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Income Tax Appellate Tribunal, DELHI BENCH: ‘D’, NEW DELHI
Before: SHRI AMIT SHUKLA & SHRI O.P. KANT
This appeal by the Revenue and the Cross Objection by the assessee are directed against order dated 30/09/2016 passed by the learned CIT(Appeals)-38, New Delhi [in short the Ld. CIT(A)] for assessment year 2010-11. The grounds raised in the appeal are reproduced as under:
1. The order of the learned CIT(A) is erroneous and contrary to fact & law.
2. Whether the Ld. CIT(A) has erred in law and on facts and of the case in holding that the ‘Liaison Officer’ do not constitute assessee’s Permanent Establishment in India without properly appreciating the facts and circumstances of the case.
3. The appellant craves leave to add, amend, modify or alter any ground of appeal at the time or before the hearing of the appeal.
2. The grounds raised
in the cross objection are reproduced as under:
1. That the ld. Commissioner of Income-tax (Appeals) [‘CIT(A)’] has erred, after having held that “as liaison offices do not constitute PE in India, the question of attribution of any profits or income u/s 92 of the IT Act do not arise”, not to have specifically directed to delete the addition, though she has impliedly deleted the addition.
2. That the respondent reserves its right to add, alter, amend or withdraw any ground of cross-objection either before or at the time of hearing of this appeal.
Briefly stated facts of the case are that the assessee is a company incorporated under the laws of the England and Wales with its registered office located at 6, Carlton Gardens, London SW 1Y 5AD, United Kingdom. The assessee provides services of Treasury, company secretarial, legal, group strategy and planning, group financial reporting, group communication, marketing analysis, Central marketing etc. to its associated companies. The assessee had set up Liaison Offices in India licensing/ acting as a communication channel for the BAE group. The Liaison Offices at New Delhi and Bangalore were initially set up by the assessee for a period of two years as per the approval granted by the Reserve Bank of India(RBI) vide letter dated 07/08/1981 and thereafter the RBI extended its approval to continue the liaison offices from time to time, upon application of the assessee. 3.1 The assessee filed return of income for the year under consideration on 13/10/2010 declaring nil income. The return filed by the assessee was selected for scrutiny assessment and statutory notices issued under Income-tax Act, 1961 (in short ‘the Act’) were duly complied. The Assessing Officer following the finding of his predecessor in assessment year 2006-07 and 2007- 08 held that the liaison office in India constitute the permanent establishment (PE) of the assessee in India as per paragraph 1 and provisions of paragraph (J) and (K) of paragraph 2 of article 5 of the tax treaty between India and the UK observing as under: “3. The factual matrix and the business mode in the subject assessment year is identical with that in AYs 2006-07 and 2007-08, wherein the liaison offices of the assessee were found to constitute its PE in India. During the assessment proceedings, reference was also made to Transfer Pricing officer on date to determine arm's length price with respect to the services rendered by the established permanent establishment of the assessee. In order dated 22.01.2014 passed u/s 92 CA(3) of the Act, the Transfer Pricing Officer has concluded that the profit attributable to the assessee's PE for its income generating activities in India comes to Rs 3,56,30/339/-. The same amount is accordingly proposed to be added to the returned income of the assessee. Satisfaction is hereby recorded that the assessee has furnished inaccurate particulars of income and has concealed its income.”
3.2 On further appeal, the Ld. CIT(A) after considering submission of the assessee and following the decisions of his predecessors on the issue in dispute held that liaison offices do not constitute PE in India. The finding of the Ld. CIT(A) is reproduced as under: “4.4 In view of the fact that the factual matrix for the current year is same as that in the previous AYs 2006-07 to 2008-09, and that the same issue has been considered and decided in favor of the appellant, I concur with the orders of the CIT(A) - XXIX and CIT(A) - XXIX in the previous AY 2006-07 and AYs 2007-07 and 2008-09 respectively. Consequently, as liaison offices do not constitute PE in India, the question of attribution of any profits or income u/s 92 of the IT Act do not arise.”
