Case Law Details
Union of India & Anr. Vs U.A.E. Exchange Centre (Supreme Court)
Liaison offices carrying on business of preparatory or auxiliary character was neither liable to tax u/s 5, 9 of 1961 Act nor under Article 5, 7 of DTAA with UAE
Conclusion: Since the activities carried on by the liaison office of the non-resident in India was to only carry on such activity of a ‘preparatory or auxiliary’ character, therefore, the same was not a PE in terms of Article 5 of the DTAA and the deeming provisions in Sections 5 and 9 of the 1961 Act could have no bearing.
Held: Assessee was a limited company incorporated in the United Arab Emirates (UAE). It was engaged in offering, among others, remittance services for transferring amounts from UAE to various places in India. Authority accordingly concluded that so much of the profits as should be deemed to accrue or arise to assessee in India, which were attributable to the PE, namely, the liaison offices in India, would be taxable in India even under the DTAA. It was held that the assessee was not carrying on any business activity in India as such, but only dispensing with the remittances by downloading information from the main server of assessee in UAE and printing cheques/drafts drawn on the banks in India as per the instructions given by the NRI remitters in UAE. The transaction(s) had completed with the remitters in UAE, and no charges towards fee/commission could be collected by the liaison office in India in that regard. To put it differently, no income as specified in Section 2(24) was earned by the liaison office in India and moreso because, the liaison office was not a PE in terms of Article 5 of DTAA (as it was only carrying on activity of a preparatory or auxiliary character). The concomitant was – no tax could be levied or collected from the liaison office of assessee in India in respect of the primary business activities consummated by assessee in UAE. The activities carried on by the liaison office of assessee in India as permitted by the RBI, clearly demonstrated that assessee must steer away from engaging in any primary business activity and in establishing business connection as such. It could carry on activities of preparatory or auxiliary nature only. In that case, the deeming provisions in Sections 5 and 9 of the 1961 Act could have no bearing whatsoever. The meaning of expressions “business connection” and “business activity” had been articulated. However, even if the stated activity(ies) of the liaison office of assessee in India was regarded as business activity, the same being “of preparatory or auxiliary character”; by virtue of Article 5(3)(e) of the DTAA, the fixed place of business (liaison office) of assessee in India otherwise a PE, was deemed to be expressly excluded from being so. And since by a legal fiction it was deemed not to be a PE of the assessee in India, it was not amenable to tax liability in terms of Article 7 of the DTAA.
FULL TEXT OF THE SUPREME COURT JUDGEMENT
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