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TMI Blog2019 (2) TMI 2045X X X X Extracts X X X X X X X X Extracts X X X X ..... these appeals were clubbed and disposed off for the sake of convenience by way of this consolidated order. ITA no.119/Mum./2006 Assessee's Appeal 2. In this appeal, the assessee has raised eight grounds. Grounds no.1, 2 and 3, are on the issue of existence of a Permanent Establishment (PE) in India. Whereas, grounds no.4 to 7, are on the issue of attribution of profit to the PE and ground no.8, is on the issue of rate of tax applicable to the assessee. Thus, the primary issue which needs to be decided at the outset is the issue relating to existence of PE as raised in grounds no.1, 2 and 3. 3. Brief facts are, the assessee is a company incorporated in Japan hving its Head Office at Sinimachi, 1-Chome, Nishiku, Osaka, Japan. As stated by the Assessing Officer, the company was allowed by the Reserve Bank of India to open a Liaison Office (LO) at Bombay for liaison work with a condition that no business will be carried out by the company and no income will be earned by the company through the LO. Further, all the expenses of the LO were borne out of remittances received from Japan. The assessee filed a return of income on 7th January 2003, through its LO in Mumbai declaring nil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbay Liaison Office of Nagase & Co. Ltd., has not earned any income nor any income accrued to it in India during the accounting year ended 12.3.2002. 4. A set of audted statement s of accounts alongwith Auditors report for the accounting year ended 12.3.2002 is enclosed herewith. 5. Also enclosed herewith a copy of certificate from the Auditors, certifying that the Bombay Liaison office, Nagase & Co. Ltd. Did not carry out any trading, manufacturing or commercial activity or undertook invoicing of goods in India during the year ended 12.3.2002. 6. The Bombay Liaison office had earlier filed it's return of income in Form 2C for the accounting year ended 12th March, 2002. A COPY of the same is enclosed herewith. 7. This return is being filed in compliance to the notices dated 21.2.2003, issued by the ADIT(IT) 2(2) Mumbai. No income was earned nor any income accrued to the Liaison office during the previous year ended 31.3.2002. Further, the liaison office is not a permanent establishment in terms of the Double Taxation Avoidance Agreement with Japan. Therefore, this return is being filed under protest and without prejudice." 4. Further, in response to the notices and que ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hes the existence of PE. He observed, the Liaison Office in India was actively pursuing potential customers and the rates being offered by the competing parties. He observed, just because the final invoices were raised by the Head Office in Japan from where the goods were supplied, it does not mean that no profit is attributable to India. He observed, the entire activity of the business except the final dispatch and billing was done in India. Therefore, as per section 9 of the Act the assessee has a business connection in India, hence, its income is deemed to accrue or arise in India. Thus, ultimately, the Assessing Officer held that since the assessee has a PE in India, the income attributable to PE in India is required to be brought to tax. Accordingly, he proceeded to compute the income of the assessee and the tax liability in different assessment years starting from assessment year 1995-96 to 2002-03. In the impugned assessment year the Assessing Officer determined the sales turnover of the assessee at Rs. 225 crore and estimated the profit @ 10% on such sales which worked out to Rs. 28,58,39,400. The aforesaid amount was treated as income of the assessee for the impugned asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agent to appraise the Head Office of achievement of target. He submitted, M/s Musk and Fragrance being an independent agent of the assesse, this letter has nothing to do with any contract concluded by the Liaison Office. Referring to the impounded documents specifically referred to by the learned Commissioner (Appeals), copies of which are submitted in the paper book, the learned Authorised Representative submitted, such documents do not show that the Liaison Office is concluding contract on behalf of the assessee. He submitted, the allegation of the departmental authorities that there was discrepancy with regard to the accounting statement submitted by the assessee insofar as it relates to commission payment and sales figure achieved by M/s Musk and Fragrance effectively reconciled by the assessee through proper documentary evidences. In this context, the assessee drew our attention to the observations of the Assessing Officer in the remand report and the assessee's reply. He also drew our attention to the reconciliation statement furnished before the Assessing Officer showing the sales figure both in terms of U.S. Dollar as well as Japanese Yen. He submitted, if the sales figure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by M/s Musk and Fragrance with regard to demurrage and reduction of their commission in respect of supply of Citral-R to Hindustan Liver Ltd., Taloja. He submitted, these two documents in no way establish that assessee was having PE in India through the Liaison Office at Mumbai. The learned Authorised Representative referring to various allegations made by the Assessing Officer in the remand report with reference to the impounded documents pertaining to the impugned assessment year submitted, the letter dated 2nd December 2002 of M/s Musk and Fragrance at Page-277 of the paper book is a statement from the independent agent showing the approximate sales achieved by them. Whereas, he submitted, the assessee has furnished the exact sales figures certified by an auditor before the Assessing Officer. He submitted, since the sales figure shown in the impounded document is on approximate basis, reliance should be placed on the document certified by the auditor. He submitted, even otherwise also, the assessee has furnished statement reconciling the sales figure both in U.S. Dollar and Japanese Yen. Therefore, there is no such discrepancy existing as alleged by the departmental authorities. