Law:

Section:

Section 9 of the Income-tax Act, 1961 - Income - Deemed to accrue or arise in India - Applicant, a company incorporated under laws of USA, is in business of manufacturing and selling outerwear and sportswear of its own design and made with material chosen by it - In year 1995, applicant established a liaison office in India in connection with purchase of goods - Besides coordinating purchase of goods from India, liaison office of applicant in India is engaged in vendor identification, review of costing data, vendor recommendation, quality control and up loading of material prices into internal product data management system of applicant - Moreover, liaison office monitors vendors for compliance with its policies, procedures and standards related to quality delivery, pricing and labour practices - Applicant's case is that all these activities of liaison office are concerned with purchase of goods in this country and since no final product purchased by applicant from India is sold in India, it cannot be said that applicant derives any income in India - Applicant further states that even if section 9 is taken into consideration, exemption contained under Explanation 1(b) to section 9(1)(i) relating to activities of purchase would take activities of liaison office outside purview of taxation in India - Whether as per Explanation 1(b) to section 9(1)(i), no income arises in India to non-resident through or from operations which are confined to purchase of goods in India for purpose of export - Held, yes - Whether on facts, it is apparent that activities of liaison office of applicant in India are not confined to purchase of goods in India for purpose of export and, therefore, applicant cannot take shelter under Explanation 1(b) to section 9(1)(i) - Held, yes Section 90 of the Income-tax Act, 1961, read with articles 5 and 7 of the DTAA between India and USA - Permanent Establishment - Double Taxation Relief - Where agreement exists - Whether in view of facts stated under heading 'Income-Deemed to accrue or arise in India' and, further, having regard to fact that liaison office has a fixed place of business in India, it can be concluded that liaison office would be a…

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