India: Hitachi's Liaison Office Constitutes Its Taxable Presence In India, Rules Tribunal

Last Updated: 4 October 2019
Article by Ritu Shaktawat and Sneh Shah


Recently, the Delhi Bench of the Income Tax Appellate Tribunal (Tribunal) held that the Liaison Office (LO) of Hitachi Technologies Singapore Pte Limited (Hitachi) constituted a Permanent Establishment (PE) of Hitachi in India for the financial years (1 April to 31 March) 2001-02 to 2006-07. Hitachi was engaged in trading business and the activities undertaken by the LO were viewed as "core" activities for a trading business and not merely "preparatory" in nature.

Under Indian tax law (read with applicable tax treaties), if a non-resident has a place of business in India, it could be deemed as its taxable presence i.e. a PE (there are certain exceptions) - as a result of which, income arising to the non-resident which is attributable to its PE is taxable in India.

Facts of the Case

Hitachi, a wholly owned subsidiary of Hitachi High-Technologies Corporation, Japan (Hitachi Japan), was engaged in trading operations across ASEAN countries. Hitachi had set up an LO in India at Delhi in 1988 on obtaining permission from the Reserve Bank of India (RBI). The permission was granted by RBI subject to certain conditions in relation to the nature of work which could be undertaken by the LO, essentially preventing the LO from undertaking any commercial activities . Hitachi had also set up LOs in Bangalore and Mumbai which were closed in the year 2004. In 2007, Hitachi had set up a Branch Office (BO) in Delhi.

The LO was engaged in marketing research, marketing and sales promotion and communication and logistical support services.

In April 2008, the tax authorities conducted a survey at the premises of the BO and collected the following information, based on which they treated the LO as Hitachi's PE in India for the years 2001-2002 to 2006-2007. For the purpose of attribution of income to the PE, the tax authorities sought to apply the global profit margin of Hitachi to the sales made in India and attribute 50% thereof to the PE in India. However, at the time of finalising the assessment, the tax authorities considered the commission of 16.5% on sales charged by an independent agent of Hitachi as a comparable, and attributed income to the PE accordingly.

  • Statements of the employees at the BO:

The tax authorities heavily cross-examined the employees of the BO, raising questions such as:

  • Nature and activities conducted by the LO and BO respectively, and whether there was any difference in the nature of activities earlier conducted by the LO and now conducted by the BO
  • Number of employees in the LO and nature of activities undertaken by each employee
  • Reason for conversion from LO to BO
  • Details regarding salary expenses incurred by Hitachi in relation to employees working in India
  • Email exchanges between representatives at LO, tax consultants and employees of Hitachi Japan:

The income tax authorities obtained access to 93 pages of email communications taken from the laptop of one of the employees at the LO and observed that such employee was an important executive, as she was marked in all emails regarding Hitachi.

Interestingly, the tax authorities have heavily relied on email exchanges between the representatives of Hitachi and its tax consultants, wherein the litigation risk exposure and the strategy to deal with this very tax issue was discussed. In such emails, the representative of Hitachi has stated that the LO was in fact actively involved in "commercial activities".

Arguments advanced by Hitachi

The principle contention raised by Hitachi, was that LO was only acting as a communication channel between the customers and Hitachi and providing logistical support as permitted by RBI. Hitachi therefore contended that the activities of the LO were "preparatory and auxiliary" in nature and would fall under the exclusion provided under Para 7(e) of Article 5 of the India-Singapore tax treaty, as per which a PE shall not arise where a place of business is maintained "solely for the purpose of advertising, for the supply of information, for scientific research, or for similar activities which' have a preparatory' or auxiliary character, for the enterprise."

Arguments advanced by the tax authorities

Based on the information unearthed in the course of the survey operation, the tax authorities observed as follows:

  • Key personnel of Hitachi were working in the LO and carrying out advertisement, sales promotion and marketing activities
  • The activities of the LO included ascertaining customer requirements, price negotiations, following up on deliveries and chasing the customers for payments

The tax authorities therefore contended that as Hitachi was a trading concern, such activities undertaken by the LO would form the "core" activities of Hitachi and could not be considered as "preparatory or auxiliary" in nature.

Decision of the Tribunal

The Tribunal held in favour of the tax authorities, on the basis that since Hitachi was engaged in trading operations, the nature of activities undertaken by the LO, that too since the year 1988, could not be considered as "preparatory and auxiliary" in nature and would qualify as core business activities of Hitachi. Activities of the LO therefore constituted a PE of Hitachi in India.

As regards attribution, the Tribunal appreciated that the basis adopted by the tax authorities was not appropriate, given that the LO was performing routine and limited functions with negligible risk profile (as compared to an independent agent) and therefore, directed the tax authorities to recompute attributable income, using the Transactional Net Margin Method (TNMM).


This ruling reaffirms the principle that for the purpose of assessing whether activities undertaken by representatives / office of a non-resident in India are merely "preparatory or auxiliary" in nature, the deciding factor would be the criticality of such activities vis-à-vis the overall business of the non-resident. In addition to the technical aspects discussed in this ruling, one should also note the nature of detailed scrutiny undertaken by the tax authorities. Aspects such as email communication and statements of employees recorded during survey proceedings are generally key sources of information in such cases. Thus, in addition to intra-group contractual arrangements, one needs to review all the surrounding facts including internal and external email communication and how the representatives on the ground understand the business operations of the offshore group entities, to ensure that consistent positions are taken.

The content of this document do not necessarily reflect the views/position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up please contact Khaitan & Co at

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions