M/s. Brown & Sharpe Inc, Noida V. DCIT, Noida

ITA 5026/DEL/2011

• Counselvise Citation: 502620114 RSA 2011
• Duration Of Justice: 2 year(s) 2 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-01-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 06-01-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 11-11-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SANJEEV SHARMA
• Keywords: Depreciation; Double taxation relief; Permanent establishment; Advance ruling; Wholly owned subsidiary

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI DELHI DELHI DELHI BENCH BENCH BENCH BENCH A AA A : NEW DELHI : NEW DELHI : NEW DELHI : NEW DELHI BEFORE SHRI G. BEFORE SHRI G. BEFORE SHRI G. BEFORE SHRI G.D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, VICE PRESIDENT AND VICE PRESIDENT AND VICE PRESIDENT AND VICE PRESIDENT AND SHRI SHRI SHRI SHRI I.C. SUDHIR I.C. SUDHIR I.C. SUDHIR I.C. SUDHIR, ,, , JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ITA NO ITA NO ITA NO ITA NOS SS S. .. .2015/DEL/2008, 2435/DEL/2010 & 5026/DEL/2011 2015/DEL/2008, 2435/DEL/2010 & 5026/DEL/2011 2015/DEL/2008, 2435/DEL/2010 & 5026/DEL/2011 2015/DEL/2008, 2435/DEL/2010 & 5026/DEL/2011 ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEARS SS S : : : : 2003 2003 2003 2003- -- -04, 2004 04, 2004 04, 2004 04, 2004- -- -05 & 2005 05 & 2005 05 & 2005 05 & 2005- -- -06 0606 06 M/S BRO M/S BRO M/S BRO M/S BROWN & SHARPE INC, WN & SHARPE INC, WN & SHARPE INC, WN & SHARPE INC, A AA A- -- -5, SECTOR 5, SECTOR 5, SECTOR 5, SECTOR- -- -4, 4,4, 4, NOIDA, GAUTAM BUDH NAGAR, NOIDA, GAUTAM BUDH NAGAR, NOIDA, GAUTAM BUDH NAGAR, NOIDA, GAUTAM BUDH NAGAR, U.P. U.P. U.P. U.P. 201 301. 201 301. 201 301. 201 301. PAN : PAN : PAN : PAN : AACCB2482G. AACCB2482G. AACCB2482G. AACCB2482G. VS. VS. VS. VS. ASSISTANT /DEPUTY COMMISSIONER OF ASSISTANT /DEPUTY COMMISSIONER OF ASSISTANT /DEPUTY COMMISSIONER OF ASSISTANT /DEPUTY COMMISSIONER OF INCOME TAX, INCOME TAX, INCOME TAX, INCOME TAX, CIRCLE, NOIDA. CIRCLE, NOIDA. CIRCLE, NOIDA. CIRCLE, NOIDA. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SALIL AGARWAL, ADVOCATE. RESPONDENT BY : SHRI SANJEEV SHARMA, CIT-DR. ORDER ORDER ORDER ORDER PER G. PER G. PER G. PER G.D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, VP VPVP VP : : : : THESE APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST SEPARAT E ORDERS OF LEARNED CIT(A), GHAZIABAD DATED 05.02.2007 , 16.03.2010 AND 16.08.2011 FOR THE AY 2003-04 TO 2005-06 RESPECTIVEL Y. 2. IN ALL THESE APPEALS, COMMON GROUNDS HAVE BEEN RAISE D. THEREFORE, WE SHALL DISCUSS IN DETAIL THE GROUNDS AS WEL L AS FACTS FOR AY 2003-04. 3. IN THIS YEAR, THE ASSESSEE HAS RAISED AS MANY AS 20 GROUN DS. HOWEVER, THEY ARE ALL AGAINST THE DETERMINATION OF I NCOME AT ` 24,86,703/- AS AGAINST THE DECLARED LOSS OF ` 38,86,254/-. 4. AT THE TIME OF HEARING BEFORE US, IT IS STATED BY T HE LEARNED COUNSEL THAT THE ASSESSEE I.E. M/S BROWN & SHARPE INC IS INCORPORATED ITA-2015/D/2008 & 2 OTHERS 2 IN USA AND IT IS 100% SUBSIDIARY OF HEXAGON AB (PUBL), SWEDEN. THAT DURING THE ACCOUNTING YEAR, THE ASSESSEE STARTED A LIAISO N OFFICE IN INDIA FOR WHICH PERMISSION OF THE RBI WAS TAKEN. THAT THE LIAISON OFFICE WAS ESTABLISHED ONLY AS A COMMUNICATION CHANNEL BETWEEN THE ASSESSEE AND ITS CUSTOMERS OR PROSPECTIVE CUSTOMERS IN INDIA . THAT AS PER THE CONDITION PUT FORTH BY THE RBI WHILE PERMIT TING THE ASSESSEE TO ESTABLISH A LIAISON OFFICE IN INDIA, THE LIAISON OFFICE WAS DEBARRED FROM RENDERING ANY CONSULTANCY OR ANY OTHER SERVICES DIREC TLY OR INDIRECTLY. THAT THE RBI HAD NEVER ALLEGED THAT THE ASSESSEE HAS VIO LATED THE CONDITIONS PUT FORTH BY RBI WHILE GRANTING PERMISSION TO ESTABLISH A LIAISON OFFICE IN INDIA. HE STATED THAT THE LIAISON O FFICE NEVER RENDERED ANY SERVICES FOR PROCUREMENT OF ORDER OR SALE OF THE P RODUCT OF THE ASSESSEE COMPANY. THEREFORE, THERE WAS NO INCOME EARNED IN INDIA. HE FURTHER STATED THAT THE LIAISON OFFICE IS ONLY RECE IVING THE REIMBURSEMENT OF EXPENSES INCURRED FROM THE HEAD OFFIC E. HE, THEREFORE, SUBMITTED THAT MERELY BECAUSE THE ASSESSEE COM PANY HAS OPENED THE LIAISON OFFICE IN INDIA, IT IS NOT LIABLE TO BE TAXED. IN THIS REGARD, HE RELIED UPON THE FOLLOWING DECISIONS:- (I) ANGEL GARMENT LTD. [2006] 287 ITR 341 (AAR). (II) U.A.E. EXCHANGE CENTRE LTD. VS. UOI & ANOTHER [200 9] 313 ITR 94 (DELHI). (III) K.T. CORPORATION [2009] 181 TAXMAN 94 (AAR-NEW DE LHI). (IV) SOJITZ CORPORATION VS. ASSISTANT DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) [2008] 117 TTJ (KOL) 792 . (V) MONDIAL ORIENT LTD. VS. ACIT (INTERNATIONAL TAXATION ) [2010] 129 TTJ (BANG) 560. 5. THE LEARNED COUNSEL FURTHER SUBMITTED THAT THE REI MBURSEMENT OF EXPENSES CANNOT BE SAID TO BE INCOME OF THE ASSESSEE. IN SUPPORT OF THIS CONTENTION, HE RELIED UPON THE DECISION OF HON'B LE JURISDICTIONAL ITA-2015/D/2008 & 2 OTHERS 3 HIGH COURT IN THE CASE OF CIT VS. INDUSTRIAL ENGINEERI NG PROJECTS PVT. LTD. [1993] 202 ITR 1014. 6. LEARNED DR, ON THE OTHER HAND, RELIED UPON THE O RDER OF THE ASSESSING OFFICER AS WELL AS LEARNED CIT(A) AND BY REFER RING TO PAGES 2 TO 4 OF THE ASSESSMENT ORDER, HE POINTED OUT THAT THE A SSESSING OFFICER HAD EXAMINED IN DETAIL WHETHER THE LIAISON OFFICE HA S RENDERED ANY SERVICES FOR EFFECTING THE SALES OF THE ASSESSEES PRODUCT OR NOT AND ON EXAMINATION OF THE SERVICE AGREEMENT OF THE EMPLOYEE S, HE FOUND THAT THE EMPLOYEES WERE OFFERED THE SALES