Income Tax Appellate Tribunal - Delhi
Mitsui And Co. Ltd. vs Assistant Commissioner Of Income Tax ... on 8 February, 2008
Equivalent citations: (2008)114TTJ(DELHI)903
ORDER
G.S. Pannu, A.M.
1. This is an appeal by the assessee against the order of the CIT(A) dt. 18th Feb., 2005 pertaining to the asst. yr. 2001-02. The assessee has preferred the following grounds of appeal:
1. That on facts and in law, the orders passed by the AO and CIT(A) are illegal, invalid and ab initio void.
2. That the CIT(A) erred in law and on facts in treating the "LO" as PE in India and subjecting it to tax under the head "Business income".
2.1 That on facts and in law, the AO/CIT(A) erred in presuming that the LO has 'income' which is liable to tax in India.
2.2 That on facts and in law the finding that LO is a PE is contrary to the decision of Hon'ble Tribunal Special Bench "E" in appellant's own case for the asst. yrs. 1980-81 and 1981-82 in IAC v. Mitsui &. Co. Ltd. (1991) 41 TTJ (Del)(SB) 547 : (1991) 39 ITD 59 (Del)(SB).
3. That the learned CIT(A) has erred in law and on facts in:
(a) Holding that the appellant has submitted wrong and incorrect details of expenses/reports to the RBI and contravened the conditions laid down by the RBI while approving the setting up of LO.
(b) Relying upon the statements of Mr. Yuki Morata, director and chief financial officer of an independent Indian subsidiary.
(c) Observing that the assessee has not disclosed complete and correct expenses to the RBI, that assessee has incurred more expenses than what were reported to RBI, has also accepted that it has not complied with conditions and compliances prescribed by RBI while granting approval.
4. That on facts and in law the CIT(A) erred in determining the profits attributable to the alleged PE at an arbitrary, excessive and unreasonable figure ignoring the formula upheld by the Hon'ble Tribunal Bench "B" in appellant's own case for the asst. yrs. 1978-79 and 1979-80 (ITA Nos. 1697 and 1698/Del/1984 decided on 30th April, 1986) which was accepted and all along followed by the Department pending the final decision on "PE" issue in its case.
5. That on facts and in law the CIT(A) erred in asking the AO at assessee's back to conduct survey at its premises and collect fresh material and in relying upon the documents/correspondences so collected.
6. The learned CIT(A) has erred in law and on facts in:
(a) Asking for certain details of expenses which are neither maintained nor are available in LO in India to the knowledge of the assessing authorities.
(b) Not giving adequate and reasonable time to the appellant to collect the required details from its Tokyo office in spite of repeated requests.
(c) Proceeding to compute the profit attributable to PE on the basis of incomplete and incorrect facts, and
(d) Drawing adverse inference in an arbitrary manner by holding that no details or evidence was furnished.
7. That on facts and in law, the appellant is not liable to pay interest under Section 234AC of the Act.
8. That the CIT(A) erred in not even adopting the correct figures of salary paid to the expatriates at Rs. 13,89,76,410 and fringe benefit of Rs. 99,75,176 while computing the profits attributable to alleged PE as made available at his instance to AO for verification.
2. Briefly stated, the background giving rise to the impugned proceedings can be summarized at follows. The assessee is a non-resident foreign company formed and incorporated under the laws of Japan and is having its HO in Tokyo. It is an international trading house with business activities in a large number of countries. The assessee has LOs in India at Kolkata, Chennai, Mumbai and New Delhi and also undertakes several projects in the nature of turnkey projects. The assessee company has been regularly assessed to tax under the provisions of IT Act, 1961 (in short 'the Act.') as a non-resident foreign company. It has been filing returns of income on a consolidated basis both for the LO (hereinafter referred to as "LO") and project office. Accordingly, the assessee filed its return of income for asst. yr. 2001-02 on 31st Oct., 2001 declaring an income of Rs. 8,31,14,709 which comprised of income of Rs. 8,29,04,578 from business of providing engineering consultancy through various projects executed in India refunds during the financial year 1999-2000. However, it declared nil income from LOs.
3. The AO in the assessment completed under Section 143(3) of the Act held that LOs constituted Permanent Establishment (hereinafter referred to as 'PE') in India. He held that LOs were engaged in locating the customers, making offers to them, getting the terms of contract settled with them and ensuring the opening of letters of credit and other necessary follow-up. Although the AO noted that Tribunal in the case of the appellant company reported in IAC v. Mitsui & Co. Ltd. (1991) 41 TTJ (Del)(SB) 547 : (1991) 39 ITD 59 (Del)(SB) had held that the above activities were auxiliary and preparatory in character and, hence LOs did not constitute PE in India but, according to him, the activities of HO of Mitsui and all other offices are more or less similar in nature, thus he concluded that activities of LOs are not auxiliary in nature but constitute principal and core activity. He further held that signing of contracts by overseas entity is a mere formality and the reliance on RBI's supervision is not correct, as it is not concerned with the provisions of DTAA and the Act. In view thereof, he held that appellant company is having PE in India and consequently profit from the trading activity, namely, supply of equipment directly from overseas was held attributable to such PE. In order to compute the income from such trading activity in India, the AO referred to the global accounts of the assessee and calculated the global GP rate as 4.04 per cent for asst. yr. 2001-02. By applying this rate to total turnover from trading in India, he computed the gross profit of Indian operations. From the above, the AO deducted the expenses incurred at the offices located in India and also allowed a 5 per cent allowance for the HO expenses applying the provisions of Section 44C of the Act and accordingly computed the income of the LO of the assessee at Rs. 65,03,70,556. The total income of the assessee was computed at Rs. 79,93,28,115.
4. In the appeal preferred before the CIT(A), it was contended by the assessee that the activities of LO in India are purely for liaison work and not of trading; that RBI had granted the permission with the condition that LO would not undertake any activity of a trading, commercial or industrial nature in India and entire expenses of LO would be met exclusively out of the remittances received from abroad through normal banking channels; and there has been no violation of the terms and conditions of approval; that no income accrues or arises to the assessee in India as a result of activities of LO since all the work was preparatory and auxiliary in nature. Reliance was placed on the decision of the Special Bench of Tribunal in the case reported in (1991) 39 1TD 59 (Del)(SB) (supra) to contend that, LO does not constitute PE in India and that in any case and without prejudice to the above the method of computation of income by AO was assailed as highly unjustified and arbitrary.
