TMI Blog2022 (9) TMI 528X X X X Extracts X X X X X X X X Extracts X X X X ..... performing activities as permitted by the RBI, which were preparatory and auxiliary in nature and not the core business activity independent of the Head Office. Apart from the aforesaid documents impounded during the course of survey action, neither statement of the employees of the liaison office or the agents/customers in India was recorded nor any information under section 133 (6) of the Act was sought by the AO in order to support its conclusion that the liaison office constitutes PE of the assessee in India. Revenue though vehemently submitted that liaison office was negotiating price and doing sales activity in India, however, has not brought any sales agreement in support of the claim. It is highly doubtful that sales transaction of such a large scale can be conducted internationally without any written agreement. Therefore we are of considered opinion that the liaison office in Mumbai does not constitute PE of the assessee in India under the provisions of DTAA. Accordingly, ground no. 1 raised in assessee s appeal is allowed. Levy of interest under section 234B - HELD THAT:- In view of decision of Hon ble Supreme Court in DIT v. Mitsubishi Corporation [ 2021 (9) TM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e principle that only the profits attributable to the Indian operations of the Appellant should be considered taxable in India. 3. Without prejudice to grounds to 2 above, the learned CIT(A) has erred in not accepting the principle that the profits attributable to the PE, if any, should be computed in accordance with Article 7(1) and 7(2) of the India-Japan tax treaty, by adopting the average rate of commission paid by the Appellant to its independent agents. 4. The learned CIT (A) has erred in upholding the levy of the interest under section 234B of the Act. 4. The issue arising in ground No. 1, raised in assessee s appeal, is pertaining to consideration of liaison office as Permanent Establishment ( PE ) of the assessee in India under Article 5 of India and Japan Double Taxation Avoidance Agreement ( DTAA ). 5. The facts of the case pertaining to this issue, as emanating from the record, are: The assessee before us, M/s Nagase and Company Ltd., is a public company incorporated in Japan, which is engaged in the business of import/export as well as domestic sales of dye stuffs, chemicals, plastic, machinery, electronic materials, cosmetics, health foods and medica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtial relief to the assessee in respect of computation of taxable profit and directed the AO to consider only 4.29% as against 10% profit determined vide assessment order. The learned CIT(A) also allowed deduction of general and administrative expenses claimed by the assessee. Being aggrieved, both the assessee and the Revenue are in appeal before us. 6. During the course of hearing, learned Authorised Representative ( learned AR ) submitted that the documents found during the course of survey under section 133A of the Act were also the basis of assessment / reassessment in the case of the assessee for preceding and subsequent assessment years. The issue whether liaison office of the assessee constitutes PE within India under the DTAA has came up for consideration before the coordinate benches of the Tribunal in assessee s own case, wherein after consideration of the material available on record the coordinate benches came to the conclusion that liaison office doesn t constitute assessee s PE in India. The learned AR also fairly submitted that, while deciding the aforesaid issue in favour of the assessee, the coordinate bench of the Tribunal had clarified that the issue of exist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terials used in preparing the ultimate form of an agreement or statute, and esp. of an international treaty; the draft or legislative history of a treaty. The expression auxiliary is also not defined in the 1961 Act or the DTAA. In common parlance, the meaning of that expression is predicated in Concise Oxford English Dictionary (Twelfth Edition), which reads thus: - Auxiliary- adj. providing additional help or support. n. an auxiliary person or thing. N. Amer. A group of volunteers who assist a church, hospital, etc. with charitable activities. In Black's Law Dictionary (Eleventh Edition), the term auxiliary is defined as follows: - Auxiliary adj. 1. Aiding or supporting. 2. Subsidiary. 3. Supplementary. 9. As per the assessee, liaison office acts as a communication channel between the Head Office and its customers. Further, liaison office provides support services to its Head Office in Japan and is used for collecting and providing the information about the Indian market as well as for liasioning between the Head Office and the customers. It is the case of the assessee that liaison office does not carry independent business activities and does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t liaison office does not constitute PE of the assessee in India. The relevant portion of Para-5.1 of the order is as under:- 5.1 .......... For that purpose it would be essential to refer to the impounded material. One of the documents relied upon by the AO is PRR of one of the employees. We find that it talks of the performance of one of the employees for the FY. 1998-99 i.e., for the AY. 1999-2000. In our opinion, the report has no relevance for deciding anything for the year under consideration. Now, we would like to analyse the other documents that are relevant for the instant AY. Agreement dtd. 13.09.1996, entered in to between LG Chemicals Ltd. Korea and Nagase Co.