INCENTIVE PLAN B Y SETTING THE PERFORMANCE TARGET FOR WHICH THEY WERE ALLOWED TO R ECEIVE UP TO 25% OF THE ANNUAL REMUNERATION AS INCENTIVE. HE ALSO STAT ED THAT THE LIAISON OFFICE HAD EMPLOYED NOT ONLY THE CHIEF REPRE SENTATIVE OFFICER BUT ALSO THE TECHNICAL SUPPORT MANAGER. THE ASSESSING O FFICER HAD EXAMINED THE CHIEF REPRESENTATIVE OFFICER I.E. SHRI ANOOP PRASAD VERMA AND HIS STATEMENT WAS RECORDED. FROM HIS STATEME NT, IT WAS EVIDENTLY CLEAR THAT THE LIAISON OFFICE WAS PROMOTING THE BRAND PRODUCTS OF THE ASSESSEE AND THE PERFORMANCE OF THE EMP LOYEES WAS BEING JUDGED BY THE NUMBER OF ORDERS THAT THE COMPA NY RECEIVED. HE, THEREFORE, SUBMITTED THAT THE LIAISON OFFICE WAS NOT SI MPLY A COMMUNICATION CHANNEL AND AS CLAIMED BY THE ASSESSEE BUT IT WAS RENDERING THE SERVICES FOR PROMOTION AND SALES OF THE P RODUCTS OF THE ASSESSEE COMPANY. THAT APART FROM GETTING PERMISSION FRO M RBI FOR OPENING THE LIAISON OFFICE, THE ASSESSEE COMPANY IS REGIST ERED WITH THE REGISTRAR OF COMPANIES FOR ESTABLISHMENT OF PLACE OF BU SINESS IN INDIA. HE REFERRED TO THE CERTIFICATE ISSUED BY THE REGISTRAR OF COMPANIES, NCT OF DELHI AND HARYANA IN THIS REGARD. HE ALSO STAT ED THAT THE ASSESSEE ITSELF HAD FILED THE RETURN OF INCOME NOT ONLY FOR THIS YEAR BUT ALSO FOR ALL SUBSEQUENT YEARS CLAIMING THE LOSS UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION. ITA-2015/D/2008 & 2 OTHERS 4 7. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF BOTH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. THE LEARN ED COUNSEL FOR THE ASSESSEE HAS ARGUED AT LENGTH TO BUTTRESS HIS POINT THA T THE LIAISON OFFICE OF THE ASSESSEE DID NOT RENDER ANY SERVICES IN IND IA SO AS TO SADDLE WITH THE LIABILITY OF INCOME TAX IN INDIA AND IN SUPPORT OF WHICH HE RELIED UPON THE VARIOUS DECISIONS. THEREFORE, BEFO RE ADVERTING TO THE FACTS OF THE ASSESSEES CASE, IT WOULD BE IMPORTANT TO SEE THE RATIO LAID DOWN IN THE VARIOUS DECISIONS RELIED UPON BY THE LEARNED COUNSEL. 8. IN THE CASE OF U.A.E. EXCHANGE CENTRE LTD. (SUPRA) , HON'BLE JURISDICTIONAL HIGH COURT HELD AS UNDER:- UNDER ARTICLE 5(2)(C), AMONGST OTHERS, PERMANENT ESTABLISHMENT INCLUDES AN OFFICE. HOWEVER, ARTICLE 5( 3) WHICH OPENS WITH A NON OBSTANTE CLAUSE, IS ILLUSTRATIVE OF INSTANCES WHERE UNDER THE DTAA VARIOUS ACTIVITIES HAVE BEEN DEEMED AS ONES WHICH WOULD NOT FALL WITHIN THE A MBIT OF THE EXPRESSION PERMANENT ESTABLISHMENT. ONE SUCH EXCLUSIONARY CLAUSE IS FOUND IN ARTICLE 5(3)(E) WHICH IS : MAINTENANCE OF A FIXED PLACE OF BUSINESS SOLELY FOR THE PURPOSE OF CARRYING ON, FOR THE ENTERPRISE, ANY OTHER ACTIVITY OF A PREPARATORY OR AUXILIARY CHARACTER. THE ONLY ACTIVITY OF THE PETITIONERS LIAISON OFFICES IN INDIA WAS TO DOWNLOAD