At, Authority For Advance Rulings Income Tax New Delhi
By, HONBLE MR. JUSTICE SYED SHAH MOHAMMED QUADRI (CHAIRMAN)MR. A.S. NARANG (MEMBER) MR. A. SINHA (MEMBER)
Present for the department Mr. A.N. Pahuja, DIT (International Tax) Chennai Present for the applicant Mr.K.M. Sundram, FCA.
Justice Syed Shah Mohammed Quadri
This is an application under Section 245Q(1) of the Income tax Act, 1961 (for short "the Act"). The applicant, M/s Angel Garments Ltd., Hong Kong, is a non-resident company. It is incorporated under the Companies Ordinance of Hong Kong and is having its registered office at Hong Kong. The applicant is proposing to set up a liaison office in India after duly obtaining the permission from the Reserve Bank of India. The activities of the liaison office, as enumerated, would be as follows:-
(a) Collecting information and samples of various garments and textiles from various manufacturers, traders and exporters.
(b) Passing on information with regard to various garments and textile products available in India to applicant’s head office at Hong Kong.
(c) Coordinate and act as the channel of communication between the applicant and the Indian exporters.
(d) Follow up with the Indian Exporters for timely export of goods ordered by the applicant.
It is submitted that the liaison office will not carry on any commercial activity in India and will not earn any income in India. It will not have any power or authority to enter into any contract for sale or any other contract to earn income in India .
The entire expenses of the proposed liaison office shall be met through remittances from applicant’s head office at Hong Kong. On the basis of these facts the applicant has set-forth the following question to seek advance ruling of the Authority :-
"Whether looking to the nature of activities to be carried on by the Liaison Office and the nature of the powers of the Liaison Office (as proposed to be set up in India by the Applicant, which is a Hong Kong based company and a non-resident as per the provisions of Section 6(3) of the Income Tax Act, 1961), the Applicant can be held to have earned any income taxable in India as per the provisions of the Income Tax Act, 1961?"
2. The jurisdictional Commissioner (for short "the Commissioner"), in his comments, submits that there is no Double Taxation Avoidance Agreement (DTAA) with Hong Kong. It is admitted that the applicant is a non-resident and it is conceded that the activities of the liaison office as given by the applicant may not give rise to any taxable income in India.
3. Mr.K.M. Sundram, learned FCA appearing for the applicant, submits that the case of the applicant is covered by clause (b) of explanation 1 to Section 9(1)(i) of the Act and therefore no taxable income accrues or arises to the applicant in India. Mr. A.N. Pahuja, DIT (International Tax), Chennai, who appears for the Commissioner, has conceded the position and submits that in view of the proposed activities of the liaison office as given by the applicant, no tax liability would arise to the applicant in India.
4. Having noted the submissions of the learned representatives of the parties and having regard to the facts stated above, it would be appropriate to refer to clause (b) of explanation 1 to Section 9(1)(i) of the Act which reads as follows:-
Income deemed to accrue or arise in India
(1) The following income shall be deemed to accrue or arise in India :-
(i) all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India or through the transfer of a capital asset situated in India.
[ Explanation 1]- For the purposes of this clause –
(a) x x x x x
(b) in the case of a non-resident, no income shall be deemed to accrue or arise in India to him through or from operations which are confined to the purchase of goods in India for the purpose of export;
(c) to (d) x x x x x x x
A plain reading of the provisions, extracted above, would show that no income shall be deemed to accrue or arise to a non-resident through or from operations which are confined to the purchase of goods in India for the purpose of export.
5. Admittedly in this case the proposed activities of the liaison office is confined to purchase of goods for the purpose of export. It is immaterial whether the export of goods is to Hong Kong to any other country because clause (b) of the explanation 1 to Section 9(1)(i) does not specify that the export should only be to the country of which th
Please Login To View The Full Judgment!
e applicant is a tax resident. In view of this position we rule on the question as follows:- Looking to the nature of the proposed activities to be carried on by and the nature of the powers of the Liaison Office which is proposed to be set up in India by the applicant, a non-resident company, it cannot be held to have earned any income taxable in India under the provisions of the Income Tax Act, 1961. Pronounced in the open court of the Authority on this 30th day of October, 2006.