TMI Blog2016 (2) TMI 705X X X X Extracts X X X X X X X X Extracts X X X X ..... employees of the assessee at the L.O. are authorised to do core business activity or to sign and execute contracts etc., we now examine whether the AO has brought out any documentary evidences in support of his contention that the assessee has a P.E. in India. The assessee has furnished before the AO as well as before the DRP numerous documents, in support of his contention that all purchase orders would be raised directly by the Indian Customers on the Head Office of the assessee and that the Head Office had directly send quotations/invoices to its Indian customers and that these were signed and executed directly by the head office, without any involvement whatsoever by the LO in India. The AO has not given any adverse finding on the evidences filed before him nor did he point out from the evidences filed, as to why the claim of the assessee is not acceptable. There is no adverse comment by the D.R. on these voluminous evidences filed before us by the assessee to demonstrate that it does not have a P.E. in India. The AO has also not brought on record any material, other than his interpretation of the terms of the power of attorney, to demonstrate that the L.O. is carrying on c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6,03,04,690. (b) On the facts and in the circumstances of the case and in law, Ld. AO/DRP erred in holding that the Liaison office ( LO ) of the appellant LO was engaged in the core functions of the appellant which were essential to be performed for the conclusion of the customer agreement and not merely preparatory and auxiliary activities. (c ) On the facts and in the circumstances of the case and in law, Ld. AOIDRP erred in holding that the appellant has filed false declaration before the Reserve Bank of India ( RBI ) as the LO was intended to work as fully functional branch office and further holding that such information was also withheld from the Income Tax Department. (d) On the facts and in the circumstances of the case and in law, Ld. AOIDRP very grossly erred in misinterpreting the Power of Attorney granted to the person in charge of the LO and held that the Chief Representative Officer of the LO has been granted wide powers to negotiate and conclude contracts with the customers which would be binding on the appellant and the Power of Attorney executed in favour of the Chief Representative Officer grants unfettered powers to do or act for and on behalf o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 44DA of the Act considering it to be effectively connected to the alleged PE in India 4(a) On the facts and in the circumstances of the case and in law, Ld. AO erred in holding that the entire technical services income was taxable under section 44DA of the Act considering it to be effectively connected with the alleged Fixed Place PE and attributing income of ₹ 65,44,17,631 in this regard. (b) On the facts and in the circumstances of the case and in law, Ld. AO erred in taxing the part of the fee for technical services arising from engineering services which were wholly carried outside of India and in Japan amounting to ₹ 59,51,08,254 as being effectively connected to the alleged PE in India. (c ) On the facts and in the circumstances of the case and in law, Ld. AO erred in ignoring the fact that the amount of INR 70,92,129 appearing as income received from a customer was never received by the appellant without independently verifying the same. (d) That without prejudice in any manner to the aforesaid grounds, the AO has very grossly erred in computing income from fees for technical services by allowing expenses at a meager rate o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inciples and not on adhoc basis. Ground no.6 is against levy of interest u/s 234B of the Act and ground no.7 is against initiation of penalty proceedings. 5. The Ld.Counsel for the assessee laid emphasis on ground no.1 and argued that, (a) The assessee opened a liaison office (hereinafter referred to as L.O. ) in India with prior permission from Reserve Bank of India and the conditions laid down therein are complied with. (b) The activities of the LO are only preparatory/auxiliary in nature and the L.O. is not authorised to discuss the terms of contract or to bind the head office or to initiate contracts. (c ) That the LO was opened only to act as a communication channel for its head office. (d) that various evidences on sample basis were submitted before the A.O. to demonstrate that the L.O. was not involved in execution of any contracts etc. and that the purchase orders were directly raised by the Indian customers on the head office and that quotations and invoices were directly sent by the head office to the Indian customers and were signed/executed directly by head office without any involvement whatsoever of the LO in India. (c ) That the assessee does not h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... invoices along with shipping documents of supplies demonstrate that they were made on principal to principal basis. He submitted these copies to the A.O. and pointed out that all supplies were made on delivery terms outside India and payments for supplies were also received outside India. It was submitted that substantial amount of off shore supplies were made either on Free on Board (FOB) basis or ex-works basis. 6.4. He further argued that the A.O. was making totally a wrong allegation at para 6.3 of his order stating that, except manufacturing, all other functions like market survey, market research, customer education etc. are carried out in India and thereafter made a hypothetical determination of 60% of the profits from sales as attributable to the P.E. in India. 