TaxTMI 
TaxTMI 
2009 (2) TMI 56
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.... activities carried out by the Company in India?" 2.1 The aforesaid question was posed by the writ petitioner in the background of the following facts as stated in its application to the Authority. 2.2 The petitioner is a limited liability company incorporated in the United Arab Emirates ('UAE'), with its head office at Abu Dhabi. The petitioner is engaged, among others, in offering remittance services for transferring of monies from UAE to various places in India. In order to facilitate the said purpose, the petitioner had opened liaison offices in India on 01.01.1997 under a licence granted by the Reserve Bank of India ('RBI') vide its communication dated 24.09.1996. As per the RBI communication dated 24.09.1996, the petitioner's liaison offices, in India, are permitted to undertake only the following activities:- (i) responding to enquiries from correspondent banks with respect to drafts issued; (ii) undertaking reconciliation of bank accounts held in India with correspondent banks under Drafts Drawing Arrangement; (iii) acting as a communication centre receiving computer advices of mail transfer from UAE and transmitting to the Indian correspondent banks; (iv)....
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....ain server is accessed by the liaison offices in India for the purpose of remittances of funds to the beneficiaries in India by the NRI remitters. 2.7. However, the point to be noted, is that, in either situation, that is, whether the option exercised by the NRI remitter for remittance of the funds is through telegraphic transfer of funds to a bank in India or, through a liaison office in India; the petitioner collects a fixed charge of Dirhams 15 in UAE. There is no additional or extra charge payable by the customer to the petitioner if the customer choses the second option. 2.8 On the aforesaid basis, as averred in the writ petition, the petitioner, in compliance of provisions of Section 139 of the Act, has been filing its return of income since, the assessment year 1998-99 right through till assessment year 2003-04. In all these years, returns have been filed showing 'Nil" income as according to the petitioner, no income accrued or deemed to have accrued in India both under the Act, as well as, the agreement entered into between the Government of Republic of India and the Government of UAE which is ubiquitously known as the Double Taxation Avoidance Agreement (in short 'DT....
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....(i) the petitioner does not carry on any business/trade in India. Its business is carried out in UAE. This was sought to be demonstrated by alluding to the following facts:- (a) after the contract for remittance of funds is executed in UAE, funds are handed over by the NRI remitter to the petitioner's collection centre/camp etc. located in UAE; (b) the commission, which is equivalent to Dirhams 15 is received in UAE; (c) the funds thereafter are remitted in accordance with the instructions of the customers either telegraphically through banking channels via banks nominated by the NRI remitter, or through cheques/drafts drawn on banks in India based on information downloaded by the petitioner's liaison offices in India by despatching the same through courier to the NRI remitter's beneficiaries in India. (ii) if the NRI remitter in UAE exercises the option of having funds transferred through the liaison office in India, no extra commission or fee is charged; (iii) the liaison office in India does not carry out any trading, commercial or industrial activity, in India. As a matter of fact, the RBI has specifically imposed a prohibition, while granting approval on opening....
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....rendered by the Authority on 26.05.2004 well beyond the period prescribed under the said provision. It may, however, be noted that at the stage of arguments, this ground was not pressed before us. We have taken note that the petitioner has given up the said ground of challenge. Submission of the Respondent 4. As against this, the learned counsel for the respondent, Mr.R.D.Jolly, has raised a preliminary objection, which is that, in view of Section 245S, which provides, that the advance ruling pronounced by the Authority under the provisions of Section 245R shall be binding on the petitioner/applicant, the Commissioner and the Income Tax authorities subordinate to him in respect of the application and the transactions on which ruling has been sought - this Court ought not to exercise its extra ordinary jurisdiction under Article 226 of the Constitution of India as, there is no case made out by the petitioner that the Authority has acted either without jurisdiction or in breach of the principles of natural justice. 4.1 As regards merits, the learned counsel for the Revenue, has largely placed reliance on the ruling of the Authority, by reiterating, that the activity undertaken ....
