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TMI Blog2015 (10) TMI 1768X X X X Extracts X X X X X X X X Extracts X X X X ..... for the purpose of purchasing the goods or for collecting information for the enterprise. We find it difficult to accept this reasoning. If the petitioner has to purchase goods for the purpose of export, an obligation is cast on the petitioner to see that the goods, which are purchased in India for export outside India is acceptable to the customer outside India. To carry on that business effectively, the aforesaid steps are to be taken by the seller i.e., the petitioner. Otherwise, the goods, which are purchased in India may not find a customer outside India and therefore, the authority was not justified in recording a finding that those acts amounts to involvement in all the activities connected with the business except the actual sale of the products outside the country. In our considered information, all those acts are necessary to be performed by the petitioner – assessee before export of goods. Consequently, the reasoning of the authority that for the same reasons, the liaison office in question would qualify to be a permanent establishment in terms of Article 5 of the DTAA is also erroneous. That liaison office is established only for the purpose of carrying on business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l nature. It has no revenue streams and it does not source products to be sold locally in India. 3. With a view to achieve tax certainty, the petitioner preferred an application before the Authority for Advance Rulings ( the Authority ), under Chapter XIX-B of the Income-tax Act, 1961 seeking determination of certain questions about its tax liability, if any, under the Act in India on account of purchase co-ordination activities of its India liaison office. In the application, they submitted that (a) no income is received or deemed to be received in India by the petitioner under Section 5(2)(a) of the Act; and (b) no income accrues or arises to the petitioner under Section 5(2)(b) of the Act, as sales are made by the petitioner to wholesale/retail customers wholly outside India and the sale price is received by the petitioner from wholesale/retail customers outside India. 4. Further, it was submitted by the petitioner that no income can be deemed to accrue or arise in India under Section 9(1) of the Act as the petitioner does not have a business connection in India since the activities of the India liaison office are strictly restricted to purchase function. They also submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or arisen in India. Further, he contends that Article 7 of the Total Taxation Treaty entered into between India and USA provides for taxation in respect of the profits of an enterprise in the other State, but only so much of them as is attributable to that permanent establishment and sales in the other State of goods or merchandise of the same or similar kind as those sold through the permanent establishment or other business activities carried on in the other State of the same or similar kind as those effected through that permanent establishment. As in the instant case, there is no sale at all, the question of earning profits is not there and therefore, tax is not attracted. Insofar as the permanent establishment is concerned, he refers to Article 5(3)(d), which provides that notwithstanding the provision under this Article, the term permanent establishment shall be deemed not to include the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise, or of collecting information, for the enterprise. Therefore, he submits that as the petitioner is not purchasing goods for merchandise in India and even if he is collecting information for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ord shows that Nike, USA bears 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, the contract between the assessee and the buyer if at all is entered outside India. Therefore, even if any income arises or accrues to the assessee, it is outside India. Therefore, explanation (1) to 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, all income accruing or arising whether directly or indirectly through or from any business connection shall be deemed to be accrued or arises in India. Now by Explanation (2) business connection has been explained which includes any business activities carried out by a person who acting on behalf of the non-resident as an habitual exercise in India. An authority to conclude Contracts on behalf of non-resident unless his activities are limited to the purchase of the goods or merchandise for the non-resident. If the said definition is read with Clause (b) of Explanation 1 to Sub-Section (1) of Section 9 in the case of a non-re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accrues or arises in India as mentioned in the aforesaid provisions, for the purpose of this clause which shall be deemed not to have accrue or arise in India, i.e., the income earned by an assessee through or from operations which are confined to the purchase of goods in India for the purpose of export. In other words, if an assessee earns income through or from operations out of purchase of goods in India for the purpose of export only it is deemed not to accrue or arise in India. The argument is, for attracting this provision the assessee must be a purchaser of goods and after such purchase he should export the goods. Then only he can have the benefit of this provision. Nowhere in this section it is mentioned that the assessee should purchase the goods in India for the purpose of export. On the contrary it is expressly mentioned any income accruing or arising in India to him through or from operations which are confined to purchase of goods in India for the purpose of export alone is exempt from payment of tax. In other words if an assessee carries on operations which results in purchase of goods in India for the purpose of export and the income so accrued or arising out of such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the enterprise will be taxed. Therefore, there is no tax liability if purchase is made for the purpose of export. The permanent establishment referred to therein is also defined in Article 5. It provides that for the purposes 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. It is an inclusive definition of what is included in the term 'permanent establishment' which is clearly set out in sub-article (2). However, sub-article (3) starts with a non-obstante clause. It makes it clear that the term 'permanent establishment' shall be deemed not to include any one or more of the following as set out in sub-article (3). Clause (d) of sub-article (3) speaks about the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise, or of collecting information, for the enterprise. In other words if the permanent establishment is established for the purpose of purchasing goods or merchandise for the purpose of collecting information for the enterprise, it is not a permanent establishment as defined under Article 5(1) read with Ar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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