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The learned Departmental Representative submitted, since some of the documents do not pertain to the impugned assessment year, it cannot be said by the assessee that no addition is sustainable in the impugned assessment year in the absence of any impounded document pertaining to the impugned assessment year. He submitted, during the assessment as well as remand proceedings, though, the Assessing Officer has called for various details to reconcile the mismatch / differences in sales / commission payment, however, the assessee has not furnished the required details. The learned Departmental Representative submitted, as per Article-5(1) of the India-Japan Tax Treaty, PE means a fixed place of business through which the business of an enterprise is wholly or partly carried on. He submitted, since the business of the assessee is carried on through the Liaison Office in India, it constitutes a PE. 9. In rejoinder, the learned Authorised Representative submitted, the impounded documents having relation to the impugned assessment year do not in any manner indicate that Liaison Office is an independent business entity. He submitted, the presence of Liaison Office employees in the meeting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssioner (Appeals) is concerned, admittedly, he has disposed of the appeals pertaining to assessment years 1996-97 to 1999-2000 and assessment year 2000-01 to 2002-03 in a consolidated order. While confirming the addition made by the Assessing Officer in principle, except, granting partial relief to the assessee on quantification, the learned Commissioner (Appeals) has heavily relied upon the remand reports furnished by the Assessing Officer. After going through the entire gamut of the factual aspect concerning the impugned addition, it is noticed that the impounded documents which could be having a remote connection with the impugned assessment year are two communications from M/s Musk and Fragrance, an independent agent of the assessee in India. These communications dated 2nd December 2002 and 21st August 2002 are placed at Page-277 and 278 of the paper book. The communication dated 2nd December 2002 depicts the achievement of sales target for the period 2001-02 and 2002-03. In fact, this communication is an agenda for a meeting arranged for one Mr. Kazuhiko Ijarashi, from the Tokyo Head Office of the assessee company and the representative of M/s Musk and Fragrance. Incidentally, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ling with the customers, concluding contracts, etc., it cannot be said that the Liaison Office constitutes a PE. The Tribunal observed, what needs to be seen is, with whom the decision making power lies. If the Liaison Office has to follow the directions and the command of the Head Office, then the reins of the business would not be in the hands of the Liaison Office, hence, cannot be treated as an independent entity. Thus, on the basis of the facts and evidences available on record, which are very much the same in the impugned assessment year, the Tribunal ultimately concluded that there is nothing on record to prove that the Liaison Office at Mumbai was functioning as an independent profit centre to constitute as PE of the assessee. While coming to such conclusion, the Tribunal also took note of the allegation of the Assessing Officer that the Liaison Office has violated the permission granted by the RBI with regard to conducting its activities and which will be taken up by the Assessing Officer with the RBI. In this context, the Tribunal observed that since there is no adverse report or action taken by the RBI against the assessee, it has to be accepted that the Liaison Office w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e preceding assessment years in the orders referred to above, we hold that the Liaison Office at Bombay does not constitute a PE of the assessee under Article-5 of Indian-Japan Tax Treaty. Hence, no income of the assessee can be brought to tax in India. Accordingly, we delete the addition made by the Assessing Officer. Grounds no.1, 2 and 3, are allowed. 13. In view of our decision in grounds no.1, 2 and 3 herein above, the rest of the grounds raised by the assessee relating to attribution of profit to PE and the rate of tax have become redundant, hence, do not require adjudication. 14. In the result, assessee's appeal is partly allowed. ITA no.368/Mum./2006 Revenue's Appeal 15. The grounds raised by the Revenue in this appeal pertain to quantification of sales turnover and gross profit attributable to the P.E. in India. Since, while deciding assessee's appeal in ITA no.119/Mum./2006, herein before, we have held that the Liaison Office at Bombay does not constitute a PE, hence, deleted the addition, the grounds raised by the Revenue have become redundant, hence, dismissed. 16. In the result, Revenue's appeal is dismissed. ITA no.1804/Mum./2007 Assessee's Appeal 17. This ..... X X X X Extracts X X X X X X X X Extracts X X X X
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