ACIT, New Delhi V. M/s. Radware Ltd, New Delhi

ITA 3099/DEL/2009

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7266 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 6 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-01-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 09-12-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 03-07-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RASMITA JHA
• Keywords: Business income; Double taxation relief; Permanent establishment; Advance ruling

Judgement Text

1 ITA NO. 30 99/DEL/2009 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: F NEW DELHI BEFORE SHRI N.K. SAINI, ACCOUNTANT ME MBER & SMT. BEENA PILLAI, JUDICIAL MEMBER I.T.A .NO.-3099/DE L/2009 (ASSESSMENT YEAR-2005- 06) ACIT, CIRCLE 2(1), ROOM NO. 414, DRUM SHAPED BLDG., NEW DELHI. VS RADWARE LTD. U & I, BUSINESS CENTRE, F-41, NDSE-1, NEW DELHI. APPELLANT BY SMT. RASMITA JHA, SR. DR RESPONDENT BY SH. VED JAIN, CA ORDER PER BEENA PILLAI, JUDICIAL MEMBER : THE PRESENT APPEAL HAS BEEN FILED BY THE REVENUE A GAINST THE ORDER OF THE LD. CIT(A)S-XXIX, NEW DELHI VIDE HIS ORDER DATED 26/03/2009 FOR A.Y. 2005-06 ON THE FOLLOWING GROUND S: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) ERRED IN HOLDING THAT ACTIVITIES OF THE ASSESSEE IN INDIA ARE OF PREPARATORY OR AUXILIARY I N NATURE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A) ERRED IN HOLDING THAT THE ASSESSEE D OES NOT HAVE PERMANENT ESTABLISHMENT IN INDIA. DATE OF HEARING 09.12.2015 DATE OF PRONOUNCEMENT 21.01.2016 2 ITA NO. 30 99/DEL/2009 3. THE APPELLANT PRAYS TO ADD, AMEND, MODIFY OR ALTER ANY GROUNDS OF APPEAL AT THE TIME OR BEFORE THE HEARING OF THE APPEAL. 2. BRIEF FACTS OF THE CASE ARE AS UNDER: THE ASSESSEE FILED ITS RETURN DECLARING NIL INCOME ON 28.12.06. THE RETURN WAS FILED IN RESPONSE TO THE NOTICE U/S 142( 1) OF THE ACT ON 04.01.06. ACCORDINGLY, NOTICES U/S 143(2) OF THE A CT WAS ISSUED. THE ASSESSEE IS A LIAISON OFFICE IN INDIA OF COMPAN Y INCORPORATED IN ISRAEL. IN ISRAEL THE COMPANY IS ENGAGED IN THE DE VELOPMENT, MANUFACTURE AND SALE OF INTERNET TRAFFIC MANAGEMENT SOLUTION UNDER THE STYLE AND NAME RADWARE LIMITED. THE LD. AO FURTHER NOTED THAT IN INDIA, THE LIAISON OFFICE IS UNDERTAK ING ACTIVITIES AND ACTING AS A COMMUNICATION CHANNEL BETWEEN ITS HEAD OFFICE IN ISRAEL AND PARTIES IN INDIA. DURING THE ASSESSMENT PROCEE DINGS, IT WAS SUBMITTED THAT THE ASSESSEE IS NOT CARRYING OUT ANY TRADING ACTIVITY, COMMERCIAL OR INDUSTRIAL IN NATURE AND DOES NOT HAV E ANY BUSINESS INCOME ARISING IN INDIA. THE LD. AO DISREGARDED TH E SUBMISSION MADE BY THE ASSESSEE AND HELD THAT THE ASSESSEE IS A PERMANENT ESTABLISHMENT AND COMPUTED THE INCOME OF THE ASSESS EE FOR THE YEAR UNDER CONSIDERATION AT RS. 16,86,375/-. 3. AGGRIEVED BY THE ORDER OF THE LD. AO THE ASSESSE E PREFERRED AN APPEAL BEFORE THE LD. CIT(A). 