(pg. 517- 22)take of granting non transferable rights to distribute certain chemicals. The agreement was valid up to December, 1996. No other document was referred to by the AO/FAA to prove that the agreement was renewed was acted upon during the year under appeal. Pg. 523 of the PB is a letter from one of the employees of the assessee to its Shanghai office. In that letter the employee has advised the Shanghai office as to how to deal with Indian customers. But, it does not prove that the assessee was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evant findings of the coordinate bench of the Tribunal in aforesaid decision, in this regard, are as under: 24. We have carefully considered the rival submissions. Factually speaking, quo the previous year relevant to the assessment year under consideration, the only evidence relied upon by the CIT(A) to hold that the LO was directly involved in the business activity by taking help of commission agents is the communication dated 28.09.1995 of M/s. Musk Fragrance Understandably, M/s. Musk Fragrance is an independent Commission agent appointed by the Head Office and to that extent, there is no dispute. The claim of the Revenue is that the said communication shows direct business dealings between the LO and the said agent. In this background, we have perused the contents of the said communication, a copy of which has been placed in the Paper Book at page 271. The said communication is with regard to certain product 'Citral' which is explained to be used in the perfumery industry. The communication gives information about the current demand, customer-wise and the present prices of the product. It also refers to certain fax already sent regarding indent of a product. Mu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... employees / officers of the Liaison Office at Mumbai in the meeting between the representative of the Head Office and M/s Musk and Fragrance was only for establishing a communication channel, since, the representative of the Head Office did not know any other language except Japanese. The other impounded documents specifically referred to by the Assessing Officer and the learned Commissioner (Appeals) in no way conclusively establishes the fact that the Liaison Office at Mumbai was acting as an agent by involving itself in concluding contracts on behalf of the Head Office or involving itself in any commercial transaction on behalf of the Head Office to constitute a PE in India. 14. Thus, the coordinate benches of the Tribunal, vide aforesaid decisions, after examining the documents/evidence pertaining to the assessment year under consideration have held that liaison office does not constitute PE of the assessee in India. Therefore, the question regarding the existence of PE needs to be determined in each and every year on the basis of the facts and circumstances prevailing in that year. During the course of hearing, learned AR referred to the documents impounded during the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , we are of the view that this document does not support the case of Revenue. 17. At page No. 91 and 92 of the factual paper book, communication dated 02/12/2002 and 21/08/2002 from M/s Musk and Fragrance are placed. We find that the after considering very same communication, the coordinate bench of the Tribunal in its decision dated 22/02/2019 in assessee s own case (cited supra), held that these documents do not establish the involvement of the liaison office in carrying on any commercial activity on behalf of the Head Office. 18. At page 93, copy of the email communication amongst employee of the liaison office and M/s Nagase (Singapore) is annexed, wherein sale transaction between the Singapore entity and customer viz. Garware is mentioned. From the perusal of the said communication, we find that the same is not relevant for the present appeal as it pertains to another entity of the assessee in Singapore. Further, the said communication only substantiates the claim of the assessee that the liaison office is merely acting as a conduit for passing the information between the seller and the buyer. 19. At page 94 is another such communication dated 29/01/2003, wherein minu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tiation with the customers and there is no evidence of any business activity been conducted by the liaison office in India. The email communication at page 101 of the factual paper book, appears to be response from the liaison office to Nagase (Europe) GmbH, in respect of the email correspondence at page 95 and 96 of the paper book. We find that at page 102 of the paper book is the email from the Head Office which was merely forwarded by the liaison office to the agent in respect of the visit of the representative of the agent to the Head Office in Japan. 23. Page 103 109 of the paper book appears to be the transaction between the supplier in India for the goods required by Nagase Singapore. Thus, from the careful perusal of these documents, we find that the liaison office in India was only providing support services of preparatory and auxiliary in nature and was acting as a communication channel between customers/agent and its Head Office/sister entities. From none of the document it can be concluded that liaison office was engaged in carrying out business activity in India on behalf of the Head Office in Japan. 24. During the course of hearing, learned DR placed reliance up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any written agreement. Therefore, in view of aforesaid factual and legal position, we are of considered opinion that the liaison office in Mumbai does not constitute PE of the assessee in India under the provisions of DTAA. Accordingly, ground no. 1 raised in assessee s appeal is allowed. 26. In view of our decision in respect of ground no. 1, issues arising in grounds no. 2 and 3, raised in assessee s appeal, are rendered academic in nature, in the present case. Therefore, grounds no. 2 and 3 are dismissed as infructuous. 27. The issue arising in ground No. 4, raised in assessee s appeal, is pertaining to levy of interest under section 234B of the Act. In view of decision of Hon ble Supreme Court in DIT v. Mitsubishi Corporation, [2021] 438 ITR 174 (SC), ground No. 4, raised in assessee s appeal, is allowed. 28. In the result, appeal by the assessee is partly allowed. ITA No. 2312/Mum/2007 Revenue s Appeal- A.Y. 2003-04 29. In its appeal, Revenue has following grounds: 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in estimating the profits at the rate of 4.29% as against 10% determined by the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellant's Liaison office constitutes its Permanent Establishment in India under Article 5 of the Double Taxation Avoidance Agreement between India and Japan ('India-Japan tax treaty ). 