Purchase coordination by a liaison office may fall outside permanent establishment status and Indian taxation under treaty and domestic law.

A non-resident liaison office engaged only in purchase coordination, information collection and related support for export procurement falls within the statutory and treaty exceptions for purchasing activity. Under Section 9(1)(i) read with Explanation 1(b), no income is deemed to accrue in India where Indian operations are confined to purchase of goods for export. Article 5(3)(d) of the India-USA DTAA likewise excludes a fixed place maintained solely for purchasing goods or collecting information from permanent establishment status, and Article 7 taxes profits only to the extent attributable to a permanent establishment. On this framework, purchase-support functions are treated as non-taxable purchase operations rather than a separate commercial activity in India.

---

---

Issues: Whether the liaison office constituted a permanent establishment under the DTAA and whether any portion of the income was taxable in India on account of the liaison office's purchase coordination and related support functions.

Analysis: The relevant legal framework was Section 9 of the Income-tax Act, 1961, read with its exception for operations confined to the purchase of goods in India for export, and Articles 5 and 7 of the India-USA Tax Treaty. Under Section 9(1)(i), read with Explanation 1(b), no income is deemed to accrue or arise in India to a non-resident where the operations in India are confined to purchase of goods for export. Under Article 5(3)(d), a fixed place maintained solely for purchasing goods or collecting information is excluded from the definition of permanent establishment. Article 7 permits taxation in the other State only to the extent profits are attributable to a permanent establishment and relevant sales or similar business activities. The liaison office's functions were found to be part of the purchase process necessary to procure export goods and not a separate commercial income-generating activity in India. Those activities fell within the purchasing and information-collection exclusion and did not create a taxable business presence.

Conclusion: The liaison office did not constitute a permanent establishment, and no income was taxable in India on the basis of its purchase coordination activities.

Final Conclusion: The impugned advance ruling was set aside and the writ petition succeeded, with the taxability issue answered in favour of the assessee.

Ratio Decidendi: Where a non-resident's India operations are confined to purchase coordination for export, the resulting liaison office is excluded from permanent establishment status and no profit is attributable for taxation in India.

---