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March 2019

Direct Tax Amicus: January 2019


Liaison Office as PE under India-US DTAA
by Tanmay Bhatnagar


A liaison office under the Foreign Exchange Regulations is not supposed to undertake any commercial /trading/ industrial activity. The failure to comply with the said restriction by a liaison office can lead to tax implications under Income-tax law since constitution of a permanent establishment (‘PE’) is envisaged in various Double Taxation Avoidance Agreements (‘DTAAs’). Questions regarding the activities of a liaison office arose before Delhi High Court in the recent case of GE Energy Parts Ltd. v. CIT where the court upheld ITAT ruling that GE does have a fixed place PE and a dependent agent PE (DAPE) in India. The court in this regard observed that space leased out for the liaison office, though was also being used by the Indian entity, it was at the constant disposal of the GE staff for their work, and rejected the contentions that the activities carried out were preparatory or auxiliary in nature and thus excluded under Article 5 (3) of the DTAA; and that only the authority to conclude contracts would result in business activities. Regarding a dependent agent PE, the court was of the view that the term ‘authority to conclude’ did not mean all elements and details, since that would make other portion of the clause redundant and therefore, only meant that the activity needed to be core in nature…

Notification

  • Recognised start-up to get CBDT approval for issue of shares at premium, within prescribed time

Ratio decidendi

  • Profits from hedging contracts on raw materials are ‘derived from’ industrial activity – Bombay High Court
  • Reopening of assessment is justified where it is based on findings of the Tribunal in another assessee’s case – Bombay High Court
  • No separate transfer pricing adjustment on delayed receipt from AE when operating margin is higher than that of comparables – ITAT, Delhi
  • Sale of listed shares off market on commercial consideration when not a colourable device – ITAT Ahmedabad
  • Rental income received from unsold portion of property constructed by a real estate developer is assessable to tax as income from house property – Bombay High Court
  • First appellate authority cannot add a new source of income to enhance assessment in appellate proceedings – ITAT Chennai

Delay in filing of appeal to be condoned where appeal on identical issues for earlier assessment years is pending before High Court – Supreme Court

January, 2019/Issue-52 January, 2019/Issue-52

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