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TMI Blog2015 (5) TMI 345X X X X Extracts X X X X X X X X Extracts X X X X ..... ng agent for the Tesco Group companies (Affidavits). Tesco, Hong Kong sources products for the Tesco group companies and ensures that the prices are competitive, while maintaining the quality standards prescribed by the Tesco Group. Tesco International Sourcing Ltd., - India Liason Office ('L.O'), the assessee company, was established in the year 2001. The LO acts as a communication channel between Tesco, Hong Kong and the manufacturers in sourcing apparel from India and undertakes liasioning activities like co-ordinating between the manufacturers and the Head Office. 2.2 A survey under Section 133A of the Act was conducted at the office premises of the assessee on 5.2.2009 and subsequently assessments were completed for Assessment Years 2003-04 to 2007-08. In furtherance thereto, notices under Section 148 & 143(2) were issued to the assessee in respect of Assessment Years 2008-09 to 2012-13. In compliance to the aforesaid notices under Section 148 of the Act, the assessee filed returns of income for Assessment Years 2008-09 to 2011-12 declaring NIL income. After taking into consideration the assessee's submissions, as recorded in the respective orders of assessment, the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dditions made by the Assessing Officer treating the LO as PE of the assessee. > The Hon'ble DRP is not right in law and facts in allowing the claim of the assessee in spite of the fact that buying agency agreement for non-food products between TISL and Tesco Stores Limited, UK (TESCO) dtd.15.8.2008 wherein as per clause 5 of the said agreement it is clearly mentioned that TISL will be paid 5% commission of the price for the goods procured by the assessee for TESCO. Further, as per clause 9 of the agreement buyer's company i.e. TESCO will gain title on the goods supplied by the Indian suppliers when the goods were made available to TISL. When in is implied that in such circumstances the purchase has taken place where it was made available to TISL and as per clause 5 TISL becomes eligible for commission on the cost of those goods. > The DRP is not right in law in allowing the appeals of the assessee in spite of the fact that in the instant case the commission earning has taken place in India when the goods procured by the assessee through their LO. > The DRP is not right in law and facts by not considering the question whether any income accrues or arises or is deemed to accru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt's order (supra) has been produced and placed on record. 5.2.2 As regards the plea of Revenue that the decision in the case of Jebon Corporation, India (supra) ought to have been followed by the DRP, rather than the decision in the case of Nike Inc., (supra), the learned Authorised Representative brought to our notice that the co-ordinate bench of this Tribunal, while deciding the assessee's case for Assessment Years 2003-04 to 2007-08 has considered the decisions in both these cases, Nike Inc. (supra) and Jebon Corporation India (supra). It is submitted that after consideration of both these cases, the co-ordinate bench decided that the facts and principles of the Nike Inc., case applicable to the facts of the case on hand, which decision has now been upheld by the Hon'ble High Court of Karnataka in the assessee's own case for Assessment Year 2003-04 to 2007-08 (supra). The learned Authorised Representative prayed that in view of the above submissions and the decisions of the co-ordinate bench and the Hon'ble High Court in the assessee's own case for Assessment Years 2003-04 to 2007-08, revenue's appeals ought to be dismissed. 5.3.1 We have heard the riva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom USA. For the relevant AYs, the assessee filed its returns of income declaring nil income with a claim that its activities were to carry on activities which were ancillary and auxiliary to the activities of its HO and other group companies and to act as a communication channel between the HO and the parties in India. It was, further, contended that in terms of Explanation 1(b) to s. 9(1)(i) of the Act, no income shall be deemed to accrue or arise in India to a non-resident from operations which were confined to the purchase of goods in India for the purpose of export. However, the AO took a stand that the activities of the assessee were actually beyond its activities as required as a LO. Thus, a part of the entire business was done in India through the LO and, therefore, the income had accrued or arisen or deemed to have accrued or arisen to the assessee in India in view of clause (b) of sub-section (2) of s.5. Accordingly, he held that the income of the assessee was charged to tax to the extent of income which was attributable to the activities done in India or accruing or arising in India on its behalf by the LO. He had, further, held that 5% of the export value could