5. In the appeal proceedings, the CIT(A) called for a remand report from the AO. The AO conducted a survey at the premises of the LO on 25th Jan., 2005 in the course of which a statement of Mr. Yuki Morata, director and chief financial officer of wholly-owned subsidiary M/s Mitsui and Co. India (P) Ltd. was recorded. On the basis of the aforesaid, a remand report was submitted by the AO in support of the assessment order. The CIT(A) has considered the submissions of the assessee, remand report of the AO and rejoinder of the assessee and thereafter held that the LO constituted PE in India. However, he did not uphold the computation of income as made by AO. Apart from the expenditure already allowed by the AO, the CIT(A) directed that the expenditure of global salary of expatriate employees should also be allowed. He further held that 50 per cent of the total net income can be attributed to Indian operations and not the entire income. Aggrieved with the above, the assessee is in appeal before us.
6. We have heard the rival contentions in the above background. The central issue involved in the instant appeal is whether the LO of the assessee constitutes PE in India. The claim of the assessee is that it does not constitute a PE in India in view of the exclusionary Clause 6(e) of Article 5 of Double Taxation Avoidance Agreement with Japan (hereinafter referred to as 'DTAA'). The stand of the Revenue is to the contrary. Before we proceed to deal with the rival claims pertaining to the assessment year under consideration, we find it relevant to note the past history and the manner in which the CIT(A) has departed from the decisions of the Tribunal for the past years. The bone of contention between the assessee and the Revenue has been the Clause 6(e) of Article 5 of the DTAA which provides that the term "PE" shall not include a fixed place of business maintained solely for the purpose of carrying on for the enterprise any activity of a preparatory or auxiliary in character. In the past, the Special Bench of Tribunal for asst. yrs. 1980-81 and 1981-82 reported at (1991) 41 TTJ (Del)(SB) 547 : (1991) 39 1TD 59 (Del)(SB) (supra) held that the LO of the assessee was only carrying out the work of supply of information and liaison work and did not carry on any trade in India or trading activity. The relevant portion of the order of the Tribunal reads as under:
23. We have given our very careful thoughts to the rival submissions and gone through the records and the orders of the Tribunal expressing conflicting views. We have also gone through the orders of the authorities below. The Revenue has emphasized that the branches of the assessee company in India were not merely doing the liaison work, but much more than that....
29. A perusal of the letters, the contents of which have been referred to by us, would show that it was purely a liaison work i.e., passing on the information to MMTC on behalf of the USA counterparts of the assessee company. There are several other letters in the compilation for the asst. yr. 1977-78 relating to import of urea under contract No. 558-FZ(96), dt. 22nd Dec, 1978. At p. 8 is a letter dt. 31st Jan., 1979 again addressed to MMTC, conveying the text of a telex message received form Mitsui & Co. New York. There are more than 20 letters placed in the compilation for the asst. yr. 1977-78, which are of the same nature relating to import of urea from the USA. One letter dt. 22nd Dec, 1978 on p. 39 again addressed to MMTC, New Delhi, is in relation to information regarding shipment schedule of urea as received from the USA office.... We do not find from the correspondence anything which would show that the branches of the assessee company in India were engaged in trading activities....
30. Here we would like to advert to Clause (iiia) of DTAA which provided that supply of information which is preparatory or auxiliary to the formation of the contract between the Contracting States does not amount to having a fixed place of business, and therefore, PE. What is important to note is that supply of information must only be preparatory or auxiliary to the formation of the ultimate contract. In contracts of this type which deal with the import-export policy of the country involving several public institutions, supply of information can be on a variety of points is meant to clear the doubts in the minds of the contracting parties so that ad idem is established before a final contact is concluded. In international trade and commerce, there are several aspects on which information has to be gathered and supplied to the contracting parties. It can start with negotiations from the very nascent stage to the final conclusion of the contract and also removal of doubts on various points relating to supply of material, transportation, payment schedule, mode of transport, freight and charges, bank guarantees, interest payable, commission payable, etc. It is difficult to specify the areas to which supply of information can be limited. That was why the Article (iiia) was so widely worded as to include extensively and intensively all areas of supply of information, the only limiting factor being that supply of information should be either preparatory or auxiliary to the formation of the final contract. Any information conveyed even after the conclusion of a contract say, for example, delay in the payment by the party in one Contracting State to the party in another Contracting State may also fall within the broad spectrum of supply of information. Information can be elicited or gathered only by negotiations or questions and answers and communication of these answers to the question raised cannot but be as supply of information. The Bench dealing with the asst. yr. 1977-78 had considered all these aspects and all these correspondence and came to the very right conclusion that all the correspondence showed that the branches in India of the assessee company were engaged only in the work of supply of information and liaison work for which they were specifically permitted by the RBI and did not carry on any trade in India or any activity leading to trading activity. If a trading activity had been carried on by the Indian officers of the assessee company then that would have amounted to violation and then it was the RBI that would be more concerned with such violation and would have withdrawn the permission for these Indian branches to exist in India under the Foreign Exchange Regulation Act. No such violation was ever found by the RBI even though the RBI was put in the knowledge of these activities carried on by the Indian branches of the assessee company by submitting the annual returns to it as per the that the interpretation sought to be placed upon the correspondence by the Revenue is more authentic and correct than the interpretation placed by the very concerned authority namely the RBI.... It is not the case of the Revenue that the expenditure incurred was so camouflaged as to cover the expenditure incurred in the trading activity to show it as expenditure incurred on liaison activity. Nor is it the case of the Revenue that the work carried on by the assessee in India which according to them amounted to trading activity produced income in India or anywhere else. This expenditure incurred in India was met out of the remittances received by the Indian branches again through the RBI. There was no evidence brought on record at any stage that the Indian branches had exceeded the limits prescribed for it by the RBI. As long as the Indian officers were conducting the operations within the restricted area and so long as those activities were not considered by the RBI, which is the concerned authority as amounting to anything other than carrying on of liaison work no inference adverse to the assessee can be drawn or is possible to draw. To repeat what all that was done by the assessee fell within the parameters of supplying of information which is preparatory and auxiliary to the formation of the final contracts.
31. We are of the opinion that the activities of the branches of the assessee company in India were within the ambit of Sub-clause (iiia) of Clause (i) of Sub-article (1) of Article II of DTAA between India and Japan."
