2017 (1) TMI 1367

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....led IFFCO-Tokio General Insurance Business Co. Ltd and was incorporated on 17th January, 2000 for the purpose of insurance business in India. The LO was opened to assist in the formation of the JV. The assessee took the stand that the LO was set-up to finalize preparation of the JV agreement and also for applying for license from the regulating authorities to conduct the general insurance business, for the purpose of which four expatriate officers were deputed to the LO. It was claimed that the work of the LO was preparatory in nature and, therefore, it did not constitute a permanent establishment (PE). The AO negatived this contention and held that the LO did constitute a business connection, leading to a PE which rendered the assessee lia....

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....y the four expatriates were for laying the groundwork for the assessee to start business in India; even the agreement signed between the parties was merely witnessed by the said four officials and could not be said to be a PE.   4. Article 5 of the Indo-Japan DTAA governs this case. If indeed the office in question- the LO results in profit or income generation, it can be said to be a PE. The question is whether the activities undertaken can warrant such a conclusion. The evidence on record- concurrently found shows that four expatriate employees were there at the relevant time. The task of this office was to identify a proper JV partner; involve in the negotiation, identify and engage all manner of consultants, lawyers, accountants, ....

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....the present case, both the CIT(A) and ITAT have found that the four expatriate employees posted in India performed purely preparatory functions: identifying a JV partner, negotiating with parties, seeking regulatory approvals and clearances, consulting management experts, lawyers and accountants toward setting up of the JV, towards entering into agreements, etc. They did not even enter into agreements on behalf of the assessee; instead they merely signed them as witnesses. These could not per se or by themselves amount to a business connection as to create a PE in India.   7. The DTAA clearly envisions that offices that perform auxiliary and preparatory services are not to be treated as business connection. Black's Law Dictionary ....