reasonab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... handise for the non-resident. If the said definition is read with Explanation 1(b) to section 9(1)(i), in the case of a non-resident, no income shall be deemed to accrue or arise in India to him whether directly or indirectly through or from any business connection, which is confined for the purpose of export. In the first place, the assessee is not purchasing any goods. The assessee is enabling the manufacturer to purchase goods of a particular specification which is required by a foreign buyer to whom the manufacturer sells. As the orders are placed by the assessee with the manufacturer and the goods are manufactured according to its specification which is the requirement of the buyer and even if it is held, though the goods are supplied to the buyer, it is deemed to be supplied to the assessee, the whole object of this transaction is to purchase goods for the purpose of export. Once the entire operations are confined to the purchase of goods in India for the purpose of export, the income derived there from shall not be deemed to accrue or arise in India and it shall not be deemed to be an income under section 9. If one keeps the object with which the proviso to clause (b) of Exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LO in India based on the directions of group companies through Head Office Price of each apparel and quality aspects are monitored by LO in India based on the directions of group companies through Tesco Hong Kong Samples of apparels to be forwarded to US Office Samples of apparels to be forwarded to Hong Kong Office LO monitors the progress, quality etc., at the manufacturing workshop, besides the time schedule to be followed and assistance in the dispatch of goods LO monitors the progress, quality etc., at the manufacturing workshop, besides the time schedule to be followed and assistance in the dispatch of goods LO sources the goods from India for export and, hence, Explanation to s. 9(1)(i) of the Act is applicable LO sources the goods from India for export and, hence, Explanation to s. 9(1)(i) of the Act is applicable Nike Inc. acts as a sourcing agent for the affiliates of Nike. Nike LO sources goods for the affiliates from India as goods were purchased by the affiliates directly from the vendor in India. As such, Nike Inc. doesn't purchase by itself and makes the sales to its subsidiaries, but, arranges for the purchase by Nike affiliates from India In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of purchase of goods through LO and all the activities carried out by the LO are basic and preliminary requirement of the purchasing process/operation. Selection of right goods and negotiations of price as per the instructions of the assessee are essential part of the purchasing activity. Thus, the case is fully covered by the clause (b) of Explanation (1) to section 9(1) (i) of the Act....." 7.3.1 In the instant case, all the activities of the LO, such as liaisoning between the manufacturer and the assessee, opines of reasonability of prices, monitoring the progress and quality at the manufacturing end etc, are activities of LO prior to purchase of good by the Tesco Hong Kong." 5.3.2 We also find, as pointed out by the learned Authorised Representative, that the co-ordinate bench of the Tribunal in its order in the assessee's own case for Assessment Years 2003-04 to 2007-08 (supra) at paras 7.5 to 8 has considered the decision of the Hon'ble Karnataka High Court in the case of Jebon Corporation India (supra) and has held as under :- " 7.5. We have, with due respects, perused the judgment of the Hon'ble jurisdictional High Court in the case of Jebon Corporation India v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the Explanation 1(b) to Section 9(1)(i) of the Act is applicable in the assessee's case and therefore no income was derived by the assessee in India through its operations as LO in India. Consequently, the grounds of appeal raised by Revenue are dismissed. 6. In the result, Revenue's appeals for Assessment Years 2008-09 to 2012-13 are dismissed. Assessee's Cross Objections NO.13 to 17/Bang/2015 - for Assessment Years 2008-09 to 2012-13. 7. The Grounds raised in the C.Os filed by the assessee for all the Assessment Years 2008-09 to 2012-13 are identical and therefore only the grounds relating to for Assessment Years 2008-09 are reproduced hereunder ;- "1. The appellant has erred in concluding that the activities of respondent are not confined to the purchase of goods in India, for the purpose of exports outside India. The functions carried on by the respondent are related only to purchase activity and is exempt in terms of Clause (b) of Explanation 1 to Section 9. 2. The appellant has erred in attributing profits to the Respondent's operations in India, by referring to the buying agency agreement between Tesco International Sourcing Limited (Tesco, Hong Kong) an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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