(Underlined, Italicized in print, for emphasis by us)
7. The aforesaid Special Bench decision has been consistently followed by the Tribunal in all succeeding assessment years upto asst. yr. 1998-99 to hold that LOs of assessee did not constitute PE in India. However, in the assessment year under consideration, the CIT(A) has not followed the aforesaid precedent and has held that benefit of exclusionary clause is not available to the appellant. According to the CIT(A) the benefit of the exclusionary clause is available only when the services performed by LO are so remote from the actual realization of the profits that it is difficult to allocate any profit to such fixed place of business. In this regard he has relied on the decision of Authority of Advance Rulings reported in XYZ, In re (1999) 156 CTR (AAR) 583 : (2000) 242 1TR 208 (AAR). According to the CIT(A), on the basis of the material found in the course of survey, the documents show active involvement of the employees of LO in conducting the business of head office (hereinafter referred to as HO)) in India. Their activities are not limited to economic intelligence or forwarding of tender and gathering information but these employees including expatriate employees are actively carrying on the commercial business activities of the assessee on regular and continued basis.
8. In the above background, the learned Counsel for the assessee submitted that evidently no material has been found as a result of survey which alleges or establishes that LO is engaged in trading activity. In fact, since the documents found do not otherwise pertain to the year under consideration, the departure from the precedent made by the CIT(A) is misconceived. On the contrary, it supports the submission of the appellant that LO is carrying out only the activities of economic intelligence, collection of information and activities of preparatory nature. In view thereof, the finding that there are any fresh facts which suggest that the LO is engaged in business activity in the appeal for the instant assessment year is based on misconception. Accordingly, it is submitted that applying the rule of consistency and following the orders in the case of the appellant for the past assessment years, it is to be held that LO does not constitute a PE in India.
9. It was pointed out that right through the asst. yrs. 1980-81 to 1999-2000, it has been held that appellant has no PE in India and the activities in India of LO are preparatory and auxiliary in nature. With regard to the stand of the CIT(A) on the exclusionary Clause 6(e) of Article 5 of DTAA it has been argued by the learned Counsel that the CIT(A) has failed to appreciate correctly the nature of activities of the LO as also the provisions of Article 5 of the DTAA. In this regard reference was made to the decision of this Special Bench of the Tribunal in (1991) 41 TTJ (Del)(SB) 547 : (1991) 39 ITD 59 (Del)(SB) (supra) wherein it was noted with approval that the activities of the LO fall within the ambit of the exclusionary Article 5(6) of DTAA and it cannot therefore be regarded as a PE in India so as to attract any liability to tax in India in respect of any part of appellant's trading income from export of goods from abroad to various parties in India on principal to principal basis.
10. The learned Counsel has also assailed the observations of the CIT(A) in para 5.2 of his order that the assessee has not brought full facts to the notice of the RBI. The CIT(A) observes that the assessee has expatriate employees in India whose salaries have been paid from Japan and the same were not fully accounted for in the audited statements submitted to RBI of the LO. In this regard it was submitted by the learned Counsel that the Japanese expatriates receive salary in India and also in Japan. The local portion of the salary is paid through the inward remittances from HO and the same is reported to the RBI in compliance of the conditions contained in the RBI approval. A part of salary of Japanese expatriates is paid in Japanese Yen in their country of residence i.e. Japan. The payment of the salary in Japan is entirely in accordance with Circular No. 17 issued by RBI dt. 20th Sept., 2003 and clarification issued under FERA (AD/MA-51/97 dt. 15th Dec, 1997) which permits payment of salaries abroad to the employees deputed to their Indian offices to the extent of 75 per cent of the salary provided taxes are paid for full amount in India. Accordingly, the assessee has complied with the directions of the RBI and no facts have been withheld from the RBI. Therefore, according to the learned Counsel the assessee has not misled the RBI in any manner.
11. It is submitted that the entire operations of the LO are regulated and supervised by the RBI. In fact the Special Bench of the Tribunal has also referred to the role of RBI in this regard and in this context the learned Counsel has referred to para 30 of the order of the Tribunal for the asst. yrs. 1980-81 and 1981-82. It is submitted that the permission for LOs had been granted by RBI on the condition that appellant was prohibited from undertaking any activity of a trading, commercial or industrial in nature. The activities of the LO are restricted to liaison work only. In fact, nature of services rendered by the LOs in India are restricted to only collection of information, forwarding of various market enquiries, tender notices/proposals from Indian customers to HO for finding potential suppliers/buyers in India and meeting their requirements, etc. It was further submitted that LO also arranges meetings between visiting HO representatives and Indian parties for negotiation of business deals. No order for supply, purchase or rendering services is placed to or by the LO nor any supplies/purchase are made through it. Apart from exports from Japan, HO is also engaged in importing from India items such as minerals, metals, chemicals and other items as may be required by the HO in Japan. The role of LO is restricted to the location of the sources of supply, study of the products available in India, arranging for negotiations between the representatives of the HO with Indian exporters. Thus the activities of the appellant are purely of liaison work and not of trading and the liaison activity is merely preparatory and auxiliary in character.
12. It is therefore submitted that the learned CIT(A) has proceeded to reject the claim of appellant company that it has no PE in India on subjective and arbitrary appreciation of facts and circumstances of case and complete misconstruction of the provisions of the DTAA. No material has been found as a result of survey including the statement recorded of Shri Yuki Morata, which establishes expenditure incurred by the LO was so camouflaged as to cover the expenditure incurred in a trading activity to show it as expenditure incurred on liaison activity. In fact, statement of Shri Morata supports the claim that LO was only engaged in gathering of relevant information.
13. Further, it is submitted that the AO has framed the assessment on five factors, which in his opinion established that the appellant had a PE in India. It is asserted that all the five factors have been duly considered by the Special Bench in the case of the appellant company in (1991) 39 1TD 59 (Del)(SB) (supra) relevant to the asst. yrs. 1980-81 and 1981-82 and it is opined that none of the factors could be said to be sufficient to conclude that assessee has a PE in India more particularly because under the permission granted by the RBI it was permitted to carry out only liaisoning activity. Since it has not been found or held by the RBI that the activities carried in India by LO were other than preparatory or auxiliary activity, the purported violation to the permission granted cannot be assumed by the AO. In fact, it was submitted that no such violation has ever been found by the RBI even in relation to the assessment year under consideration.
