By Geeta Jani, Dhishat B. Mehta, Chartered Accountants
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Part C — International Tax Decisions
15 Ikea Trading Hong Kong Ltd. In Re
(2008) TIOL 23 ARA IT (AAR)
S. 9(1)(i) of Income-tax Act
Dated : 19-12-2008
Issue :
Operations of Hong Kong company in India through its liaison
office confined to purchase of goods for export from India is not taxable in
terms of provisions of clause (b) of Explanation 1 to S. 9(1)(i) of the
Income-tax Act.
Facts :
The Ikea Group, a multi-national retailer of furniture and
home furnishing products, marketed goods under the brand name of Ikea. It
purchased products from suppliers worldwide including India. The applicant, the
Ikea Group Company, was a tax resident of Hong Kong. The applicant had
established a liaison office in India.
Certain functions of the Group were performed in a
centralised manner from outside India. For example, the group entity at Sweden
undertook research and development, designing, determination of range of
products, quality, etc. One of the group entities at Switzerland performed the
function of acting as central treasury and made payments to various vendors on
behalf of the group concerns.
After verifying diverse details, the AAR proceeded on the
basis of the following fact pattern :
(1) The applicant company purchased goods from India.
(2) The liaison office in India provided support in the
form of identifying potential suppliers, collecting information and samples,
quality check, acting as communication channel between applicant and Indian
exporters, etc.
(3) The goods were exported by the vendors from India
directly in the name of the applicant – though, the goods were delivered
outside India for and on behalf of the group entity which purchased goods from
the applicant.
(4) The applicant received sale price of such goods outside
India. The applicant therefore did not have tax liability in India in terms of
S. 5(2) of the Act on the basis of receipt of money in India.
(5) The tax liability of the applicant was, if at all,
attracted u/s.9 of the Act.
Before the AAR, the applicant claimed that entirety of its
operations in India were confined to purchase of goods for the purposes of
export and hence in terms of clause (b) of Explanation 1 to S. 9(1)(i), no part
of the income was chargeable to tax in India.
The Tax Department contended before the AAR that the
purchases from India were not for the purpose of export by the applicant, but
were really the transactions of purchase by the associates of the applicant in
respect of which the applicant earned service fee and that the applicant merely
acted as a procurement agent. The Department therefore contended that such
income was not covered by the exception carved out in clause (b) of Explanation
1 to S. 9(1) and was accordingly chargeable to tax in India.
Held :
The AAR accepted the contention of the applicant and held
that based on the representation and the facts submitted before it, the
applicant cannot be subjected to tax in India. Since the activities of the
applicant in India were confined to purchase of goods for export from India, the
AAR held that there cannot be any income attributable or apportioned towards
such operations by virtue of exception provided in terms of clause (b) of the
Explanation to S. 9(1)(i) of the Act.
