April 2016
[2016] 67 taxmann.com 47 (Delhi – Trib.) Kawasaki Heavy Industries Ltd. vs. ACIT A.Y.:2011-12, Date of Order: 11th February, 2016
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Section 9(1) of the Act and Article 5 of India- Japan DTAA – In absence of authority to undertake core business activity or to conclude contracts, specific authority granted under power of attorney to an employee of LO will not result in constitution of PE of nonresident.
Facts
The Taxpayer, a Japanese Company, was headquartered in Japan. The Taxpayer established a Liaison Office (“LO”) in India. The Taxpayer had executed a Power of Attorney (“POA”) in favor of one of the employees of the LO.
The Taxpayer contended that purchase orders were directly raised by Indian customers on the HO of the Taxpayer, the HO directly sent quotation/invoices to Indian customers and all these documents were signed and executed by the HO directly without any involvement of LO. Further, the POA in favour of the employee was LO specific and did not grant any authority to the employee to undertake any core activities on behalf of the Taxpayer or to sign and execute the contracts. The Taxpayer also submitted documents supporting its contentions.
While the authority granted under POA was LO specific, without rebutting the documents submitted by the Taxpayer or bringing on record any other material, the AO held that the Taxpayer had granted unfettered powers to the employee and hence, the LO constituted PE in India of the Taxpayer. The AO also observed that the LO was operating beyond the scope of permission granted by RBI.
Held
POA showed that the authority granted to the employee was LO specific. Hence, the conclusion drawn by the AO that the authority granted is unfettered was incorrect. The POA did not demonstrate that the employee was authorised to undertake either the core business activity or to sign and execute the contracts. Therefore, AO’s observation that it was beyond the scope of RBI permission was perverse.
While the Taxpayer had supported its contention with documentary evidence, the AO had not rebutted the evidence nor did he bring on record any material in support of the conclusion that the Taxpayer had PE in India.
It has been brought on record that purchase orders were directly raised by Indian customers on the Taxpayer. The Taxpayer directly sent quotation/invoices to Indian customers and all these documents were signed and executed by the Taxpayer directly without any involvement of LO. No material has been brought on record to show that LO carried on core activities in India.
Accordingly, the LO of the Taxpayer did not constitute PE in India of the Taxpayer.
