India does not subscribe to the OECD model; hence, the commentary may have only persuasive value. However, it is needed to examine whether the India office was carrying on any essential and significant part of the activity in the scheme of business of the assessee. The Tribunal concurred with the decision of the case laws relied on by the assessee holding that where the RBI does not find any violation of an condition(s) imposed on its functioning, it shall be presumed to be carrying on preparatory or auxiliary activities until established otherwise. The Tribunal relied on the decision of the HC in the case of UAE Exchange Centre, where it was held that an LO cannot be construed as a PE unless its activities exceeds the permitted activities or the department is able to establish the contrary.
The Tribunal relied on the SC observation at the time of dismissal of the civil appeal by the department in the case of Sofema SA (above) that there has to be evidence on record that the assessee has carried on some essential activities from the LO. The assessee filed only selective and sketchy information. However, the AO has not brought on record any positive information to establish that the activity of the LO was substantial to the assessee’s business. The similarity of activities of the assessee and MCJ mentioned in the draft order is not correct since this was not shown to the assessee and no chance was given to assessee to rebut the inference of similarity of functioning. In light of the above, the Tribunal held that the India office did not constitute a PE of the assessee in India. Further, in the absence of any PE in India no income accrues or arises in India.
Source- Metal One Corporation, Vs. Dy. Director of Income-tax (ITAT Delhi)-ITA No.5377/Del/2011