3.1. THE LD. CIT(A) CONSIDERED THE PROVISIONS OF IN DO ISRAEL DOUBLE TAXATION AVOIDANCE AGREEMENT AND HELD THAT THE ASSE SSEE WAS NOT A PE BUT WAS HAVING ACTIVITIES IN NATURE OF PROPRIETA RY AND AUXILIARY SERVICES. THE LD. CIT(A) PLACED ITS RELIANCE ON TH E DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF UA E EXCHANGE 3 ITA NO. 30 99/DEL/2009 CENTRE LIMITED VS. UNION OF INDIA AND ANR., REPORTE D IN 313 ITR 94, AND DELETED THE ADDITION MADE BY THE AO. 5. AGGRIEVED BY THE ORDER OF THE LD. CIT(A) THE REV ENUE IS IN APPEAL BEFORE US. 6. THE SHORT ISSUE ARISING BEFORE US FOR CONSIDERAT ION IS THAT WHETHER THE ASSESSEE IS A PERMANENT ESTABLISHMENT(P E) IN INDIA, OR IS ONLY HAVING ACTIVITIES THAT ARE PROPRIETARY OR A UXILIARY IN NATURE. 6.1 . THE LD. AR SUBMITTED THAT THE ASSESSEE IS A L IAISON OFFICE OF A COMPANY INCORPORATED IN INDIA KNOWN AS RADWARE LIMI TED WHICH IS AN ISRAEL COMPANY. IN ISRAEL, THE COMPANY IS ENGAG ED IN THE DEVELOPMENT, MANUFACTURE AND SALE OF INTERNET TRAFF IC MANAGEMENT SOLUTION. THE LD. AR FURTHER SUBMITTED THAT INDIAN LIAISON OFFICE IS UNDERTAKING SOLELY LIAISON ACTIVITIES, AND ARE ACTI NG PURELY AS A COMMUNICATION CHANNEL BETWEEN ITS HEAD OFFICE IN IS RAEL, AND PARTIES IN INDIA. THE LD. AR STATED ACROSS THE BAR THAT THE ASSESSEE IS NOT CARRYING ON ANY ACTIVITY OF A TRADING, COMME RCIAL OR INDUSTRIAL IN NATURE, AND DOES NOT HAVE ANY BUSINESS INCOME AR ISING IN INDIA. 6.2. THE LD. AR FURTHER SUBMITTED THAT, IT IS AN UN DISPUTED FACT THAT THE COMPANY FROM ISRAEL MAKES ALL THE SALES THROUGH THE DISTRIBUTORS DIRECTLY FROM ISRAEL AS IS CLEAR FROM THE DIAGRAM WHICH HAS BEEN REPRODUCED AT PAGE 5 OF THE ASSESSMENT OR DER. THE LD. AR SUBMITTED THAT THE ONLY WORK DONE BY THE ASSESSEE I S SERVICING THE EQUIPMENTS SOLD BY THE COMPANY DIRECTLY. THE LD. A R SUBMITTED THAT THE DISTRIBUTORS ARE INDEPENDENT PARTIES AND T HEY REMAINED IN CONTACT WITH RADWARE ISRAEL THEMSELVES, AND NOWHERE THEY ARE IN ANY WAY CONTACTING WITH THE INDIAN LIAISON OFFICE. 4 ITA NO. 30 99/DEL/2009 6.3. THE LD. AR CONTENDED THAT THE ACTIVITIES CARRI ED ON BY THE INDIAN LIAISON OFFICE ARE COVERED UNDER ARTICLE V O F THE INDO ISRAEL DTAA. THE LD. AR HAS PLACED HIS RELIANCE UPON THE FOLLOWING JUDGMENTS: I. UAE EXCHANGE CENTRE LTD. VS. UNION OF INDIA & ANR. REPORTED IN (2009) 313 ITR 94; II. DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) VS. MORGAN STANLEY & CO. INC. (2007) 292 ITR 416 (SC); III. MITSUI & CO. LTD. VS. ACIT (INTERNATIONAL TAXATION) (2008) 4 DTR 356; IV. WESTERN UNION FINANCIAL SERVICES INC. VS. ADIT (200 7) 104 ITD 34 (DEL.); V. GUTAL TRADING EST., IN RE (2005) 278 ITR 643 (AAR); VI. INSPECTING ASSTT. COMMISSIONER VS. MITSUI & CO. LTD . (1991) 41 TTJ (DEL) (SPL. BENCH) 569. 7. THE LD. DR ON THE CONTRARY, SUBMITTED THAT THE I NDIAN OFFICE IS PERFORMING ALL FUNCTIONS NECESSARY TO MAKE SALES IN INDIA. SHE SUBMITTED THAT THE ACTIVITIES PERFORMED BY THE INDI AN OFFICE FORMS AN ESSENTIAL AND SIGNIFICANT PART OF THE BUSINESS A CTIVITY OF THE COMPANY AS A WHOLE AND, THEREFORE, THE INDIAN OFFIC E AMOUNTS TO A PE IN INDIA. 