14. It was without prejudice further submitted that, even otherwise the learned AO is not empowered in law to lead any additional evidence before the learned CIT(A) and in support reliance had been placed on the judgment of Rajasthan High Court in the case of CIT v. Rao Raja Hanut Singh . It was submitted that in fact, the CIT(A) during the pendency of appeal before him had not passed any order under Section 250(4) of the Act on the basis whereof (as claimed by the AO in his remand report) a survey under Section 133A of the Act was conducted at the premises of the appellant on 25th Jan., 2005, much beyond the end of the financial year namely 2000-01 relevant to the instant assessment year. It was submitted that as per the provisions of Section 133A of the Act, CIT(A) is not empowered to conduct a survey. It was thus submitted that what he could not directly do could not be done indirectly. Such evidence could therefore not be considered at the stage of the appeal proceedings. In any case, it was submitted that the purported evidence gathered as a result of survey did not pertain to the instant assessment year and even if considered, it did not establish in any manner that assessee had a PE in India within the meaning of Article 5 of DTAA. It was in these circumstances, submitted that in fact the purported evidence found as a result of survey cannot be relied upon and, therefore following the orders of the earlier years, it be held that no income of the appellant company is liable for taxation in India. In addition, the learned Counsel has taken us through such evidence which is placed in the paper book of the Revenue and contended that the same does not establish that the activities of the LO were in any manner different from what has been held by the Tribunal in the past years. The learned Counsel has extensively referred to the chart placed in the assessee's paper book explaining the nature of documents to contend that no adverse inference could be drawn on the basis of such purported evidence.
15. On the other hand, the learned senior standing counsel has defended the orders of the lower authorities. In particular it was submitted by the learned Departmental Representative that the CIT(A) has considered all the relevant facts and only after giving a proper opportunity to the assessee, the CIT(A) has upheld the conclusion of the AO that the LO in India is the PE of the assessee in India. Apart from making oral submissions, the learned Departmental Representative has submitted in writing the arguments on behalf of the Revenue, which we deem it appropriate to reproduce as under:
1. The Department/CIT(A) has considered all the relevant records/evidences including statements recorded during survey and various correspondence to hold that assessee for the asst. yr. 2001-02 has PE in India.
2.1 The assessee has placed reliance on the judgment of the Special Bench of learned Tribunal (Delhi) in its own case reported at (1991) 41 TTJ (Del)(SB) 547 : (1991) 39 ITD 59 (Del)(SB) (supra). It appears that the following aspects had either failed to attract the attention of Hon'ble Tribunal or the same were not brought to the notice of Hon'ble Tribunal.
2.2 The assessee has a huge back up of innumerable vendors. Whenever, it needs to supply anything it has its suppliers ready to deliver the products. In essence, its business is to locate a potential customer negotiate a deal finalize a deal, procure the material and supply the same to the customers. Of course in doing so, the assessee has to undertake various supporting activities as well, but the essence of its activities is to collect information about potential buyers, information about potential sellers, negotiate with both of them and manage the supplies of goods from one to another through its set up and in its own name.
2.3 In an organization, to ascertain as to whether or not a specific activity is of a preparatory or auxiliary nature, the same has to be seen and appreciated in the context or overall activities of the organization. In case of the assessee, therefore, it is to be seen whether the office in the other Contracting State is carrying out the same activity, which constitutes the core activity of the enterprise. If that office is undertaking same or almost the same core activities as that of the enterprise itself, it will be the PE of that enterprise. It should also be appreciated that an activity can be a core activity for one enterprise but at the same time it can be preparatory or auxiliary activity for the other. If the assessee is engaged in the business of earning income from advertising of products of the other companies worldwide and in any Contracting State it has an office for advertising, that office will be treated as the PE of the assessee in that Contracting State. However, for the manufacturing enterprise, the activities of its office located in other Contracting State for advertising of its products will be viewed as merely doing a preparatory and auxiliary nature of work and thus may not constitute a PE. Likewise an information collecting agency which earns income from dissemination of information so collected shall be a PE in other Contracting State if it opens an office for collection of information in that Contracting State.
2.4 As stated in the preceding paras, the LO undertakes the same or similar activity as that of its HO. It locates the customers, make offers to them, negotiate the deal and do necessary follow up. The Indian offices also locate the vendors and negotiate with them in case supplies are to be made from India to overseas. The activities of the HO and all other offices of the assessee are more or less similar in vendors or customers as the case may be and effect the supply of goods or services. It may also be pointed out the assessee apart from its affiliates or subsidiary maintains as many as 89 such offices all over the world. Therefore it can be seen that the offices in India are undertaking more or less same or similar activities as that of its HO or other offices that constitute the principal and core activity of the assessee. Signing of contract by the entity overseas etc. are more formal arrangements-substance of the matter should have precedence over the form. Signing of negotiated documents overseas, does not mitigate the importance of negotiating the finalizing the deal. It is also interesting to note that the assessee needs to forward all its documents like performance guarantee, letter of credit through its offices in India. But the contract is signed overseas independent of the Indian office.
2.5 The assessee locates potential customers negotiate a deal, finalize a deal, procure the material and supply them to the customers. For this purpose, the offices of the assessee have to in essence of its activities to collect information about potential buyers, information about potential sellers, negotiate with both of them and manage the supplies of goods from one to another.
2.6 That survey was undertaken and various documents were recorded and assessee was confronted with the same but assessee instead of filing any evidence to the contrary merely stating that the assessee is only undertaking liaison work.
2.7 That during the survey it was found that the assessee operates from a full-fledged office comprising of 3 floors with staff strength of approx. 100 people including 6 expatriates. The LO is modeled in the same fashion that the model of its HO. The LO had various departments, information, electronics and telecommunication business unit, automobile unit, lease for aero plant unit, organic chemical business unit, and consumer services business unit. However after incorporation of an Indian subsidiary since March, 2003, only two departments namely machinery department and energy department are being handled by the LO (sic) P Ltd. The Tokyo office is also compartmentalized in the same fashion. All the departments located in India and for the matter located worldwide report of their respective units in the HO in Tokyo. It is pertinent to note that the Indian subsidiary is indulged in same activity in other departments as those which the LO undertakes for machinery and energy unit.
2.8 That during survey statement of Mr. Yuki Morata (pp. 1-7 of paper book) was recorded. The same was made available to the assessee who has accepted the same and has led no evidence to rebut the same. The statement clearly proves that:
(a) The information regarding clients comes from HO and sometimes is gathered by LO also through a well established human network (as termed by Mr. Morata). So the duty of the LO is to follow up the clients in cases when information comes from HO so it is admitted that the role of LO starts even when the information is already available with the HO. Further the LO has a well established human network in India for undertaking the process of collecting and follow up of information.
(b) It has been admitted by Mr. Morata that whenever any expatriate employees from HO visit India with the representatives of the manufacturer or alone, the expatriate employees of the LO invariably accompany them and take part in discussing and negotiating the business deals. This statement is also documentarily supported by the documents discussed in the part B of the report.
