TMI Blog2005 (4) TMI 623X X X X Extracts X X X X X X X X Extracts X X X X ..... ein). RRIL's immediate parent company is Rolls Royce International Ltd. which is a subsidiary of the assessee company. RRIL is therefore to be considered as a Subsidiary of the assessee company. RRIL has its offices in India at New Delhi and additional Offices in Bangalore, Kanpur and Goa. As already stated RRIL was engaged liaisoning activities on behalf of the assessee. There is a written agreement dated 1-7-1979 between the assessee and RRIL for rendering services in the territory of India, Nepal, Bangladesh, Bhutan and Shri Lanka. RRIL was to be paid remuneration calculated at 5 per cent and marked over the cost incurred. The nature of services to be rendered by RRIL were as follows : i.To obtain and report to Rolls Royce on a regular basis such marketing information as is considered to be relevant to Rolls Royce interest. ii.To disseminate such marketing and commercial information relating to Rolls Royce's products as Rolls Royce may require. iii.To provide administrative and secretarial assistance locally for the services representative deployed in the territory. iv.To provide a liaison service between Rolls Royce and relevant departments of Government of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have considered the submissions of the appellant and facts of the case carefully. I have also gone through the reasons which have been recorded for issuing notice under section 148. It has been duly mentioned in the reasons that on the basis of information collected from HAL the appellant has entered into a contract of sale of 20 Jaguar aircraft and other spare accessories with HAL, Bangalore. It has also been mentioned that the appellant has supplied engines, aircraft, spares and accessories to other parties in India during the relevant financial year. Therefore, Assessing Officer had the information that the appellant had supplied spare parts and accessories to HAL as well as to other parties in India from which income has accrued to the appellant and the income relating to sale of Jaguar aircrafts was also likely to accrue during this year. On these reasons the Assessing Officer had reasonable belief that income chargeable tax has escaped assessment. Considering the facts that conditions of section 147 have been duly fulfilled and the Assessing Officer had reason to believe on the basis of proper information that income chargeable to tax has escaped assessment, Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax, then it will be a case of escapement of income chargeable to tax. In the present case it is not in dispute that the assessee did not file his return of income. The question is whether the assessee's total income for the P.Y. was more than the amount, which is not chargeable to income-tax. We may also clarify here that at the time of reopening an assessment, the Assessing Officer is not expected to reach a final conclusion regarding the quantum of income that escapes assessment or a final conclusion regarding chargeability of such income to tax under the Act. A prima facie conclusion would suffice. The information that was in possession of the Assessing Officer was the minutes of the meeting between HAL and the assessee. This meeting was held on 6-10-2000 at Bangalore. The minutes of the meeting discussed about various supplies to be effected by the assessee to HAL. This information was sufficient for the Assessing Officer to come to the conclusion that income chargeable to tax in India of the assessee had escaped the assessment. The fact that the contracts were executed in India could reasonably lead to a conclusion that income has accrued to the assessee in India and was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 9 of the Income-tax Act as well as the provisions of DTAA between India and UK. Under section 9(1)(i) of the Act, incomes accrue or arise in India, where such income accrues or arises, whether directly or indirectly through or from any business connection in India. Explanations 2 and 3 to section 9(1)(i) explains as to what is a business connection. These explanations are in pari materia the same as Article 7 of the DTAA with UK. Article 7 of DTAA between India and U.K., lays down that the profit of an enterprise of UK shall be taxable in India, only if the UK enterprise, carries on business in India through a PE situated in India. Article 5 lays down as to when it can be said that there exists a PE which refers to a fixed place of business through which the business of an enterprise is wholly or partly carried out and includes certain other instances when it could be said that there exists a PE. For the present case what is relevant for us and the article which had been invoked by the Assessing Officer in the present case is Article 5(4) of Article DTAA with UK. The said Article together with Articles 5(5) to (7) reads as follows : 4. A person acting in a Contractin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicability of business connection as per section 9(1)(i) of the Act, though the same may not be relevant in the present case. The facts which were considered by the Assessing Officer in coming to the conclusion that the assessee had PE in India were as follows. The Assessing Officer made a reference between the agreement with the assessee and RRIL and made an observation that RRIL had in fact performed much more services than what they had agreed to perform under the agreement dated 1-7-1979 of the assessee. The Assessing Officer thereafter made a reference to few instance of such activities. The first instance referred to by the Assessing Officer is a meeting between Mr. Lodge MD of RRIL and Mr. P.V. Augustin, AGM of HAL, Bangalore. The Assessing Officer then made a reference to two more meeting viz., one that took place on 27-11-2000 and 29-11-2000 and another set of meeting which took place from 20 to 22 January, 2001. The Assessing Officer after making a reference to the aforesaid meetings concluded that RRIL had authority to act on behalf of the assessee. The Assessing Officer thereafter concluded that RRIL for all practical purposes was the face of the assessee in India as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s well as quotations regarding this programme. It also had reference to the spares that may be required by HAL. Thee was also a discussion with regard to sending of request for quantities. There was same discussion abut supply of critical spares and RRIL assured HAL that all efforts were being made to ensure that there is a proper supply. There was a discussion of non-availability of spares for Adour 804 and 811 and the assessee requested to expedite the supply and a promise for quick supply was made. There were other discussions also in this meeting. Conclusion of the Assessing Officer on this meeting was that no representatives of the assessee were present, in this meeting. We have perused the said minutes and we find that these minutes of the meeting only talk about supply status of current orders already placed and the time for starting negotiations for proposed orders were discussed. We find that the nature of services rendered by RRIL were in the nature of liaison activities and it cannot be said that from this meeting with RRIL, they had authority to conclude contracts on behalf of the assessee. Apart from the above it is seen that only the assessee wrote subsequent correspo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exercise such authority on behalf of the assessee. We therefore hold that Article 5(4) did not apply to the facts of the present case and the Assessing Officer was not justified in concluding that the assessee had a PE in India. 15. Another basis given by the Assessing Officer was on the applicability of Article 5(2)(k) of the DTAA. The said Article reads as follows : (k) the furnishing of services including managerial services, other than those taxable under Article 13 (Royalties and fees for technical services), within a contracting State by an enterprise through employees or other personnel, but only if: (i)activities of that nature continue within that State for a period or periods aggregating to more than 90 days within any twelve month period; or (ii)services are performed within that State for an enterprise within the meaning of paragraph 1 of Article 10 (Associated enterprises) and continue for a period or periods aggregating to more than 30 days within any twelve month period: Provided that for the purposes of this paragraph an enterprise shall be deemed to have a permanent establishment in a contracting State and to carry on business through that permanen ..... 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