UNION OF INDIA & ANR. versus EXCHANGE CENTRE

Citation: [2020] 4 S.C.R. 719 · Decided: 24-04-2020 · Supreme Court of India · Bench: A.M. KHANWILKAR · Disposal: Dismissed

Cited by 1 judgment(s) · cites 2 · see the full citation network in Lexace

Judgment (excerpt)

A
B
C
D
E
F
G
H
719
UNION OF INDIA & ANR.
v.
U.A.E. EXCHANGE CENTRE
(Civil Appeal No. 9775 of 2011)
APRIL 24, 2020
[A. M. KHANWILKAR AND AJAY RASTOGI, JJ.]
Income Tax Act, 1961: ss.2(24), 90 – Double Taxation
Avoidance Agreement (DTAA) – Respondent, a company
incorporated in the UAE was engaged in offering remittance services
for transferring amounts from UAE to various places in India – RBI
granted permission to respondent u/s.29(1)(a) of FERA for opening
liaison office in India – Pursuant thereto, respondent set up liason
offices in India – Crucial activities of the liaison offices were of
downloading particulars of remittances through electronic media
and then printing cheques/drafts drawn on the banks in India, and
then courier or dispatch to the beneficiaries in India, in accordance
with the instructions of the NRI remitter – While doing so, the liaison
office remained connected with its main server in UAE and the
information residing thereat accessed by the liaison office in India
for remitting funds to the beneficiaries in India – As per the Authority
for Advance Rulings, income from the activities carried out by the
liaison offices were deemed to be accrued in India – High Court
quashed the impugned ruling holding that the nature of activities
carried on by the respondent in the liaison offices being only of
preparatory and auxillary character were clearly excluded by virtue
of deeming provision – On appeal, held: Permission by the RBI to
respondent u/s.29(1)(a) of the FERA clearly showed that it did not
allow respondent to enter into a contract with anyone in India, but
only allowed it to provide service of delivery of cheques/drafts drawn
on the banks in India – Even the permitted activities were subject to
conditions which included not to render any consultancy or any
other service, directly or indirectly, with or without any consideration
– The conditions made it amply clear that the office in India would
not undertake any other activity of trading, commercial or industrial,
nor enter into any business contracts in its own name without prior
permission of the RBI – The liaison office could not even charge
commission/fee or receive any remuneration or income in respect of
[2020] 4 S.C.R. 719
719
A
B
C
D
E
F
G
H
720
SUPREME COURT REPORTS
[2020] 4 S.C.R.
the activities undertaken by it in India – Thus, the activities of liason
office(s) of the respondent in India were circumscribed by the
permission given by the RBI and were in the nature of preparatory
or auxiliary character and, therefore, covered by Art. 5(3)(e) of the
DTAA – As a result, the fixed place used by the respondent as liaison
office in India, would not qualify the definition of Permanent
Establishment (PE) in terms of Arts. 5(1) and 5(2) of the DTAA on
account of non-obstante and deeming clause in Article 5(3) of the
DTAA – It must follow that the respondent was not carrying on any
business activity in India as such, but only dispensing with the
remittances as per the instructions given by the NRI remitters in
UAE – The transaction(s) had completed with the remitters in UAE,
and no charges towards fee/commission could be collected by the
liaison office in India in that regard – Thus, no income as specified
in s.2(24) of the 1961 Act is earned by the liaison office in India
and moreso because, the liaison office is not a PE in terms of Article
5 of DTAA.
Dismissing the appeal, the Court
HELD: 1.1 Article 5(3) of the DTAA opens with a non-
obstante clause and also contains a deeming provision. It
predicates that notwithstanding the preceding provisions of the
concerned Article, which would mean clauses 1 and 2 of Article
5, it would still not be a PE, if any of the clauses in Article 5(3) are
applicable. For that, the functional test regarding the activity in
question would be essential. [Para 8][743-G-H; 748-A-B]
1.2 The crucial activities in the instant case are of
downloading particulars of remittances through electronic media
and then printing cheques/drafts drawn on the banks in India,
which, in turn, are couriered or dispatched to the beneficiaries in
India, in accordance with the instructions of the NRI remitter.
While doing so, the liaison office of the respondent in India
remains connected with its main server of the respondent in UAE
and the information residing thereat is accessed by the liaison
offices in India for the purpose of remittance of funds to the
beneficiaries in India by the NRI remitters. [Para 8][745-B-C]
A
B
C
D
E
F
G
H

Excerpt shown. Read the full judgment & AI analysis in Lexace.