TaxTMI 
TaxTMI 
2014 (12) TMI 1106
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....ss of manufacturing and sale of consumer durable goods. It is submitted that the main activity of the branch office of the assessee company is to protect and safeguard the interest of parent company in India, which has made investment in equity capital of WIL through its subsidiary company in Mauritius. The parent company wanted to ensure that some top level employees are placed in WIL to manage its affairs. However, due to legal restrictions under the Companies Act, these persons could not be adequately remunerated by WIL as it was incurring loss continuously. Therefore, the parent company has paid remuneration of these persons through the branch office in India. The assessee's claim before the Assessing Officer is that no business operation has been conducted by the branch office in India, therefore, it is not liable to be assessed to tax in India. This issue has been discussed elaborately by the ITAT in its order for assessment year 2002-03. 2. In all these revenues appeal, the grounds taken by the revenue are common and read as under :- "1. Whether on facts and circumstances of the case while giving relief to the assessee, the CIT(A) had erred in placing reliance upon the....
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....red the facts of the case and submissions made before us. The facts are that the assessee is a company incorporated in the USA and it has opened a branch office in India with the permission of Reserve Bank of India inter-alia for undertaking the activities of- (a) import/export of goods to and from India; (b) providing service support to local suppliers for development of good quality raw-material, components and finished products for local and overseas requirements; and (c) promoting technical/financial collaboration and other incidental activities mentioned in the application which are not in the nature of manufacturing or processing activities. The assessee filed its return declaring nil income. It was accompanied by statement of income which showed loss of about Rs. 6.22 crores. This amount represents payment of salaries to the employees seconded by the parent company. The expenses were met out of repatriation of foreign exchange from the USA and it is the case of the assessee that such foreign exchange was received from the parent company. The note to the profit and loss account states that the main activity of the branch is to watch and safeguard the interest of the parent co....
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....uarding the interest of the latter, consisting primarily the investment made by it through Mauritian companies in WIL. For this purpose, the employees of the assessee have been seconded, on which expenditure has been incurred. 7.2 We may examine the rival contentions in terms of paragraph nos. 1 and 2 of Article 5. Paragraph no. 1 defines the term "PE" in general terms to mean a fixed place of business through which the business of an enterprise is wholly or partly carried on. It is true that the assessee has a fixed place of business in India in the form of the branch office. However, there seems to be nothing on record to show that the business of the assessee has been conducted wholly or partly through this branch. The reason is that only expenditure debited to profit and loss account is payment of salaries, stated to have been reimbursed by the parent company. The employees are the employees of WIL and look after its business. The conclusion which can be drawn is that the employees are that of the parent company which has disbursed the payment of salaries through the assessee. That, however, does not make the personnel to be the employees of the assessee company. There could....
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....e company. It is also responsible for identifying supplier of goods etc. both for export and local consumption of the group companies. For this purpose, the parent company and the Indian branch assist the suppliers to introduce new technologies etc. The branch office acts as a coordinating agency between the parent company and the assessee for providing latest management information in respect of technology, legal, commercial and political fields. It also advises on the matters of staff training, education, development and implementation of human resources. It also scouts for investment opportunities in consumer durable goods in collaboration with WIL. On the basis of this answer, it is argued that the branch office is taking up all the activities which are generally managerial in nature and these activities are undertaken for the benefit of the parent company, being the purpose for which the company has been incorporated. On the other hand, the argument of the ld. counsel is that these are the purposes for which the assessee company has been incorporated. These activities have not been undertaken in the year under question. The same is clear from answer to question no. 3, which cl....
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....her case conditions are made or imposed between the two enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profits which, but by reason of those conditions have not so accrued, may be included in the profits of that enterprise and taxed accordingly. It is fairly submitted by the ld. DR that Article 9 is an extension of Article 7 regarding determination of arm's length profits. Such a computation will arise only if there is a PE in India. Since there is no PE in India, the question of computing profits either under Article 7 or Article 9 does not arise. 7.5 As the assessee is not chargeable to tax in India in terms of the provision contained in Article 5 of the tax treaty, it is not necessary for us to go into the question whether transfer pricing adjustment could be made in determining such profit. Since there is no profit, there would be no question of transfer pricing adjustment. Thus, we do not think it necessary to go into Rule 10 of the Income-tax Rules, recognized methods of determining arm's length profits or the cases relied upon by the ld. DR in this matter. In view of the aforesai....