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2022 (9) TMI 528 - AT - Income TaxIncome deemed or accrue or arise in India - liaison office as Permanent Establishment (“PE”) of the assessee in India under Article 5 of India and Japan Double Taxation Avoidance Agreement (“DTAA”) - HELD THAT:- As per Article 7 of DTAA, profit of foreign enterprise shall be taxable in India only if such enterprise carries on business in India through a permanent establishment situated therein. Article 5 of the DTAA defines the term permanent establishment. Further, as per the provisions of Article 5(6)(e), maintenance of a fixed place of business solely for the purpose of carrying on, for the foreign enterprise, any other activity of a preparatory or auxiliary character shall not be considered as permanent establishment. Nothing has been brought on record to suggest that the RBI has found activities of the liaison office as being non-compliant with the terms and conditions of its permission and, therefore, the said aspect supports the assertion of the assessee that liaison office was performing activities as permitted by the RBI, which were preparatory and auxiliary in nature and not the core business activity independent of the Head Office. Apart from the aforesaid documents impounded during the course of survey action, neither statement of the employees of the liaison office or the agents/customers in India was recorded nor any information under section 133 (6) of the Act was sought by the AO in order to support its conclusion that the liaison office constitutes PE of the assessee in India. Revenue though vehemently submitted that liaison office was negotiating price and doing sales activity in India, however, has not brought any sales agreement in support of the claim. It is highly doubtful that sales transaction of such a large scale can be conducted internationally without any written agreement. Therefore we are of considered opinion that the liaison office in Mumbai does not constitute PE of the assessee in India under the provisions of DTAA. Accordingly, ground no. 1 raised in assessee”s appeal is allowed. Levy of interest under section 234B - HELD THAT:- In view of decision of Hon”ble Supreme Court in DIT v. Mitsubishi Corporation [2021 (9) TMI 875 - SUPREME COURT] ground No. 4, raised in assessee”s appeal, is allowed.
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