INFORMATION WHICH WAS CONTAINED IN THE MAIN SERVERS LOCATED IN THE UAE BASED ON WHICH CHEQUES WERE DRAWN ON BANKS IN INDIA WHEREUPON THE CHEQUES WERE COURIERED OR DISPATCHED TO THE BENEFICIARIES IN INDIA , KEEPING IN MIND THE INSTRUCTIONS OF THE NRI REMITTER. SUCH AN ACTIVITY COULD NOT BE ANYTHING BUT AUXILIARY IN CHARACTER. THE INSTANT ACTIVITY WAS IN AID OR SUPPORT OF THE MAIN ACTIVITY. IT FELL WITHIN THE EXCLUSIONARY CLAUSE. 9. IN THE CASE OF ANGEL GARMENT LTD. (SUPRA), THE AUT HORITY FOR ADVANCE RULINGS HELD AS UNDER:- THE APPLICANT, A NON-RESIDENT COMPANY INCORPORATED IN HONG KONG, PROPOSED TO SET UP A LIAISON OFFICE IN IND IA FOR COLLECTING INFORMATION AND SAMPLES OF GARMENTS AND ITA-2015/D/2008 & 2 OTHERS 5 TEXTILES FROM MANUFACTURERS, TRADERS AND EXPORTERS AND PASSING ON THE INFORMATION TO THE HEAD OFFICE IN HONG KONG AND CO-ORDINATING AND ACTING AS THE CHANNEL OF COMMUNICATION BETWEEN THE APPLICANT AND INDIAN EXPORTERS AND FOLLOW UP WITH INDIAN EXPORTERS FOR TIM ELY EXPORT OF GOODS. THE ENTIRE EXPENSES OF THE PROPOSED LIAISON OFFICE WERE TO BE MET THROUGH REMITTANCES FRO M THE APPLICANTS HEAD OFFICE IN HONG KONG. ON THESE FACTS THE APPLICANT APPLIED TO THE AUTHORITY FOR AN ADVANCE R ULING ON THE QUESTION WHETHER THE APPLICANT COULD BE SAID TO H AVE RECEIVED INCOME TAXABLE IN INDIA. ON THE FACTS STATE D THE AUTHORITY RULED THAT A PLAIN READING OF EXPLANATION 1(B) TO SECTION 9(1)(I) OF THE INCOME-TAX ACT, 1961, INDICAT ING THAT NO INCOME WOULD BE DEEMED TO ACCRUE OR ARISE TO A NO N- RESIDENT THROUGH OR FROM OPERATIONS CONFINED TO THE PURCHASE OF GOODS IN INDIA FOR THE PURPOSE OF EXPORT. THE PROPOSED ACTIVITIES OF THE LIAISON OFFICE OF THE APPLI CANT IN INDIA WERE TO BE CONFINED TO PURCHASE OF GOODS FOR EX PORT. IT WAS IMMATERIAL WHETHER THE EXPORT OF GOODS WAS TO H ONG KONG OR TO ANY OTHER COUNTRY. THE APPLICANT COMPAN Y COULD NOT, THEREFORE, BE SAID TO EARN INCOME FROM TH E PROPOSED ACTIVITIES UNDER THE PROVISIONS OF THE INCOME- TAX ACT. 10. IN THE CASE OF K.T. CORPORATION (SUPRA), THE AUTH ORITY FOR ADVANCE RULINGS HELD AS UNDER:- THE APPLICANT, A KOREAN COMPANY, IS TELECOMMUNICATI ON CARRIER/RESELLER. IT HAS OPENED A LIAISON OFFICE (LO ) IN INDIA WITH THE PERMISSION OF THE RESERVE BANK OF INDIA (RBI) TO ACT AS A COMMUNICATION CHANNEL BETWEEN THE HEAD OFF ICE OF THE APPLICANT AND THE INDIAN COMPANIES WITHIN THE PARAMETERS LISTED OUT BY THE RBI. PURSUANT TO THE OPE NING OF THE LO, THE APPLICANT ENTERED INTO AN AGREEMENT WITH VODAFONE ESSAR SOUTH LTD. (VESL), AN INDIAN COMPANY WHICH IS ALSO A TELECOMMUNICATION CARRIER/RESELLER, TO PROVIDE CERTAIN SERVICES TO EACH OTHER. IN THE ABOVE BACKDROP, THE APPLICANT HAS SOUGHT ADVANCE RULING ON QUESTION AS TO