(c) In reply to question No. 13, Mr. Morata stated, "Our office in Tokyo has got international network in a number of countries from where we get information regarding the manufacturers. We contact the manufacturers preferably Japanese, collect the requisite information, interact with supplier and clients and accompany the representatives of suppliers if required to have a meeting with Indian clients. We also provide financial solutions to Indian clients if they require.
Thus the aforesaid explains the business model HO undertakes then those undertaken by the LO in respect of a business deal. The business model of the assessee is based on the polycentric model. Each of the offices located worldwide acts as a wing of the HO to identify the suppliers and clients in trans-border situation and to play a major role in negotiating, finalizing and making the deal through. This is the essence of the activity, which is done by the assessee through its LO.
(d) In reply to question No. 16, Mr. Morata reaffirms : We have a network of offices situated all over the world. In case any overseas clients say German clients need something from India our German offices contact us and we introduce the suppliers to our German office. Thereafter we do not play any part of details of supplies, transportation and payments.
It can be seen from the above that for the supplies to be made from India to Germany only two offices located in the respective countries are involved. The HO has little role to play. It comes into picture only when the contract is to be finally signed. Further the last line to the reply made by Mr. Morata in reply to above question is contradicted by the documents found. The documents found prove in supplies to be made from India an activity part in negotiation, finalization and conclusion of deal is taken by the LO.
(e) It was also observed that the LO maintains separate records and copies of purchase order invoices and agreements of all the deals negotiated by it. Though the same were in the name of two different parties or its HO, the LO maintained all the records for every deal the assessee has done in India.
3.1 The assessee claims that its offices in India are LOs and seeks exemption from being treated as a PE on the basis of exclusionary clause of Article 5, which excludes an office engaged in activity of auxiliary and preparatory nature. The LOs claim to have been engaged in economic intelligence, which is an activity of preparatory and auxiliary nature and hence does not constitute a PE in India.
3.2 To understand the import of preparatory and auxiliary services, we refer to commentary on IECD Model Tax Convention published by OECD of which incidentally Japan is a member. Para 24 of commentary of Article 5 provides the basis of examination, which is reproduced below:
It is often difficult to distinguish between activities which have a preparatory or auxiliary character and those who have not. The decisive criterion is whether or not the activity of the fixed place of business in itself forms an essential and significant part of the activity of the enterprises as a whose. Each individual case will have to be examined on its own merits. In any case, a fixed place of business whose general purpose is one which is identical to the general purpose of whole enterprises does not exercise a preparatory or auxiliary activity. Where for example, the servicing of patents and know-how is the purpose of enterprises, a fixed place of business which has the function of managing an enterprise or a group of the concern cannot be regarded as doing a preparatory or auxiliary activity for such a managerial activity exceeds the level. If enterprise's international ramifications establish a so-called management office in States where they maintain subsidiary, PEs, agents or licenses, such office having supervising or co-ordinating functions for all the departments of the enterprise located within the region concerned, a PE will normally deemed to exist, because management office may be regarded as an office within the meaning of para 2. Where big international concern has delegated all management functions to its regional management offices so that the functional of the HO of the concern is restricted to general supervision, (so-called polycentric enterprises), the regional management offices even have to be regarded as a place of management within the meaning of sub-para (a) of para 2. The function of meaning an enterprise even if it only covers a certain area of operations of the concerns, constitutes essential part of the business operations of the enterprises and therefore can in no way be regarded as an activity which has a preparatory or auxiliary character within the meaning of sub-para (e) of para 4.
The above commentary fully and aptly applies in the facts of the LOs of the assessee. The assessee operating under precisely the same business model as has been discussed in the above commentary. Therefore the assessee cannot challenge that its offices located in India do not constitute PEs.
16. In this manner the learned Departmental Representative has supported the orders of the lower authorities that the assessee is not covered under the exclusionary clause of auxiliary and preparatory activities rather the assessee has carried the business from the fixed place in India and therefore, assessee has PE in India and accordingly the income of the assessee is liable to be taxed in India under DTAA.
17. In rejoinder, it is submitted that the observations of the learned Departmental Representative that certain aspects as noted in paras 2.2 to 2.8 of written submission were not brought to the notice of Special Bench of the Hon'ble Tribunal in the case of the appellant company for asst. yrs. 1980-81 and 1981-82 are not tenable. Such observations are mere reiteration of the assessment order and have been duly considered by the Special Bench and, as such an attempt to distinguish the aforesaid binding decision is wholly misconceived and misplaced. With respect to para 2.6 of the written submissions, it is submitted that the assessee has explained that the material gathered in search does not establish the case of Revenue. With regard to the paras 3.1 and 3.2 of the written submissions regarding the reliance on the OECD commentary to submit that, since the activities of the LO and, HO of the appellant company are identical, therefore the LO should be held to have a place of business in India it is submitted that there is no basis much less any valid basis to suggest that activities of LO and HO are identical. It is submitted that the permission for LOs had been granted by RBI on the condition that appellant was prohibited from undertaking any activity of a trading, commercial or industrial in nature. Therefore, the activities of the LOs were restricted to liaison work only and since RBI has not found any violation, therefore no adverse inference be drawn.
17.1 Reliance has also been placed on the decision of Special Bench of Tribunal in the case of Motorola Inc. v. Dy. CIT (2005) 96 TTJ (Del)(SB) 1 : (2005) 95 1TD 269 (Del)(SB), wherein the Bench has considered the issue of taxability of profits earned by a non-resident telecom equipment manufacturer from supply of telecom equipment to Indian telecom operators. In that case the assessee had entered into contracts with Indian telecom operators for supply of advanced network equipment for use of fixed/mobile telecommunication networks. The equipment was supplied from overseas whereas installation was done by the Indian entities under terms of separate installation contracts with the Indian telecom operators. It was taken by the Revenue that the assessee had a PE in India on account of the fact that the supply contracts were signed in India and title/risk in equipment supplied was transferred in India. The Bench held that the assessee did not constitute a PE in India and the supply revenues were not taxable in India because mere signing of the contract does not give rise to income in India; and, where the title and risk in the telecom equipment pass outside India, no income accrues in India from sale of telecom equipment. It is submitted that in the instant case even the contracts have also been executed outside India and the facts relating to the transfer of title outside India are also not disputed. Therefore, relying on the principles laid down by the Special Bench in the case of Motorola Inc. (supra), no portion of income from supply of goods can in any case be taxed in the hands of the assessee in India.
