NDLI: Union of India & Anr. Vs. U.a.e. Exchange Centre

Content Provider	Supreme Court of India
e-ISSN	30484839
Language	English
Access Restriction	NDLI
Subject Keyword	Double Taxation Avoidance Agreement remittance services Income Tax Act 1961 FERA
Content Type	Text
Resource Type	Law Judgement
Jurisdiction	India
Act(s) Referred	Income Tax Act, 1961 (43 of 1961)
Case(s) Referred	Referred Case 0 Referred Case 1 Referred Case 2 Referred Case 3 Referred Case 4
Case Type	Appeal
Court	Supreme Court of India
Disposal Nature	Appeal Dismissed
Headnote	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 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.
Judge	Hon'ble Mr. Justice A.M. Khanwilkar
Neutral Citation	2020 INSC 354
Petitioner	UNION OF INDIA & ANR.
Respondent	U.A.E. EXCHANGE CENTRE
SCR	[2020] 4 S.C.R. 719
Judgement Date	2020-04-24
Case Number	9775

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