WHETHER ITS LO IN INDIA CONSTITUTES A PERMANENT ESTABLISHMENT IN TERMS OF THE AFORESAID AGREEMENT. IT CONTENDS THAT LO IN INDIA ONLY CARRIES OUT PREPARATORY OR AUXILIARY ACTIVITIES, SUCH AS: (I) HOLD ING OF SEMINARS, CONFERENCES; (II) RECEIVING TRADE ENQUIRIES F ROM THE CUSTOMERS; (III) ADVERTISING ABOUT THE TECHNOLOGY BEING ITA-2015/D/2008 & 2 OTHERS 6 USED BY THE APPLICANT IN PROVIDING THE WIRED/WIRELES S SERVICES AND TO ANSWER THE QUERIES OF THE CUSTOMERS; (IV ) COLLECTING FEEDBACK FROM THE PROSPECTIVE CUSTOMERS/CONSUMERS, TRADE ORGANIZATIONS, ETC., AND IT HAS NEITHER PLAYED ANY ROLE IN PRE-BID SURVEY, ETC., BE FORE ENTERING INTO THE AGREEMENT WITH VESL NOR HAS INVOL VED ITSELF IN THE TECHNICAL ANALYSIS OF ANY PROJECT, AND, THEREFORE, IT CANNOT BE CONSIDERED TO BE A PE IN TER MS OF CLAUSES (D), (E) AND (F ) OF PARA 4 OF ARTICLE 5 OF T HE TREATY BETWEEN INDIA AND KOREA. 11. IN THE CASE OF SOJITZ CORPORATION (SUPRA), KOLKA TA BENCH OF ITAT HELD AS UNDER:- LIAISON OFFICES OF THE ASSESSEE IN INDIA WHOSE ACTIVITIES ARE RESTRICTED TO COLLECTING AND SENDING OF INFORMATI ON FROM INDIA TO JAPAN FALL WITHIN THE EXCLUSIONARY CL. (E) OF ART. 5 OF THE DTAA BETWEEN INDIA AND JAPAN AND, THEREFORE, TH E SAID LIAISON OFFICES CANNOT BE TREATED AS PE OF THE ASSESSEE IN INDIA, AND THEREFORE THE ACTION OF AUTHORITIES BELOW IN ESTIMATING THE INCOME OF THE ASSESSEE ON THE BASIS OF HAVING PE WAS NOT SUSTAINABLE. 12. LET US NOW SEE THE FACTS OF THE ASSESSEES CASE SO AS TO A RRIVE AT THE CONCLUSION WHETHER ANY OF THE ABOVE DECISIONS WOUL D BE APPLICABLE TO THE CASE OF THE ASSESSEE. IN THE ASSESSMENT ORDER, AT PA GE 2, THE ASSESSING OFFICER HAS RECORDED THAT THE LIAISON OFFICE OF THE ASSESSEE HAS EMPLOYED CHIEF REPRESENTATIVE OFFICER SHRI ANOOP PRASAD VERMA AND TECHNICAL SUPPORT MANAGER SHRI RAJEEV K. DATAR. THE EMPLOYEES, BESIDES FIXED REMUNERATION, WERE OFFERED SALES INCENTIV E PLAN BY FIXING THE PERFORMANCE TARGET FOR WHICH THEY WERE ALLOWED TO RECEIVE UP TO 25% OF THE ANNUAL REMUNERATION AS SALES INCENTIVE. TH OUGH DURING THE ASSESSMENT PROCEEDINGS SHRI ANOOP PRASAD VERMA I.E. CHIEF REPRESENTATIVE OFFICER OF THE LIAISON OFFICE HAD STATE D THAT SALES INCENTIVE PLAN WAS NOT ACTUALLY ACTED UPON BUT, NEVE RTHELESS, IT IS NOT IN DISPUTE THAT IN THE EMPLOYMENT CONTRACT BETWEEN T HE ASSESSEE AND THE EMPLOYEES, THERE WAS A SALES INCENTIVE PLAN AND EM PLOYEES WERE ITA-2015/D/2008 & 2 OTHERS 7 TO BE PROVIDED WITH THE REMUNERATION BASED UPON THE ACHIEVEMENT OF THE TARGET FOR THE SALES OF THE GOODS OF THE ASSESSEE COM PANY IN INDIA. THE STATEMENT OF SHRI ANOOP PRASAD VERMA WAS ALSO REC ORDED BY THE ASSESSING OFFICER AND, IN REPLY TO QUESTION 14, HE STATE D THE EMPLOYEE OF THE LIAISON