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ITAT examines purchase of goods in India for the purpose of export

16 January, 2014

In its recent decision dated 10-1-2014, [Tesco International Sourcing v. DDIT] the ITAT (Bangalore) had occasion to examine ‘Purchase of goods in India for the purpose of export’.  Earlier this year the Karnataka High Court in Nike Inc, had observed that the purpose of the said clause was to encourage exports and the activity of the assessee in assisting Indian manufacturers in meeting specification of buyers in international market could be said to be purchase for purpose of export.

LO carrying out activity of coordinating alone

The assessee submitted that the Liasion office (LO) was engaged in identification of the vendors in India, communication of the requirements with regard to design and specifications to the vendors, receiving the prototype from the vendor, checking quality of the products, tracking the production and upto delivery including forecasting and scheduling of the order. It contended that all these activities are covered by the exemption clause (b) Explanation 1 of Section 9(1)(i) of the Income Tax Act, 1961.

Income arising in India from activity of LO

The department contended that the activities of the LO were not restricted to purchase of goods in India for export but included supply chain management activities and the exemption under Section 9 was not available.

Distinguishing AAR decision in Columbia Sportswear

The Tribunal held that the activities carried on by the assessee were akin to case on Nike Inc rather that the Columbia Sportswear. The assessee had no power to enter into contracts on behalf of the overseas entity and the entire expenses of the LO were borne by the overseas entity. Contrary to the facts in Jebon Corporation India v. CIT (Intl. Taxation) reported in (2012) 19Taxmann.com 119 (Kar), there was no finding that the assessee had engaged in any commercial activity. Thus, the activities carried on by the assessee fell within the purview of purchase of goods in India for purpose of export.
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