2. The learned CIT(A) has erred in holding that the sales made by the Appellant through independent agents in India are taxable in India. 3. The learned CIT(A) has erred in holding that there is no basic difference between the Appellant's dealing with the customers directly or through independent agents. 4. Without prejudice to grounds 1 to 3 above, the learned CIT(A) has erred in not accepting the principle that the profits attributable to the Permanent Establishment, if any, should be computed in accordance with Article 7(1) and 7(2) of the India-Japan tax treaty, by adopting the average rate of commission paid by the Appellant to its independent agents. Without prejudice to grounds 1 to 4 above, the learned CIT(A) has erred in not considering the global operating profit ratio of 0.47% (details of which were provided by the Appellant during the course of the appellate proceedings) for computing the profits attributable to the Permanent Establishment in India. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curred by the assessee on actual basis. Being aggrieved, both assessee and Revenue are in appeal before us. 36. During the course of hearing, learned AR by referring to the impounded documents found during the course of survey action made the similar submissions as were made in appeal for assessment year 2003 04. On the other hand, learned DR vehemently relied upon the orders passed by the lower authorities. 37. We have considered the rival submissions and perused the material available on record. Since legal position and litigation history on this issue has already been dealt in the earlier portion of this order, same are also not repeated for the sake of brevity. As noted above the question regarding the existence of PE needs to be determined in each and every year on the basis of the facts and circumstances prevailing in that year. Therefore, the impounded documents relevant for the year under consideration, which forms part of the factual paper book from pages no. 47 75, are dealt hereunder. The very first document at page 47 is a letter dated 20/04/2000 by the employee of liaison office to the Head Office in Japan, wherein information regarding the customer Atul and pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch never fructified, since the same was not acceptable to the Head Office. Again, apart from this letter nothing has been brought on record by the Revenue to substantiate the claim that liaison office was performing core business activities in India. 41. At page 51 59 is the performance review report of one of the employee i.e. Mr. Kishore L. Rajani, of the liaison office. In the said performance review report, the employee has submitted to aim for increase in sales of plastic and agrochemical intermediates. The learned DR on the basis of aforesaid statement submitted that the employee cannot propose to do something, which is beyond the scope of its employment. We find that the employee has also stated that he will cater to export business for which he was primarily absorbed. As per the assessee, the performance measurement is the targets achieved by the Head Office on account of the communication or support function played by the employee of the liaison office and same cannot be interpreted to mean that the said employee carry out the actual sales of purchases functions. From the perusal of the said performance review report, we find that there is also a column of sales figure, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roduct and price negotiation. However, it cannot be said that employees of the liaison office was involved in price negotiation. There is no doubt that 2 employees of liaison office were part of the meeting, however, no question was ever asked to them about the duties assigned to them or about the responsibilities shared by them. Further no statement of these employees was recorded by the AO nor any information / document was sought under section 133(6) of the Act. 44. The document at page 71 73 also does not substantiate the claim of the Revenue that the liaison office was involved in conducting business activity in India. The document reference to a statement by Mr Yasui that Bombay office wishes to do direct business without agent.. . However, nothing has been brought on record to support such a claim and statement also appears to be some future plan of the liaison office, which is irrelevant for the year under consideration. 45. The learned DR, during the course of hearing, placed reliance upon the document at page No. 74 of the paper book to submit that liaison office was involved in marketing and selling activities in India. From the perusal of the said document we f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdingly, grounds no. 1 to 3 raised in assessee s appeal is allowed. 49. In view of our decision rendered in respect of grounds no. 1 to 3, issues arising in grounds no. 4 to 8, raised in assessee s appeal, are rendered academic in nature, in the present case. Therefore, grounds no. 4 to 8 are dismissed as infructuous. 50. In the result, appeal by the assessee is partly allowed. ITA No. 343/Mum/2006 Revenue s Appeal- A.Y. 2001-02 51. In its appeal, Revenue has following grounds: 1. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in directing to adopt the sales figures for all the assessment years i.e.A. Yrs. 1996-97 to 2002-03 except A.Y 1999-2000 2000-01 as per certified exhibits submitted by assessee, ignoring facts that assessee failed to file global accounts and adopting shifting stands with the filing of revised certified copies of accounts documents every now and then. The department can rely on impounded documents for estimation of sales, 2. On the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in directing to adopt the gross profit at 8% and expenditure incurred on actual basis, whi ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