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....e question posed before it by the applicant. Under sub-section (1) of Section 245R, on receipt of an application, the Authority is required to forward a copy of the same to the Commissioner and, if necessary, call upon him to furnish the relevant records. After examining the application and the records, the Authority is empowered to allow or reject the application. Under the first proviso, the authority's jurisdiction to allow the application is excluded, with respect to issues which are also pending before Income Tax Authority or the Appellate Tribunal or involves determination of fair market value of any property or relates to a transaction or an issue, which is designed prima facie to avoid income-tax except in the case of a resident applicant falling in sub-clause (iii) of clause (b) of Section 245N. The second proviso to Section 245R clearly mandates that the Authority shall not reject any application unless the applicant has been given an opportunity of being heard. Under the third proviso, the said section, specifically, provides that where the application is rejected, reasons for rejection shall be given in the order. Under sub-sections (4) and (5) of the said Section, the ....
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.... binding, this, by itself, cannot exclude the jurisdiction of the Courts by implication or otherwise, as it does not provide for any adequate remedy to mitigate or deal with the grievance of the aggrieved party. Therefore, in our view the Courts would have jurisdiction to entertain actions under Article 226 of the Constitution impugning the ruling given by the Authority under Section 245R of the Act. [See : Dhulabhai vs. State of MP; AIR 1969 SC 78 at page 89 (para 32) and Gurbax Singh vs. Financial Commissioner and Anr; 1991 Supp (1) SCC 167 at pages 174-175 (para 19)]. The principles enunciated in the aforementioned judgments clearly point to the fact that Section 245S in Chapter XIX-B of the Act cannot be construed as an ouster clause, ousting the jurisdiction of the Courts. 7. This brings us to a question as to whether the Authority is a Tribunal within the meaning of Article 227 of the Constitution. The broad test which has been laid down by the Courts are that an Authority shall be construed to be a Tribunal within the meaning of Article 227 of the Constitution of India if it is invested with the judicial power of the State, which is, that it should act judicially after as....
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....o a Court, nor because it is a body to which a matter is referred by another body. The intention of the Constitution by the use of the word 'tribunal' in the article seems to have been to include within the scope of article 136 tribunals adorned with similar trappings as Court but strictly not coming within that definition." 8. Seen in the light of the principles enunciated above, it is clear that the Authority constituted under Chapter XIX-B of the Act is a Tribunal as it is invested with powers of a civil court by virtue of provisions of Section 131 of the Act; which includes all such powers a court is vested with under the CPC when trying a suit in respect of matters relating to discovery, inspection, enforcing attendance of persons including officials of banking company and examining such persons on oath, compelling production of books of accounts, summons of accounts etc. Under the provisions of 245R, there is a requirement to give an opportunity of hearing to the applicant and to give reasons for rejecting an application. The cumulative effect of the powers invested and the attributes of the Authority, when gleaned from the provisions of Chapter XIX-B, leave no doubt in ou....
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....] best captures the accepted position in law. "Where upon the face of the proceedings themselves it appears that the determination of an inferior tribunal is wrong in law, certiorari to quash will be granted. Thus, it will be granted where a charge laid before magistrates, as stated in the information, does not constitute an offence punishable by the magistrates, or where it does not amount in law to the offence of which the accused is convicted, or where an order is made which is unauthorized by the findings of the magistrates, or is materially defective in form. Most of these cases are to be regarded as usurpations of jurisdiction; but it is settled that certiorari will also be granted to quash a determination for error of law on the face of the record although the error does not go to jurisdiction." 9.2 This again brings us to the question as to what would be an error apparent on the face of record. The Supreme Court in the case of Hari Vishnu Kamath vs. Ahmad Ishaque; AIR 1955 SC 233 at page 244 (paras 22 & 23) has laid down a litmus test, that is, it should be one which is 'manifest error apparent on the face of the record'. This brings us to another quintessential....
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....ndia, either by telegraphic transfer through normal banking channels via banks in India or are remitted by involving the liaison offices of the petitioner in India, who in turn, download the information and particulars necessary for remittance by using computers in India which are connected to the servers in UAE, by drawing cheques on banks in India in couriering/despatching the same to the beneficiaries of the NRI remitter in India. 11. The Authority in paragraph 11 of the impugned ruling held that downloading of information by the liaison offices in India with regard to the beneficiaries of the NRI remitters in India and thereupon the act of the cheques or drafts being drawn on banks in India, in the name of beneficiaries and their despatch through couriers to the beneficiaries constitutes an activity, which enabled the petitioner to complete the transaction of remittance, in terms of the contract entered into with the NRIs. From this the Authority has concluded, that there is, therefore, a real and intimate relationship between the business carried on by the petitioner, for which, it receives commission in UAE. Furthermore, the Authority has held that the activities of the li....