6.5. He relied on the decision of Hon ble Supreme Court in the case of Ishikavajimaharima Heavy Industries Ltd. vs. DIT (2007) 288 ITR 408 (S.C.) as well as the judgement of the Apex Court in the case of CIT vs. Hyundai Heavy Industries Co.Ltd. (2007) 291 ITR 482 (S.C.) for the proposition that only such part of income as is attributable to the operations carried out in India is to be subjected to Indian tax an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d before us. 8. The Ld.D.R. Mr. Anuj Arora on the other hand controverted the arguments of the Ld.Counsel for the assessee and submitted that the so called L.O. in India is conducting core business activity. He submitted that salaries of 41.8 lakhs and 54 lakhs per annum are being paid to the employees in the L.O. and that though no adverse view can be taken keeping in view the quantum of salaries, he submitted that it is an indicator of the nature of functions rendered by the employees and that it is not merely for the purpose of news paper reading and report collection and that the employees are doing something more. He relied on the order of the AO as well as that of the DRP and submitted that a bare perusal of the power of attorney granted to the employees of the so called L.O. by the assessee company permits core business activity and it is not restricted to L.O. specific activity. He argued that even otherwise, the stand of the Revenue that the employees of the assessee company in the L.O. are doing core business activity, is not contradicted by the argument that the power of attorney is L.O. specific. He relied on para 4.2 to para 4.9 of the AO s order and para 3.3 of DRP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a is the clauses in power of attorney executed by the head office in favour of its employee in the L.O. in India. Reliance was also placed on the permission granted by the RBI to the assessee for setting up the L.O. For ready reference both these are extracted herein below. 11.1. The Power of Attorney is at page 276 of the paper book which is extracted hereunder. KNOW ALL MEN BY THESE PRESENTS THAT the undersigned Kawasaki Heavy Industries Ltd., a company duly organized and existing under the laws of Japan and having its registered office at 1, Higashikawasakicho, 3- Chome, Chuo-ku, Kobe -65091 (hereinafter called KHI) duly represented by its Board of Directors, does hereby constitute and appoint Mr. Takao Suto holding Passport No. T.10453120, the true and lawful attorney/local representative of KHI for and in the name of and on behalf of' KHI to do or execute all or any of the acts and things hereinafter mentioned. 1. To open and establish a Representative Office and/or Branch Office(s) of KHD in India (hereinafter called the Liaison Office ) and for the purpose sign and execute any rental agreements for office premises, residential premises, and for equipment& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Liaison Office; and 11. To generally represent and act in the name and behalf of KHI in all matters arising out of related to the establishment and functioning of the Liaison Office. KHI is hereby declares that every act, deed, which shall be signed, executed made 01' done by the said attorney shall be as good, valid and effectual to all intents and purposes whatsoever as if the same had been signed, delivered, exercised , made or done by KHI itself. KHI hereby ratifies, confirms and agrees at all times to ratify and confirm whatsoever the said attorney shall lawfully do or cause to be done by virtue of these presents. The foregoing Power Attorney shall remain in full force and effect until revoked in writing. IN WITNESS WHEREOF, the undersigned has caused this instrument to be duly executed on this 16th March, 2011. Sd/- Mitsutoshi Takao Senior Vice President Representative Director Kawasaki Heavy Industries, Ltd. (Emphasis ours) 11.2. The RBI permission reads as follows. FE.CO.FID/10.96.545/2005-06 By Air Mail/Regd.A.D. M/s Kawasaki Heavy Industries Ltd., 1, Higashikawasakicho 3 Chr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay of lease for a period of not exceeding five years) transfer or dispose of any immovable property in India without obtaining prior permission of the RBI under the Foreign Exchange Management (Acquisition and transfer of immovable property in India) Regulations, 2000. vi. The office in India will furnish to our Regional Office (on an yearly basis) a certificate from the auditor that the office has complied with the terms and conditions stipulated in the letter of approval issued by the RBI and that all the expenses are met by way of inward remittances. In the case of winding up of the office, you may approach Regional Office with the documents as required in terms of Regulations 8(1)(iii) of Notification no.FEMA 13/RB-2000 dated 3rd May, 2000. vii. The office in India shall not render any consultancy or any other services directly/indirectly, with or without any consideration. viii. The office in India will not have any signing/commitment powers, except than those which are required for formal functioning of the office, on behalf of the head office. ix. In case you desire to open a head office account in the books of your liaison office in India, we hereby ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verse finding on the evidences filed before him nor did he point out from the evidences filed, as to why the claim of the assessee is not acceptable. There is no adverse comment by the D.R. on these voluminous evidences filed before us by the assessee to demonstrate that it does not have a P.E. in India. The AO has also not brought on record any material, other than his interpretation of the terms of the power of attorney, to demonstrate that the L.O. is carrying on core business activity warranting his conclusion that the assessee has a P.E. in India. Thus neither the documents produced by the assessee are rebutted by the Revenue, nor the Revenue has brought on record any evidence in support of its contention. 12. Thus we have to necessarily hold that the Revenue could not demonstrate that the assessee has a P.E. in India. Hence we allow ground no.1 of the assessee. 13. As we have held that the assessee has no P.E. in India, we need not adjudicate the grounds raised by the assessee on the issue of attribution of business profits to the P.E. in India. Thus ground no.3 is not adjudicated as it is consequential in nature to our finding in ground no.2. 14. This brings us to t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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