18. We have considered the rival submissions carefully. The crux of the issue involved in the instant appeal as noted by us earlier is whether the LO of the assessee constitutes PE in India. The case of the assessee is that it does not constitute a PE in view of the exclusionary Clause 6(e) of Article 5 of DTAA, whereas the stand of the Revenue is to the contrary. Before we proceed further, it is worthwhile to note that in order to determine the question before us, it is imperatively required that the activities being carried out by the LO in India are considered and analyzed. It is also a fact that the LOs of the assessee in India have been established in the past years as per the approvals of the RBI. In the past years also the Revenue and the assessee have differed on this issue. The Tribunal speaking through a Special Bench for the asst. yrs. 1980-81 and 1981-82 held that the LO of the assessee was only carrying out the work of supply of information and liaison work and did not carry on any trading activity in India. Therefore, it was opined by the Tribunal that the activities of the LO do not constitute a PE in India. The Tribunal analyzed the activities being carried out by the LO in great detail and also appreciated that the activities of the LO were under the express control of the RBI approvals and guidelines. It was appreciated that RBI only permitted such activities which are merely liaisoning activities. The RBI while permitting the assessee to set up LOs in India does not permit such offices to carry out any activity of trading, commercial or industrial nature. The entire expenses of the LO are required to be met exclusively out of the remittances from abroad in foreign currency through normal banking channels. Considering that there was no material to show any violation of the norms of the RBI, the Tribunal had found it proper to uphold the plea of the assessee that the LO of the assessee could not be construed as a PE since it was only engaged in the work of supply of information and liaisoning work for the HO. The decision of the Special Bench of the Tribunal for the asst. yrs. 1980-81 and 1981-82 has since been applied upto the asst. yr. 1998-99. There is no material on record to indicate that the aforesaid decision of the Tribunal has been overruled. In the assessment year under consideration the AO as well as the CIT(A) have decided contrary to the decision of the Tribunal in the past years. A notable feature in the instant year is that there is no allegation much less any material referred to by the Revenue which suggests that the assessee has been found to be violating any of the conditions or guidelines of the RBI with respect to the LO in India. Certainly the AO as well as the CIT(A) have made out certain points which, according to them are relevant to take a view different from the view taken by the Tribunal in the past. We would deal with such aspects a little later in our order. For the present, we only intend to observe that because of the orders of the Tribunal in the past years, the burden is on the Revenue to establish that the LO of the assessee in India constituted a PE in the instant year. Needless to say, such burden is to be discharged on the basis of cogent material which would enable an authority to depart from the subsisting findings of the Tribunal in the past years. Normally where an assessee seeks to canvass a benefit or a preferred treatment as per the statute, the burden is on the assessee. However in the present case in view of the past history and specially that there are no adverse findings of the RBI with regard to the activities of the LO even for the year under consideration, the onus is on the Revenue to make out a case that the precedents by way of the decisions of the Tribunal of the past years are not applicable in this year. It is with this background in mind, we proceed to evaluate the rival stands.
The issue revolves around Clause 6(e) of Article 5 of DTAA which reads as under:
Notwithstanding the provisions of preceding paras of this article, the term 'PE' shall be deemed not to include....
(e) The maintenance of fixed place of business solely for the purpose of carrying on, for the enterprise any other activity of a preparatory or auxiliary character.
From its perusal it is evident that the same provides an exception to the definition of PE in the DTAA. It provides that if a fixed place of business is maintained by an enterprise in the other State solely with the purpose of carrying out activities of preparatory or auxiliary in character, then such a fixed place of business shall not constitute a PE, so as to establish a business connection. It is this clause which has been considered in the past also and is relevant in this year too. The plea of the assessee is that the LO is carrying out only activities of a preparatory or auxiliary in nature. In this connection it is to be understood that where the role of the LO is only to assist its HO in the preliminary and preparatory work and the actual business is transacted by the HO, the same would not imbibe the LO with conduct of any trading activities by itself. Even a mere facilitation by the LO of the business being conducted and conceived by the HO also does not imply that the LO is engaged in business. The businesses of the assessee company are varied and spread out in different countries. It is an acknowledged leading trading house in the world. The question to be examined is as to whether the LO can be said to indulge in trading activity or in other words, do the activities of the LO transgress beyond mere preparatory or auxiliary in character with regard to the business of the HO. In this connection, after having perused the orders of the lower authorities as also the material on record, we do not find any evidence to suggest that any of the business contracts have been concluded by the LO on its own or that the LO is authorized to transact and conclude business on behalf of HO. While observing so, we are conscious of the argument of the Revenue that mere signing of contract by the overseas entity is a formality whereas entire work in this regard is done by the LO. The said argument, in our view, advanced by the Revenue is not on the basis of material but is on a presumption. Remaining on this point, we may also observe that the Revenue has not established that any employee or representative of the LO is authorized to solicit, negotiate or conclude agreements for the performance of the assessee company's HO business activities. It is also not the case of the Revenue that any of the funds received by the LO are expended for trading activities, an aspect which is on the prohibited list of the RBI approval. It is also not the case of the Revenue that the LO is rendering services to any third parties and that it charges any fee or commission for its activities. There is nothing to suggest that the LO is generating any revenue or income to support its activities.
19. The case of the AO is that the Tribunal in the earlier years has not considered certain factors in arriving at its decision. Firstly it is observed by the AO that assessee is one of the biggest trading companies in the world and whenever it needs to supply anything, it has got its supply line ready to deliver the products. Therefore, its essential activities are to locate a potential customer, initiate a deal and supply that to the customer. In such activity, the LO helps the HO in collecting information about potential buyers, information about potential sellers and manages the supply of goods. Secondly it is submitted that LO is engaged in locating customers in India. Thirdly it is submitted that the business of the assessee being an activity of trading, it always explores a potential customer, potential seller, a potential product to deal with and supply lines etc. That similar activity is being carried out by the LO and therefore the activities of the LO are akin to the activity of the HO. Thus the same could not constitute activities of preparatory or auxiliary in character. Fourthly, the AO observed that a mere absence of violation of the RBI guidelines does not impinge on the Revenue to hold that the LO was engaged in a business activity in India. We have carefully pondered over all these aspects brought out by the AO to depart from the decision of the Tribunal of the past years. We are unable to convince ourselves to the point of view of the AO on these issues. The mechanics of the activities of LO as stated by the AO in paras 1.1 to 1.5 of his order do not lead to an inference that the LO by itself was authorized by HO or that it was competent to take independent business decisions for the HO. The same also does not suggest that the employees or the persons manning the LO in India were carrying authority to transact on behalf of the HO any business contracts. The essence of doing business lies in effectuating a business decision. Clearly the said domain in the present case vested not with the LO but with the HO of the assessee. From the observations of the AO contained in the assessment order, it does not transpire that business was being transacted by the LO. On the contrary the LO was engaged in providing support services to its HO, of course in the realm of the business being undertaken by the HO. Therefore, on the basis of what has been discussed by the AO in his order, the decision of the Tribunal in the past years does not get negated and on the basis of the submissions before us, we observe that all that is done by the assessee falls within the parameter of supplying of information to HO which is preparatory and auxiliary in character for the business of the HO.