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.... from the general principle of chargeability to tax under Section 4 and the general principle of ascertainment of total income under Section 5 of the Act, then there was no purpose in making those sections "subject to the provisions" of the Act. The very object of granting the said two sections with the said clause is to enable the Central Government to issue a notification under Section 90 towards implementation of the terms of the DTA's which would automatically override the provisions of the Income-Tax Act in the matter of ascertainment of chargeability to income-tax and ascertainment of total income, to the extent of inconsistency with the terms of the DTAC. The contention of the respondents, which weighted with the High Court, viz, that the impugned Circular No.789 (see [2000] 243 ITR (St.) 57) is inconsistent with the provisions of the Act, is a total non sequitur. As we have pointed out, Circular No.789 (see [2000] ITR(St.) 57) is a circular within the meaning of section 90; therefore, it must have the legal consequences contemplated by sub-section 2 of the Section 90. In other words, the circular shall prevail even if inconsistent with the provisions of the Income-tax Ac....
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.... by telegraphic transfer through banking channels, the role of the liaison offices in India of an 'auxiliary' character, the same was not true in respect of remittance of funds through liaison offices in India. This was based on the reasoning that without remittances of funds to the beneficiaries in India performance under the contract would not have been complete and thus, the downloading of data, preparation of cheques for remitting the amount, despatching the same through courier by the liaison offices, constituted an important part of the main work, which was, remitting the amount to the beneficiaries as desired by the NRIs. Based on this reasoning, the Authority came to the conclusion that the work of the liaison offices in India, being a significant part of the main work of UAE establishment, the liaison office of the petitioner, in India, would constitute a 'permanent establishment' within the provisions of the DTAA. 12. In our opinion, this view is clearly erroneous. We are living in an era where the world is described euphemistically as 'flat' or even a global village. Organisations and companies operate transnationally. There is an eagerness to bring to tax by States i....
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....d in Article 5(3) and in this case in particular, sub-clause (e) have to be given a wider and liberal play. Once an activity is construed as being subsidiary or in aid or support of the main activity it would, according to us, fall within the exclusionary clause. To say that a particular activity was necessary for completion of the contract is, in a sense saying the obvious as every other activity which an enterprise undertakes in earning profits is with the ultimate view of giving effect to the obligations undertaken by an enterprise vis-a-vis its customer. If looked at from that point of view, then, no activity could be construed as preparatory or of an 'auxiliary' character. On this aspect of the matter, the Supreme Court in the case of DIT(International Taxation) vs. Morgan Stanley & Co; 2007(7) SCC 1 amongst other issues was called upon to decide as to whether back office operations carried on by Morgan Stanley Company for one of its Morgan Stanley Advantages Services Pvt. Ltd would qualify as having a permanent establishment in India. The Supreme Court, while holding that back office operations fall within the exclusionary clause Article 5(3) (e) of Indo-US Double Taxation DT....
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....D.Aggarwal & Co; (1965) 56 ITR 20. The ratio in both the judgments is that the non-resident entity could be taxed only if there was business connection between the business carried on by a non-resident which yields profits or gains and some activity in the taxable territory which contributes directly or indirectly to the earning of those profits or gains. The acid test for determination of a business connection as laid down in the aforementioned judgments is that there must be a real and intimate relationship between the activity of a non-resident outside the taxable territory with that of activity in the taxable territory. Therefore, the profit or gains earned by the non-resident should accrue or arise due to direct or indirect contribution of the activity carried out in the taxable territory entailing an element of continuity. A fortiori every such activity would not come within the purview of the expression 'business connection'. According to accepted business notions and usages, a particular activity may be a well defined business operation. Activities which are not well defined or are of casual or isolated character would not fall within the ambit of this aforementioned test. ....