OFFICE WAS ASSIGNED THE TASK TO PROMOTE BROWN & SHARPE BRANDS PRODUCTS AND TO UNDERSTAND THE INDIAN MARKET. THE PERFORMANCE JUDGED BY NUMBER OF DIRECT ORDERS THAT T HE COMPANY RECEIVED AS WELL AS EXTEND THE AWARENESS OF THE BROWN & SHARPE COMPANY IN INDIA. THE ABOVE FACTUAL FINDING RECORDED BY THE ASSESSING OFFICER COULD NOT BE CONTROVERTED BY THE ASSESSEE EITHER BEFORE THE CIT(A) OR BEFORE US. FURTHER, THE ASSESSEE C OMPANY REGISTERED ITSELF WITH THE REGISTRAR OF COMPANIES FOR C ARRYING ON THE BUSINESS IN INDIA AND THE CERTIFICATE ISSUED BY THE REGI STRAR OF COMPANIES READS AS UNDER:- I HEREBY CERTIFY THAT FORM NO.44 DATED 13.9.2002 F ILED U/S 592 OF THE COMPANIES ACT, 1956 NOTIFYING ESTABLISHMENT OF PLACE OF BUSINESS IN INDIA WITH EFFECT FROM 31.7.2002 BY M/S BROWN & SHARPE INC. COMPANY ORIGINALLY INCORPORATED IN U.S.A. HAS BEEN REGISTERED. GIVEN UNDER MY HAND AT NEW DELHI THIS DAY OF 14 TH NOV. TWO THOUSAND TWO. 13. THE ASSESSEE ITSELF FILED THE RETURN OF INCOME ON 28 .11.2003 DECLARING NET LOSS OF ` 38,86,255/-. THE COMPUTATION OF INCOME IS AT PAGE 26 OF THE PAPER BOOK FROM WHICH IT IS EVIDENT T HAT THE LOSS IS COMPUTED UNDER THE HEAD PROFITS & GAINS OF BUSINESS & P ROFESSION. IN THE COMPUTATION, THE ASSESSEE ADDED BACK THE DEPRECIATI ON WHICH WAS DEBITED TO THE BOOKS OF ACCOUNT AS PER COMPANIES ACT A ND CLAIMED THE DEPRECIATION AS PER THE INCOME-TAX ACT. THUS, THE AS SESSEE ITSELF TOOK A STAND THAT IT DERIVES INCOME FROM BUSINESS OR PROFESSIO N IN INDIA. ON THESE FACTS, NONE OF THE DECISIONS RELIED UPON BY THE LEARNED COUNSEL ITA-2015/D/2008 & 2 OTHERS 8 WOULD BE APPLICABLE BECAUSE IN THE CASE OF U.A.E. EXC HANGE CENTRE LTD. (SUPRA), THE LIAISON OFFICE OF THE ASSESSEE IN INDIA WAS ONLY TO DOWNLOAD INFORMATION WHICH WAS CONTAINED IN THE MAIN SERVER LOCATED IN UAE BASED UPON WHICH THE CHEQUES WERE DRAWN IN IND IA. ON THESE FACTS, HON'BLE JURISDICTIONAL HIGH COURT HELD THAT SUC H AN ACTIVITY WAS ONLY AUXILIARY IN CHARACTER. IN THE CASE OF ANGEL G ARMENT LTD. (SUPRA), THE LIAISON OFFICE WAS ONLY COLLECTING INFORMATION AN D SAMPLE OF GARMENTS AND TEXTILE FROM MANUFACTURER AND TRADERS AN D PASSING ON THE INFORMATION TO THE HEAD OFFICE IN HONG KONG AND COORDINATING AS CHANNEL OF COMMUNICATION BETWEEN THE ASSESSEE AND THE C USTOMERS. ON THESE FACTS, THE AUTHORITY FOR ADVANCE RULINGS HELD THAT THE APPLICANT COMPANY COULD NOT BE SAID TO HAVE EARNED I NCOME FROM THE PROPOSED ACTIVITIES UNDER THE PROVISIONS OF THE INCOME- TAX ACT. IN THE CASE OF K.T. CORPORATION (SUPRA), THE LIAISON OFFICE IN INDIA CARRIED OUT ONLY PREPARATORY OR AUXILIARY ACTIVITIES SUCH AS HOLDI NG SEMINARS, CONFERENCES, RECEIVING TRADE ENQUIRIES, COLLECTING FE EDBACKS, ADVERTISING ABOUT THE