20. We, at this stage would also deal with the manner in which the CIT(A) in paras 5.1 to 5.2 of his order has dealt with the material brought before him by the AO in the remand report. On this issue the assessee has challenged the very action of the CIT(A) in considering such material. We will deal with this argument a little later in our order. At this stage, we may refer to the material considered by the CIT(A) to arrive at a conclusion that the assessee carried out activities in the LO which were not merely preparatory or auxiliary in nature, which is as under:
(i) Business report for the month of February, 2003 (placed at pp. 53 to 61 of the paper book of the Revenue).
(ii) E-mail dt. 7th Nov., 2002 sent by Mr. Aswani Bhagwan from Bombay office to Mr. Haga, head of machinery division of textile business (placed at pp. 51 to 52 of the paper book of the Revenue).
(iii) Report of the meeting on 1st April, 2004 with M/s Tata Tele Services Ltd. (placed at pp. 48 to 50 of the paper book of the Revenue).
(iv) Copy of MoU between Balmer Lawrie & Co. Ltd. and Yanmar Co. Ltd. for supply of cool container (placed at pp. 27 to 33 of the paper book of the Revenue).
(v) Copy of successor report submitted by an employee of LO to three expatriates of New Delhi LO along with a MoU (placed at pp. 93 to 110 of the paper book of the Revenue).
(vi) Statement of Mr. Yuki Morata, director and chief financial officer recorded on date of survey on 25th Jan., 2005 (placed at pp. 1 to 7 of the paper book of the Revenue).
21. On the basis of the aforesaid the CIT(A) concludes (a) that the documents show that employees are concluding contracts in India as well as the negotiations are taking place in India; (b) that the employees of the LO have participated in the meeting as employees of Mitsui and Co. Ltd.; (c) that it clearly shows that LO is engaged in negotiations and finalization of contracts on behalf of the assessee; (d) that the MoU duly signed by M. Matushima, who is an employee of the LO, on behalf of the appellant, which means he had full authority to execute the MoU.
22. With regard to the document at item (i) above it is submitted by the appellant that it is merely a business report prepared at Tokyo and forwarded to the general manager at Delhi. The report gives summary of activities undertaken and business done by the HO and its information to the general manager incharge of LO about the total trade in relation to Indian operation. It is contended by the appellant that there is nothing to suggest that the business was done by the LO. The stand of the CIT(A) is that the said document shows the active involvement of the employees of LO in conducting the business of HO in India. After perusing the document in question we find that it enumerates trades of the assessee company with respect to India. However to say that it suggests that the business was actually transacted by the LO would be an aberration. The sending of such information to the LO indeed shows that the relevance of the LO with respect to the business being transacted by the assessee in India. But the question is that if the services of LO utilized for this purpose are only of preparatory and auxiliary in nature then it cannot be said that the LO was engaged in any trading or commercial activity. Indeed collection of economic intelligence and business information is a preparatory activity and if the HO provides a feed back to the LO of business transacted on the basis of such information, it would not invite an inference that the LO transacted such business. The main test is whether the LO could independently take a business decision to undertake trading and commercial activity or not. The impugned document does not indicate or suggest so and therefore it cannot be used to infer that the LO was engaged in any trading activity. Notwithstanding the aforesaid we also find that the report in question is dated March, 2003 and is for the month of February, 2003 i.e. a period beyond the previous year relevant to the assessment year under consideration. Hence the document is not relevant for the year under consideration. The CIT(A), in our view, erred in relying on such document to infer that the employees of the LO are in a position to conclude contracts in India on behalf of the HO. The CIT(A) has also relied upon the document at item (ii) above to support the stated conclusion. The said document is an e-mail sent by an employee of LO at Bombay to Mr. Haga head of machinery division of the LO relating to textile business. On the basis of said e-mail the CIT(A) observes that employees are concluding contracts in India as well as the negotiations are taking place in India. In this connection we find that the e-mail is dt. 7th Nov., 2002 and that the same cannot be said to be relating to the year under consideration. Further the reading of the e-mail only suggests passing of information from one person to another at LO, Bombay in respect of cotton yarn for various customers in Philipines. It gives details of contracts concluded and further negotiations to materialize such contracts. This e-mail cannot be read to conclude that contracts were either negotiated in India or concluded in India by the LO. Similarly the document at item No. (iii) above is report of the meeting between Tata Tele Services Ltd. and Mitsui. According to the appellant the said document does show the presence of the representative of the LO in the meeting. It is explained that it is the normal practice of the LO to receive delegations from abroad and it even arranges a meeting schedule and LO employees accompany the delegations to the meeting for the sake of convenience. It is pointed out that generally the visiting foreigners have language problem and find it difficult to converse and therefore the LO representatives help them. However it is submitted that no adverse inference can be drawn on this basis to conclude that the employees of the LO transact any business. We do not find anything abnormal in the explanation of the assessee on this aspect. The document in question does not suggest that the employees are concluding contracts in India on behalf of the HO. The CIT(A) has also referred to a document at item (iv) to suggest that the MoU has been signed by the representative of the LO. We have perused the said document wherein the name of the LO is appearing as a witness. Curiously, the same is unsigned and blank as it does not state the name of any individual. That the MoU itself is between Balmer Lawrie & Co. Ltd. and Yanmar Co. Ltd. The MoU is unsigned, undated and there is nothing to establish that LO was engaged in any trading or commercial activity. Even the contents of the document do not contain any reference to the LO or even the HO so as to invite an adverse inference. Item (v) is a MoU between Yanmar Diesel Engine Co. Ltd., Japan, Mitsui & Co. Ltd. and Transport Corporation of India Ltd. The stand of the Revenue is that it is signed by an employee of LO on behalf of the HO and therefore it means that the employees of the LO do have the authority to transact on behalf of the HO. The contention of the assessee is that the said MoU is dt. 29th Jan., 2002 and is therefore not relevant for the year under consideration. Further it is explained that the MoU is meant for the parties mutually agreeing to co-work for demonstration (i.e. display) of the containers in India. Demonstration of the containers is display of articles and falls in the exclusionary clause of preparatory and auxiliary services in the Article 5 Sub-article (6) and para (b) of the DTAA between India and Japan. It is further submitted that there is no consideration and revenue involved in the MoU and is only for exploring