Summary
The UAE remittance company’s Indian liaison offices were excluded from permanent-establishment status under Article 5(3)(e) of the India–UAE tax treaty. Downloading remittance instructions, printing drafts and dispatching them to beneficiaries, within the restrictive RBI permission, were preparatory or auxiliary activities. Even if domestic business-connection provisions otherwise applied, the treaty exclusion prevented taxation under Article 7. The Revenue’s appeal was dismissed.
Issues
- Whether the liaison offices’ remittance-support activities were preparatory or auxiliary under the treaty.
- Whether domestic business-connection provisions could establish liability despite the treaty exclusion.
Provisions considered
- Articles 5(1), 5(2)(c), 5(3)(e) and 7, India–United Arab Emirates Double Taxation Avoidance Agreement, notified 18 November 1993Applied the auxiliary-activity exclusion to the offices and consequently excluded Article 7 taxation. (¶¶ 8, 9, 10, 11, 12, 13)
- Section 9(1)(i), Explanation and Explanation 2 as discussed, Income-tax Act, 1961Domestic business-connection deeming provisions did not displace the applicable treaty exclusion. (¶¶ 7, 8, 11, 13)
Held
- The applicable notified treaty governs liability even to the extent inconsistent with domestic income-tax provisions. A fixed place or office meeting Article 5(1) or (2) remains subject to the overriding exclusions in Article 5(3). Its actual functions must be examined. (¶¶ 8, 10)
- The RBI permission confined the offices to support functions, prohibited independent business contracts, fees and commercial activities, and required overseas funding of expenses. Downloading instructions, printing drafts and dispatching them supported remittance transactions consummated in the UAE; these activities were auxiliary within Article 5(3)(e). (¶¶ 1, 8, 9, 10, 11, 12)
- Even assuming the activities constituted business activity or a domestic business connection, Article 5(3)(e) deemed the liaison offices excluded from permanent-establishment status. Consequently the relevant business profits were not taxable in India under Article 7. (¶¶ 8, 11, 13, 14)
Result
Revenue appeal dismissed; High Court’s conclusions upheld, including its setting aside of the advance ruling and consequential reassessment notices. No costs; pending applications disposed of.