TECHNOLOGY BEING USED BY THE ASSE SSEE ETC. ON THESE FACTS, THE AUTHORITY FOR ADVANCE RULINGS HELD TH AT THE LIAISON OFFICE CANNOT BE TERMED AS PE IN TERMS OF TREATY BETW EEN INDIA AND KOREA. IN THE CASE OF SOJITZ CORPORATION (SUPRA), TH E LIAISON OFFICE OF THE ASSESSEE IN INDIA WAS ONLY COLLECTING AND SENDING THE INF ORMATION FROM INDIA TO JAPAN. ON THESE FACTS, THE ITAT KOLKATA BEN CH HELD THAT THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN ESTIMATING THE INCOME OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE WAS HAVING A PE IN INDIA. BUT, THE FACTS IN THE CASE OF THE ASSESSEE ARE ALTOGETHE R DIFFERENT. THE ASSESSEE COMPANY IS REGISTERED WITH THE REGISTRAR OF COMPA NIES IN INDIA FOR CARRYING ON THE BUSINESS. THE LIAISON OFFICE , APART FROM HAVING CHIEF REPRESENTATIVE OFFICER AND OTHER STAFF, IS ALSO H AVING A TECHNICAL EXPERT. THE EMPLOYEES OF THE ASSESSEE COMPANY ARE PROM OTING THE SALES OF THE GOODS OF THE ASSESSEE COMPANY AS PER SERVICE CO NDITIONS. THERE IS A SALES INCENTIVE PLAN BY WHICH EMPLOYEES ARE PROVIDED THE ITA-2015/D/2008 & 2 OTHERS 9 INCENTIVE FOR ACHIEVING THE SALES TARGET AND THE PERF ORMANCE OF THE EMPLOYEES IS BEING JUDGED BY THE ORDERS SECURED BY THE ASSESSEE COMPANY. ALL THESE ACTIVITIES CLEARLY ESTABLISH THAT T HE LIAISON OFFICE OF THE ASSESSEE WAS PROMOTING THE SALES OF THE ASSESSEE COMPANY I N INDIA AND, THEREFORE, THE ASSESSING OFFICER WAS FULLY JU STIFIED IN HOLDING THAT THE INCOME ATTRIBUTABLE TO LIAISON OFFICE IS TAX ABLE IN INDIA. 14. NOW, COMING TO THE DETERMINATION OF INCOME BY T HE ASSESSING OFFICER, THE LEARNED COUNSEL FOR THE ASSESSEE HAS VEHEME NTLY CONTENDED THAT THE LIAISON OFFICE HAS ONLY RECEIVED T HE REIMBURSEMENT OF THE EXPENSES AND, UNDER NO CIRCUMSTANCES, THE REIMBU RSEMENT OF EXPENSES CAN BE TERMED AS THE INCOME OF THE ASSESSEE. IN SUPPORT OF THIS CONTENTION, THE LEARNED COUNSEL RELIED UPON THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF INDUSTRIAL EN GINEERING PROJECTS PVT. LTD. (SUPRA), WHEREIN THEIR LORDSHIPS HELD AS UNDE R:- HELD, (I) THAT REIMBURSEMENT OF EXPENSES CAN, UNDER N O CIRCUMSTANCES, BE REGARDED AS A REVENUE RECEIPT AND I N THE PRESENT CASE THE TRIBUNAL HAD FOUND THAT THE ASSESSEE RECEIVED NO SUMS IN EXCESS OF EXPENSES INCURRED . THE TRIBUNAL WAS, THEREFORE, JUSTIFIED IN DELETING THE DISALLOWANCE UNDER SECTION 37(2A) OF THE INCOME-TAX A CT, 1961, AND RULE 6D OF THE INCOME-TAX RULES, 1962. (EMPHASIS BY UNDERLINING SUPPLIED BY US) 15. THERE CANNOT BE ANY DISPUTE WITH THE LEGAL CONT ENTION OF THE LEARNED COUNSEL THAT THE REIMBURSEMENT OF THE EXPENSES CAN NEVER BE INCOME. HON'BLE JURISDICTIONAL HIGH COURT HAS ALSO HE LD THAT THE REIMBURSEMENT OF EXPENSES CAN UNDER NO