new business of collecting information/responses of Indian market. It is therefore contended that the CIT(A) has incorrectly considered it as a document to establish that the LO was engaged in an activity other than preparatory and auxiliary in nature. In our view none of the documents referred above brings out that the LO is authorized to transact and conclude business in India. Mere facilitation of the business being conducted and conceived by the HO would not imply that the LO by itself is engaged in such business. No doubt from the above documents it shows that the staff and infrastructure of the LO have collected information pertaining to the business undertaken by the HO in India but it does not show that the LO was transacting business in India on behalf of the HO. There is no clinching evidence to establish that the LO finalized and transacted a business deal on its own or in the name of the HO. Further the CIT(A) has considered the statement of Mr. Yuki Morata, director and chief financial officer of M/s Mitsui & Co. India (P) Ltd. recorded during survey on 25th Jan., 2005. Firstly it is submitted that the said person was in India since March, 2002 and therefore his statement has no relevance for the assessment year under consideration. Secondly it is submitted that the said person was not the employee of LO and therefore his statement cannot be relied upon. Further, it is submitted that the said person had nothing to do with the LO activities in the year under consideration but whatever he explained about the role and activities of LO does not show any conduct of trade or commercial activity by the LO itself. We have perused the said statement. From the statement it emerges that the said person explained the role of LO as (1) collection of information from Indian clients (2) accompanying the foreign expatriates when they visit offices of Indian clients (3) collection of bid and tender documents and sending them to HO (4) advising HO on pricing aspects (5) follow-ups as advised by the HO. In fact, it is pertinent to note that in an answer to question Nos. 9 and 11 it is specifically stated that the pre-contract negotiations are done by the HO personnel with the Indian clients and after the award of contract the LO does not take any part in follow-up of payments for supplies transacted by the HO. Further in answer to question No. 10 regarding the logistics aspect of contracts undertaken by the HO it is specifically stated that the LO has no role to play in the same. In an answer to question No. 14 regarding after sales service it is specifically stated that the LO has no role to play. Further in an answer to question No. 15 it is stated that the LO does not have any technical personnel on its rolls. From the reading of the statement and the aforesaid specific questions, we do not find that the material is such so as to support the conclusion of the CIT(A) that the LO "was actively carrying on business in India and was not limited to actual (work) of economic intelligence or information gathering."
23. With respect to the evidence found during the survey conducted on 25th Jan., 2005 the stand of the assessee is that the same could not be relied upon by the CIT(A) and that it was not permissible for the AO to adduce additional evidence before the CIT(A) which was not available at the time of the assessment proceedings. It is also submitted that the CIT(A) could not direct conduct of the survey in the absence of any power conferred on him and in any case there is no direction by the CIT(A) under Section 250(4) of the Act. On this aspect we find that Section 250(4) empowers the CIT(A) to make such further enquiry as he thinks fit or he may direct the AO to do so and report the result to him in order to dispose of an appeal. In other words, the said section enables the CIT(A) to effectuate an enquiry further to that conducted by the AO during the assessment proceedings. Such further enquiry may result in unearthing of evidence or material not considered during the assessment proceedings. The result of such enquiry can be considered by the CIT(A) and the only requirement that can be read in this regard is that the same be confronted to the assessee on the principle of natural justice. In the present case we find that the evidence was collected after the completion of assessment proceedings and therefore the material acquired by the AO therefrom is an additional evidence not available with the AO during the assessment proceedings. The same forms the basis of the remand report submitted to the CIT(A). In this connection the Revenue was specifically directed to file the relevant material in the form of copies of direction issued by the CIT(A) under Section 250(4), copies of survey report etc. The same was considered appropriate to adjudicate the grievance articulated by ground No. 5 of the appellant regarding the additional material and evidence produced at the stage of the appeal proceedings. As per the record of the Tribunal proceedings in spite of opportunity allowed on more than one occasion the Revenue has not brought on record any such document. It becomes necessary because in the remand report the AO refers to a communication of the CIT(A) dt. 3rd Dec, 2004 for enquiry under Section 250(4) in terms of which survey under Section 133A on 25th Jan., 2005 is said to be conducted whereas the order of the CIT(A) does not refer to any such direction under Section 250(4) and rather in para 3.2 it is stated that the AO has submitted his detailed report after undertaking a survey under Section 133A of the Act. After considering the fact situation we find that the CIT(A) has entertained an evidence produced by the AO which was hitherto not available during the assessment proceedings and such evidence was therefore not the basis for making the assessment which was in challenge. Moreover, on facts, it is also not established that such evidence has been collected at the behest of the CIT(A) in terms of Section 250(4) of the Act. As a consequence it is to be held that such evidence could not be produced by the AO before the CIT(A). The argument of the learned Departmental Representative that the CIT(A) gave adequate opportunity to the assessee to comment on such evidence does not, in our view, justify the admissibility of the such evidence. It is a settled proposition that in the appeal proceedings, either of the parties cannot claim, as a matter of right, to lead fresh evidence except in accordance with the applicable law. In the present case the power of the CIT(A) in the matter of accepting additional evidence is circumscribed by Rule 46A of the IT Rules, 1962. The provisions of Rule 46A are in any case not applicable in the present case.
24. Therefore on this aspect we conclude by holding that such evidence as is collected post-completion of assessment by the AO could not be considered in the appeal proceedings in the absence of the requisite order under Section 250(4) by the CIT(A). In any case the assessee has also assailed the relevance of such evidence. We have already dealt with the merits of such evidence elsewhere in our order.
25. In conclusion, we hold that the IT authorities erred in holding that the LO has income liable to tax in India. The action of the lower authorities is not justified, both on account of the subsisting order of the Special Bench of the Tribunal in the assessee's case for asst. yrs. 1980-81 and 1981-82 as also our aforestated discussion.
26. Once we hold that LO does not constitute a PE liable to tax in India, the dispute regarding the computation of income is rendered academic and is therefore not adjudicated upon.
27. In the result, the appeal of the assessee is allowed, as above.