TaxTMI 
TaxTMI 
2014 (2) TMI 976
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....he LOs of Mitsubishi function within the parameters of permissible activities for the LOs of a foreign company in India under the FERA, the Foreign Exchange Management Act, 1999 ('FEMA'), the rules and regulations framed thereunder, and the Circulars of the Reserve Bank of India ('RBI'). The LOs of Mitsubishi are subject to the terms and conditions on which the RBI has granted approval for their operation in India. 3. It is stated that, in the course of carrying out the liaison activities, Mitsubishi, Japan deputed/seconded some of its employees from Japan to India. The Appellant states that the said expatriated employees, continue to be the employees of Mitsubishi and are not employees of the Appellant. Their salaries and emoluments are payable by the Head Office ('HO') in Japan. However, in order to enable the expatriate employees to meet their day-do-day expenses while they are in India, the Appellant pays the Indian component of their salaries from the amount remitted to it by the HO for that purpose. 4. On 27th January 1999, ED asked the LOs of Mitsubishi to furnish certain information and documents, and in particular, the details of the permission granted by the RBI, the to....
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....overseas, of a part of the salaries of the employees seconded to India, by the HO without the previous permission/exemption of RBI, was a contravention of Sections 8(a) and 9(1)(c) of FERA. 8. In the reply dated 28th June 2002, Mitsubishi, for its LOs, contended that the HO did not make payments of the salary on behalf of the LOs and that the LOs were not required to repay to the HO the amounts so paid by the HO to the employees seconded to the LOs. The copies of the Notifications dated 1st January 1974, 24th November 1977 and 26th April 1993 of the RBI were enclosed with the reply. 9. The AO dated 10th February 2004, passed by the Special Director, ED after hearing the Appellant, first held that "(I) the Parent Corporation abroad has paid a part of the salary to the expatriate employees working with the noticee Corporation and (II) The noticee was only a liaison office of M/s. Mitsubishi Corporation, Japan, and was not a separate legal entity having any separate identity". The AO then proceeded to discuss para 11.D.3 of the Foreign Exchange Control Manual ('FECM') and observed that the expatriated employees of the parent company, while holding the post with the Indian Liaison Of....
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....dy corporate under Section 73(1)(d) FER Act, 1973." 12. It was then held by the AT that since the payment of a part of the salary was being made in foreign currency to the expatriate employees in a foreign land by the foreign principal, such liability was "clearly of the appellant herein", and "an inference of agency from the circumstances is permissible and can appropriately be drawn." It was further held that "Once agency is available on facts and circumstances with the payment made to discharge the liability, which otherwise as discussed above is of the borrower, can certainly imply possession enjoyment of the paid foreign currency wherefrom acquisition will automatically be inferred." 13. The AT held that since the contraventions under Sections 8(1) and 9(1)(c) of the FERA were distinct and separate, the mere fact that the Appellant was not found to be in contravention of Section 9(1)(c) did not mean that it should not be held to be in contravention of Section 8(1) of the FERA. The AT proceeded on the footing that the expatriated employees were "borrowed employees whose liability to pay the salary is on the Appellant." The payment of salary to such expatriated employees in fo....
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.... sell, or otherwise transfer or lend to or exchange with, any person not being an authorized dealer, any foreign exchange....." 18. Under Section 8 (1) (b) FERA, there is a prohibition on a person "other than an authorized dealer" purchasing, acquiring or borrowing or selling or otherwise transferring or lending or exchange with any person not being an authorized dealer, any foreign exchange either in India or outside India. The question that then arises is whether on the facts of the present case, the Appellant can be said to have "purchased or otherwise acquired or borrowed" any foreign exchange in India. 19. The AT has proceeded on the basis that the employees of the parent corporation, seconded to the Appellant, are its "borrowed employees". The fact of the matter is that the expatriated employees of the HO, are posted in India with the LO, continue to be employees of the parent corporation. The salaries payable to them by the parent corporation were partly paid in India, and for that limited purpose, the funds were remitted by Mitsubishi, Japan which were then disbursed by the Appellant to such seconded employees. By no means, could it be said that the expatriated employees ....
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....ter dated 30th January 1976, issued by the RBI under Section 29(2) of the FERA granting permission to the LO to operate clearly states that the LO would only undertake the liaison activities relating to import/export trade, collection of commercial, industrial and other business information in Tokyo etc. and that "Excepting the said promotional work, the Indian offices will not undertake any activity of a trading commercial or industrial nature without the prior permission of the Reserve Bank of India." 22. Significantly, with the AO itself finding the Appellant not liable under Section 9(1)(c) of the FERA on the ground that there was no debt owed by the Appellant to the parent company, it could not have held that there was a liability owed by the LO to the parent company for the purposes of Section 8 (1) (b). 23. The Division Bench of the Kerala High Court in Central Government v. Abdul Mohammed ILR 1988 (1) Kerala 378 has explained that the expression 'otherwise acquired' in Section 4(1) of the FERA 1947, (corresponding to Section 8(1) FERA) has the same meaning as "buy or borrow." In the instant case, there was no question of the Appellant having acquired or borrowed from the ....