3.3 Aggrieved, the Revenue is before the Tribunal raising the grounds as reproduced above.
At the outset, the learned Counsel of the assessee filed paper-book containing pages 1 to 429 and submitted that in assessment year 2006-07, the order of the Ld. CIT(A) attained finality as no appeal was preferred by the Revenue against the said order. Further, in assessment year 2007-08 and 2008-09, the learned Assessing Officer passed the orders placing reliance on the assessment order for assessment year 2006-07 and held that the Liaison Office (LO) constitutes Permanent Establishment (PE) of the assessee in India, however, the Ld. CIT(A) quashed the said assessment order by his consolidated order dated 24/01/2013 for assessment year 2007-08 and 2008-09. Subsequently, the Revenue preferred appeal before the Tribunal and the Tribunal vide consolidated order dated 17/03/2017 for assessment year 2007-08 and 2008-09 dismissed the appeal of the Revenue approving the order of the Ld. CIT(A). The learned Counsel submitted that facts for the year under consideration being identical to the facts for the assessment year 2006-07 to assessment year 2008-09, the order of the Ld. CIT(A) in the year under consideration might be upheld.
On the contrary, the learned DR relied on the order of the Assessing Officer.
We have heard the submission of the parties on the issue in dispute. It is undisputed that the learned Assessing Officer has relied on the assessment order for assessment year 2006-07 and 2007-08 for holding that LO of the assessee in India constitute PE in India and Ld. CIT(A) also following the order of his predecessor in assessment year 2006-07 to 2008-09 has deleted the addition holding that LO do not constitute PE in India. We find that the Tribunal in and 2015/del/2013 for assessment year 2007-08 and 2008-09 concurred the finding of the Ld. CIT(A). The relevant finding of the Tribunal is reproduced as under: “19.7 On the basis of aforesaid discussion, it can be concluded that the presumption which can validly be raised in this case that Los do not constitute a PE as no violation was noticed by the RBI. This presumption has not been rebutted by the AO by bringing any positive material to show that any substantive business activity was carried on by the assessee in India. 19.8 Therefore, we are of the view that the LOs do not constitute PE of the assessee in India. Thus, it is held that although the assessee has a fixed place of business in India, there is no evidence on record that any substantive business activity has been carried on from this place. The finding of the AO in his order that the LOs constitute PE of the assessee under paragraph 1 and clause (j) and (k) of paragraph 2 of Article 5 of the DTAA is thus misconceived and is based on no material. Further, since no income accrues or arises to the assessee
in India, no income can be deemed to accrue or arise to the assessee in India by invoking exclusionary clause (e), as held in the case of UAE Exchange Centre Ltd. (supra).
19.9 Further, we also concur with the order of the Id. CIT(A) and affirm the following findings:
19.9.1 The AO has not pointed out that the LOs have been doing any commercial activity in contravention of conditions imposed by 19.9.2 The e-mails of BAE Systems (Operations) Limited have just been downloaded by the LOs and forwarded to the Govt, of India. The LOs have not created those e-mails. These were sent by BAE Systems (Operations) Limited.
19.9.3 The AO has not established that the business of the assessee is carried out wholly or partly through the LOs as required under Article 5(1) of the DTAA.
19.9. How Article 5(2)(j) is applicable to the LOs has not been established.
19.9.5 How Article 5(2)(k) is applicable to LOs has not been established by the AO.
19.9.6 The LOs cannot be treated to be the PE of the Appellant under Article 5 of the DTAA.
19.10 Additionally, in the present case, the Revenue has attempted to make an adjustment in Arm’s Length Price on the ground that the assessee did not charge for the services rendered by it to its AE and as such the contention of the Revenue before the authorities was that, a benefit has been given by the assessee to its AE and thus an income accrued to the assessee. In this regard, we concur with the Id. AR. that all the supposition that, had the assessee charged the AE, it would have earned an income, is based on a concept that, there is a notional income. This has been rejected by the Hon’ble Bombay High Court in the case of Vodafone (supra), wherein it was held that under the provisions of Chapter X of the Act, notional income cannot be brought to tax. In fact, the assessee has no sources of income in India and expenses incurred have also not been claimed as expenditure allowable to it.
19.11 Further, there being no accrual of income or any sum received, it is beyond the scope of section 5 of the Act. Since, the assessee had no PE in India, there is no question of attribution of the revenue.”
The issue in dispute involved in the present appeal being identical to issue involved in assessment year 2007-08 and 2008- 09, respectfully following the decision of the Tribunal (supra), we uphold the finding of the Ld. CIT(A) on the issue in dispute that LOs of the assessee do not constitute PE in India and dismiss the ground of the appeal raised by the Revenue.
The learned Counsel of the assessee did not press cross objections before us and submitted to treat the same is withdrawn. Also in view of our finding that the LOs do not constitute PE in India, the argument of the assessee that ld. CIT has not directed specifically to delete the addition for profit attribution, is rendered academic in nature. The cross objection filed by the assessee is accordingly dismissed. 9. In the result, the appeal of the Revenue and cross objection of the assessee, both are dismissed. Order pronounced in the open court on 20th March, 2020.