8. WE HAVE PERUSED THE PAPER BOOK, THE ARGUMENTS AD VANCED BY BOTH THE PARTIES AND THE JUDGMENT OF THE HONBLE DE LHI HIGH COURT RELIED UPON BY THE LD.AR . 8.1. WE OBSERVE THAT THE DECISION OF THE JURISDICTI ONAL HIGH COURT IN THE CASE OF UAE EXCHANGE CENTRE LIMITED (SUPRA) COVERS THE ISSUE WHICH NEEDS TO BE CONSIDERED IN THE PRESENT A PPEAL. WE HAVE OBSERVED FROM THE FINDINGS OF THE LD. CIT(A) THAT T HE ASSESSEE HAS BEEN INVOLVED IN SUPPLYING THE LITERATURE RELATING TO MARKETING AND 5 ITA NO. 30 99/DEL/2009 SALES WITHOUT ANY PARTICIPATION IN ACTUAL SALES ACT IVITY. THE ISRAELI COMPANY IS SELLING THE PRODUCTS TO THE DISTRIBUTORS AS PER THE REQUIREMENTS DIRECTLY FROM ISRAEL, AND ALSO MAKES E FFORTS TO SERVICES AND MAINTAIN PRODUCTS USED WITHIN THE TERRITORY, WH ICH ARE SOLD DIRECTLY BY THE ISRAELI COMPANY. THE ISRAELI COMPA NY FURTHER SELLS TO THE DISTRIBUTORS WITHIN THE TERRITORY NOT BEING THE ASSESSEE AND THAT THESE DISTRIBUTORS FURTHER RESALE THE PRODUCTS TO U LTIMATE CUSTOMERS INDEPENDENTLY. 8.2. THE LIAISON OFFICE ONLY PROVIDES CERTAIN SERVI CING OF THE EQUIPMENTS TO THE DISTRIBUTORS FOR WHICH THE EXPENS ES ARE REIMBURSED BY THE ISRAELI COMPANY. THE LIAISON OFF ICE IN INDIA IS MERELY IN THE NATURE TO FACILITATE THE CONTRACT BET WEEN THE DISTRIBUTORS AND THE ISRAELI COMPANY. THE DISTRIBU TION CONTRACT, PER SE AT PAGE _____ OF THE PAPER BOOK , DO NOT RESULT INTO ANY GENERATION OF INCOME AND, THEREFORE, THE ACTIVITIES OF THE ASSESSEE HAVE TO BE DEFINITELY CONSIDERED TO BE PROPRIETARY AND AUXILIARY IN NATURE. THE LD. AR HAS BROUGHT TO OUR NOTICE RBI A PPROVAL, AT PAGE 10 OF THE PAPER BOOK, WHICH HAS BEEN RECEIVED BY T HE ASSESSEE, FOR THE PURPOSES OF UNDERTAKING LIAISON ACTIVITIES AND TO ACT AS A COMMUNICATION CHANNEL BETWEEN THE PARTIES IN INDIA AND THE ISRAELI COMPANY. 8.3. MOREOVER, THE AO HAS RELIED UPON THE JUDGMENT OF THE AUTHORITIES OF ADVANCE RULING IN THE CASE OF UAE EX CHANGE CENTRE LIMITED REPORTED IN (2004) 268 ITR 9 AAR WHICH HAS BEEN REVERSED BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF UAE EXCHANGE CENTRE LIMITED (SUPRA). 6 ITA NO. 30 99/DEL/2009 8.4. IN VIEW OF THE FOREGOING DISCUSSION, WE CONCLU DE THAT THE ASSESSEE DOES AMOUNT TO A PE IN INDIA, AND ARE OF T HE CONSIDERED OPINION THAT THE ASSESSEE IS A LIAISON OFFICE AND A RE PROVIDING SERVICES WHICH ARE PROPRIETARY OR AUXILIARY IN NATU RE. WE, THEREFORE, DO NOT FIND ANY INFIRMITY WITH THE FINDINGS OF THE LD. CIT(A). 8.5. FOLLOWING THE RATIO LAID DOWN BY THE JURISDIC TIONAL HIGH COURT IN THE CASE OF UAE EXCHANGE CENTRE (SUPRA), WE DISM ISS THE GROUNDS RAISED BY THE REVENUE. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE S TANDS DISMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 21/01/2016 SD/- SD/- (N.K. SAINI) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 21.01.2016 *KAVITA, P.S. COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI 7 ITA NO. 30 99/DEL/2009