Preparatory and auxiliary liaison office functions did not create a permanent establishment under the India-Japan tax treaty.

Liaison offices maintained solely for collecting information, forwarding market inputs and arranging meetings were treated as preparatory or auxiliary activities under Article 5(6)(e) of the India-Japan tax treaty, so they did not create a permanent establishment in India. The record did not show that the offices independently concluded contracts, transacted business, or had authority to bind the head office. Survey material relied on by the Revenue was insufficient to displace the consistent view taken in earlier years, especially where much of it related to periods outside the assessment year. The material also did not establish breach of RBI conditions affecting the treaty analysis, so no income was taxable in India on that basis.

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Issues: Whether the assessee's liaison offices in India constituted a permanent establishment in India under Article 5(6)(e) of the India-Japan tax treaty, and whether the material gathered in the post-assessment survey could justify departing from the consistent view taken in earlier years.

Analysis: The fixed place exception in Article 5(6)(e) applies where the Indian office is maintained solely for preparatory or auxiliary activities. The record showed that the liaison offices were engaged in collecting information, forwarding market inputs, arranging meetings, and similar support functions, but there was no cogent material to show that they independently concluded contracts, transacted business, or were authorised to bind the head office. The earlier Special Bench view in the assessee's own case had treated the same type of liaison work as preparatory and auxiliary, and that position had been followed for several years. The survey-based material relied upon by the Revenue did not establish that the offices had crossed the line into core trading activity, and much of it related to periods outside the assessment year. The material also did not justify a conclusion that the assessee had violated RBI conditions so as to alter the treaty analysis.

Conclusion: The liaison offices did not constitute a permanent establishment in India and no income from those offices was taxable in India on that basis.

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