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TMI Blog2014 (9) TMI 887X X X X Extracts X X X X X X X X Extracts X X X X ..... s deemed to have accrued or arisen in India. However, on verifying the profit and loss account of the Branch, the Assessing Officer formed an opinion that in fact, the Branch office is not involved in any purchase activity in India. Therefore, he concluded that the Branch office has not exported any goods from India. According to him, the Branch office is actually engaged in the business of supply chain management for garments, which include services like product design & development, sourcing, merchandising, follow up, quality control, factory evaluation and shipping coordination. All the branches of the company in India were actually engaged in similar activities only. Therefore, a survey action under Section 133A of the Act was initiated on 12.01.2006. During the course of survey and also post survey, statements were recorded from the officials of the assessee, which led to the conclusion that the assessee is not carrying out liaison activities, but in fact was carrying out business activities under the guise of liaison office. 3. A notice under Section 148 of the Act was issued and served on the assessee. In response to the notice, the assessee filed the return on 22.05.2006 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act, in India. 6. However it is held that the Assessing Authority should have brought to tax the income of the appellant from rendering of service of supply chain management earned by the assessee at cost + 5% as specified in the agreement between the assessee and the MSL. Therefore the Assessing Authority was directed to re-compute the income of the assessee on the basis of cost + 5% as per the agreement between the parties and accordingly allowed the appeal in part. Aggrieved by the said order both the assessee as well as the revenue preferred appeals. That is how there are six appeals relating to three assessment years. 7. The Tribunal, on re-appreciation of the entire material on record, after taking note of the judgments on which reliance was placed, after interpreting Section 9(1) and explanation (1) held that it is not necessary that an assessee who directly export if the non-resident operates through assessee but confined to purchase of goods for the purpose of export is exempted. Therefore, purchase per se for the purpose of export is not the requirement of the Section. A careful reading of the Section will make it clear that first of all there is nothing in the Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned counsel appearing for the assessee supporting the impugned order contended that admittedly the foreign buyer do not approach the Indian manufacturer directly. He approaches the assessee, inform him about his requirements and also the price which he is willing to pay for the merchandise. It is thereafter the assessee approaches the Indian manufacturer, negotiates with him the price and when once the contract is concluded the assessee provides the necessary expertise for manufactured goods according to the specifications and see that the standards are maintained and thereafter the goods are exported outside the Country to the buyer. Therefore the income which arises in India to the assessee is on account of purchase and export of merchandise and therefore falls under Section 9(1)(i)(b) and the Tribunal rightly upheld the contention of the assessee. Therefore he submits that no case for interference is made out. 11. In order to appreciate the rival contentions first let us look at the undisputed facts. The assessee is a Hongkong based company which is a non-resident. It has branches in India at 3 places. According to the statement of Sri. Lalith Fernando, Country Manager each b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inal inspection. If by chance the defects are found in the final inspection stage then a random sample is selected and sent to the buyer for final acceptance. The buyer reserves the right to refuse or reject the order at this stage or accept the order with a price negotiation. If the goods are found according to the required standard, then the supplier will hand over the goods to the shipping forwarder of the company who will coordinate the shipment. If the price is different from the target then price negotiations are made with the supplier by the assessee and the information is passed on to the buyer. The final say of price rests with the buyer and the assessee will not have any influence over it. 12. From the aforesaid facts it is clear that it is true that the assessee is not placing any orders with the manufacturers. The assessee is not purchasing the merchandise and the assessee is not exporting the merchandise but the fact remains that the entire effort put forth by the assessee results in a valid buyer placing orders with an Indian manufacturer and after the goods are manufactured according to the specifications, they are exported out of the Country. No foreign buyer is ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of any cinematograph film in India.] 13. The aforesaid provisions makes it clear what are the incomes which are deemed to accrue or arise in India for the purpose of levying tax. However, explanation (1)(a) introduces a deeming clause, i.e., though income 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urpose of export, the income derived therefrom shall not be deemed to accrue or arise in India and it shall not be deemed to be an income under Section 9 of the Act. The object is to encourage exports thereby the Country can earn foreign exchange. The activities of the assessee in assisting the Indian manufacturer to manufacture the goods according to their specification is to see that the said goods manufactured has an international market, therefore, it could be exported. In the instant case also the whole object of the respondent assessee is giving its services both to the foreign buyer and the Indian purchaser is to export the merchandise to the foreign buyer which results in earning foreign exchange. Merely because the assessee do not place orders for purchase, in law it makes no difference. Without placing an order in its name the assessee is enabling a foreign buyer to place order directly with the manufacturer after the assessee approves the manufacturer and requirement and the assessee takes the responsibility of maintaining quality and dispatch of the goods to the destination. The purchase and export of merchandise takes place and therefore the object with which the said ..... 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