CIRCUMSTANCES BE REGARDED AS A REVENUE RECEIPT. HOWEVER, IN THIS CASE, AS A MAT TER OF FACT, WHAT THE ASSESSING OFFICER TAXED IS THE AMOUNT RECEIVED BY TH E ASSESSEE OVER AND ABOVE THE REIMBURSEMENT OF THE EXPENSES. IN FACT, FROM THE ITA-2015/D/2008 & 2 OTHERS 10 AMOUNT RECEIVED FROM THE HEAD OFFICE, THE ASSESSING OFF ICER HAD DEDUCTED THE EXPENSES INCURRED BY THE ASSESSEE AND IT IS O NLY THE EXCESS AMOUNT RECEIVED BY THE ASSESSEE WHICH HAS BEEN TRE ATED AS INCOME. THAT IN THE ABOVE MENTIONED CASE, HON'BLE J URISDICTIONAL HIGH COURT HAS UPHELD THE ORDER OF THE ITAT BECAUSE IN THA T CASE, THE AMOUNT RECEIVED BY THE ASSESSEE FROM THE FOREIGN COMPAN Y WAS EQUAL TO THE EXPENSES INCURRED. THUS, THE ACTUAL EXPENDITUR E INCURRED BY THE ASSESSEE WAS REIMBURSEMENT BY THE FOREIGN COMPANY AND NO SUM IN EXCESS OF THE EXPENSES INCURRED WAS REIMBURSED. BUT, THE FACTS ARE ALTOGETHER DIFFERENT IN THE CASE OF THE ASSESSEE. IN TH E CASE UNDER APPEAL BEFORE US, IN ALL THE THREE YEARS, THE LIAISON OFFICE RECEIVED MORE AMOUNT THAN THE EXPENSES ACTUALLY INCURRED BY THE LIA ISON OFFICE. THE ASSESSING OFFICER HIMSELF HAS NOT TREATED REIMBURSEMENT OF EXPENSES AS INCOME. THE AMOUNT RECEIVED BY LIAISON OFFICE OVE R AND ABOVE THE EXPENSES ACTUALLY INCURRED, YEAR AFTER YEAR, WAS TREAT ED AS INCOME. TO THAT EXTENT, THE ABOVE DECISION OF HON'BLE JURISDICT IONAL HIGH COURT WOULD IN FACT SUPPORT THE CASE OF THE REVENUE RATHER THAN THE ASSESSEE. 16. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY JUSTIFI CATION TO INTERFERE WITH THE ORDERS OF AUTHORITIES BELOW. THE SAME ARE SUST AINED. 17. IN THE RESULT, ALL THE APPEALS OF THE ASSESSEE ARE DI SMISSED. DECISION PRONOUNCED IN THE OPEN COURT ON 17 TH JANUARY, 2014. SD/- SD/- ( (( (I.C. SUDHIR I.C. SUDHIR I.C. SUDHIR I.C. SUDHIR) )) ) (G.D.AGRAWAL) (G.D.AGRAWAL) (G.D.AGRAWAL) (G.D.AGRAWAL) JUDICIAL JUDICIAL JUDICIAL JUDICIAL MEMBER MEMBER MEMBER MEMBER VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT DATED : 17.01.2014 VK. ITA-2015/D/2008 & 2 OTHERS 11 COPY FORWARDED TO: - 1. APPELLANT : M/S BRO M/S BRO M/S BRO M/S BROWN & SHARPE INC, WN & SHARPE INC, WN & SHARPE INC, WN & SHARPE INC, A AA A- -- -5, SECTOR 5, SECTOR 5, SECTOR 5, SECTOR- -- -4, 4,4, 4, NOIDA, GAUTAM BUDH NAGAR, NOIDA, GAUTAM BUDH NAGAR, NOIDA, GAUTAM BUDH NAGAR, NOIDA, GAUTAM BUDH NAGAR, U.P. U.P. U.P. U.P. 201 301. 201 301. 201 301. 201 301. 2. RESPONDENT : ASSISTANT /DEPUTY COMMISSIONER OF ASSISTANT /DEPUTY COMMISSIONER OF ASSISTANT /DEPUTY COMMISSIONER OF ASSISTANT /DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE, NOIDA. INCOME TAX, CIRCLE, NOIDA. INCOME TAX, CIRCLE, NOIDA. INCOME TAX, CIRCLE, NOIDA. 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR