. Explanation 1 sub- section (2) of section 5 expressly states income accruing or arising outside India shall not be deemed to be received in India within the meaning of the section. However, under section 9(1)(i) all income accruing or arising whether directly or indirectly, through or from any business connection shall be deemed to accrue or arise in India. Now by Explanation 2 to section 9(1)(i) business connection has been explained, which includes any business activities carried out by a person who, acting on behalf of the non-resident, has and habitually exercises in India, an authority to conclude contracts on behalf of non-resident, unless his activities are limited to the purchase of goods or merchandise for the non-resident. If the said definition is read with Explanation 1(b) to section 9(1)(i), in the case of a non-resident, no income shall be deemed to accrue or arise in India to him whether directly or indirectly through or from any business con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r signing/commitment except which were required for normal functioning as LO LO had no powers for signing/commitment except which were required for normal functioning as LO LO was procuring for the purpose of export by those manufacturers/suppliers directly to various subsidiaries of Nike Inc around the globe LO was procuring for the purpose of export by the manufacturers/suppliers directly to Tesco Group company One the local manufacturer in India was conveyed of the decision of the USA office, the local manufacturer carries on its activity One the local manufacturer in India was conveyed of the decision of the Hong Kong office, the local manufacturer carries on its activity The LO gives it opinion of reasonability of price/issues etc., the US office decides the price, quality, quantity to whom to be shipped/billed LO gives it opinion of reasonability of price/issues etc., the Hong Kong office decides the price, quality, quantity to whom to be shipped/billed based on the discussions with the group companies Price of each apparel an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the price, he communicates the same to LO which in turn communicates the same to the Tesco Group Company. A revised price band is given to the LO which communicates the same to the vendor. This process goes on till the price is agreed by the Tesco Group Company and the vendor. Finally, the price is communicated to Tesco Hong Kong for final approval. 7.3. Further, the Hon ble Mumbai Bench of the Tribunal in the case of ADIT v. M. Fabrikant and Sons Ltd (supra) had considered the meaning of purchase of goods in India for the purpose of export . The Tribunal held that when activities of LO are confined to prior to the purchases and not subsequent, the case is fully covered by the clause (b) of explanation (1) to 9(1)(i) of the Act. The relevant finding of the Tribunal read as follows: 3.8Undisputedly, the LO of the assessee was performing the activities of assorting of diamonds, checking of the right quality of diamonds and price negotiation as per the instructions and specification of the assessee. These activities of the LO is only part of the purchasing process of the diamonds and did not bring any physical or qualitative change in the goods purchased. Ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to account all the aspects of the facts and circumstances of the issue as deliberated upon above and also in consonance with the judicial views (supra), we are of the view that Explanation 1(b) to s. 9(1)(i) of the Act is clearly applicable to the assessee s case and, thus, no income was derived by the assessee in India through its operations as LO in India. It is ordered accordingly. 7.7. We have since decided that no income was derived by the assessee in India through its operations of the LO in India (supra), the assessee s grievance of attribution of income to LO at 60% of total commission and charging of interest u/s 234A and 234B of the Act for all the AYS becomes superfluous. It is ordered accordingly. 8. In the result, the assessee s appeals for the AY's 2003-04 to 2007-08 are allowed. 5.3.3 It is not in dispute that the facts of the case on hand before us for Assessment Years 2008-09 to 2012-13 are the same as that of the earlier years, i.e. Assessment Years 2003-04 to 2007-08 which have been adjudicated in favour of the assessee. This decision of the co-ordinate bench of this Tribunal has since been upheld by the Hon'ble Karnataka High Court in ITA Nos.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts and principles, it was held that the purchase activities similar to the ones carried out by the Respondent are excluded from the gamut of business connection and hence, no income is deemed to accrue or arise in India. b)the decision of Hon'ble High Court of Karnataka in the case of Mondial Orient Ltd. (48 Taxmann.com 263), which followed the above mentioned decision. c)the decision of the Hon'ble Bangalore ITAT in the Respondent s own case for the assessment years 2003-04 to 2007-08, wherein the Hon'ble ITAT has held that the activities of the respondent are only confined to purchase of goods in India for the purpose of export; that the Explanation 1(b) to section 9(1)(i) of the Act is clearly applicable to the respondent s case; and, thus, no income was derived by the respondent in India through its Liaison Office operations. 6. The respondent craves to add, alter, amend or delete any or all the grounds of appeal during or before the hearing of appeal. 8. On a perusal of the Cross Objections raised by the assessee (supra), we find that they only challenge the conclusions of the Assessing Officer and are therefore supportive of the impugned orders ..... X X X X Extracts X X X X X X X X Extracts X X X X
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