Liaison office's taxable income upheld in India, appeals dismissed

The Tribunal upheld the authorities' decision that the liaison office's business activities generated taxable income in India. The appeals were dismissed, affirming the Assessing Officer's income determination.

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Issues Involved:
1. Determination of income by the Assessing Officer.
2. Nature and activities of the liaison office.
3. Taxability of reimbursement of expenses.
4. Applicability of various judicial decisions cited by the assessee.

Issue-wise Detailed Analysis:

1. Determination of Income by the Assessing Officer:
The primary issue in these appeals is the determination of income at Rs. 24,86,703/- against the declared loss of Rs. 38,86,254/-. The assessee, M/s Brown & Sharpe INC, argued that it merely operated a liaison office in India, which acted as a communication channel and did not render any services that would generate taxable income. The Assessing Officer, however, found that the liaison office was involved in promoting the brand and sales of the assessee's products in India, thus attributing income to the liaison office.

2. Nature and Activities of the Liaison Office:
The assessee contended that the liaison office was established with RBI's permission and was restricted to communication activities without rendering any consultancy or other services. However, the Assessing Officer examined the employment contracts and the statements of employees, concluding that the liaison office was involved in promoting sales and was not merely a communication channel. The office had a sales incentive plan, and employees were judged based on the number of orders received, indicating active involvement in business activities.

3. Taxability of Reimbursement of Expenses:
The assessee argued that the reimbursement of expenses from the head office could not be considered income, citing the decision in CIT Vs. Industrial Engineering Projects Pvt. Ltd. The Tribunal acknowledged that reimbursement of expenses is not income; however, it noted that in this case, the amount received by the liaison office exceeded the actual expenses incurred. The excess amount was treated as income, aligning with the principle that reimbursement equal to expenses is not taxable, but any excess is.

4. Applicability of Various Judicial Decisions Cited by the Assessee:
The assessee relied on several judicial decisions to support its claim that the liaison office's activities were auxiliary and did not constitute a permanent establishment (PE). These included cases like U.A.E. Exchange Centre Ltd., Angel Garment Ltd., K.T. Corporation, and Sojitz Corporation. The Tribunal distinguished these cases based on facts, noting that in those instances, the liaison offices were involved in auxiliary activities such as collecting information or coordinating communication. In contrast, the assessee's liaison office in this case was actively promoting sales, thereby constituting a PE and generating taxable income.

Conclusion:
The Tribunal upheld the orders of the authorities below, concluding that the liaison office was involved in business activities that generated taxable income in India. The appeals were dismissed, and the determination of income by the Assessing Officer was sustained. The decision was pronounced in the open court on 17th January 2014.

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