Liaison office support activities did not create a permanent establishment where sales were made directly from abroad.

A liaison office that only facilitated communication between the foreign head office and Indian parties, supplied literature, and provided limited support was treated as preparatory or auxiliary under the Indo-Israel DTAA. Because it did not participate in actual sales, did not act as the income-generating business channel, and the goods were sold directly from Israel to independent distributors, the office was not regarded as creating a taxable presence in India. On those facts, the office was held not to constitute a permanent establishment, and the Revenue's challenge failed.

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Issues: Whether the assessee's liaison office in India constituted a permanent establishment in India or whether its activities were only preparatory or auxiliary in nature under the Indo-Israel DTAA.

Analysis: The liaison office was found to function only as a communication channel between the foreign head office and parties in India, to supply literature and provide limited servicing support, with no participation in actual sales. The products were sold directly from Israel to distributors, the distributors acted independently, and the liaison office did not itself generate business income from the distribution arrangements. On these facts, and following the jurisdictional High Court's view on similar facts, the office's activities were treated as supportive and facilitative rather than as core business operations giving rise to taxable presence.

Conclusion: The assessee did not have a permanent establishment in India; its Indian office's activities were only preparatory or auxiliary in nature, and the Revenue's appeal was rejected.

Ratio Decidendi: A liaison office that merely facilitates communication and provides auxiliary support, without participating in actual sales or core income-generating operations, does not constitute a permanent establishment under the relevant tax treaty.

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