JUDGMENT This appeal under section 260A of Income-tax Act, 1961 (the Act), arises from decision of Income-tax Appellate Tribunal (the Tribunal) for assessment year 2003-04 (I. T. A. No. 2015/Delhi/2008) which was rendered on January 17, 2014. assessee is in appeal and has raised following questions of law: "1. Whether, on facts and in circumstances of case, Tribunal erred in law in upholding findings of Assessing Officer that since liaison office ('LO') was engaged in marketing/ promoting appellant's products in India, appellant was liable to tax in India on business income? 2. Whether, on facts and in circumstances of case, Tribunal erred in law in not appreciating that since activity of advertising/marketing carried out by liaison office in India fell within exclusion contained in article 5(3)(e) of India-USA DTAA, liaison office did not constitute permanent establishment of appellant in India and consequently no business profits were liable to tax in India as per article 7 of that DTAA? 3. Without prejudice, whether Tribunal erred in law in assessing surplus funds remitted by appellant/head office as business income liable to tax in India? 4. Without prejudice, whether Tribunal erred in law in not appreciating that only profits attributable to alleged business activities carried out by liaison office in India could have been brought to tax in India, having regard to functions performed, assets employed and risk assumed ('FAR analysis') by liaison office? 5. Whether, on facts and in circumstances of case, decision arrived at by Tribunal is such that no reasonable person correctly informed of position in law could come to? and 6. Whether, on facts and circumstances of case, findings arrived at by Tribunal are perverse?" assessee is company incorporated in US. Registrar of Companies issued certificate of registration to assessee under section 591 of Companies Act, 1956, on November 14, 2002. During accounting year, assessee had received approval from Reserve Bank of India on May 30, 2002, for establishing liaison office in India subject, inter alia, to following conditions: "(i) Except proposed liaison work, office in India will not undertake any other activity of trading, commercial or industrial nature nor shall it enter into any business contracts in its own name without our prior permission. (ii) No commission/fees will be charged or any other remuneration received/income earned by office in India for liaison activities rendered by it or otherwise in India. (iii) entire expenses of office in India will be met exclusively out of funds received from abroad through normal banking channels. (iv) office in India shall not borrow or lend any money from/to any person in India without prior permission... (vii) office in India will not render any consultancy or any other services directly/ indirectly, with or without any consideration." assessee filed its return of income and returned loss of Rs. 38.86 lakhs. assessee had shown receipt of Rs. 63.72 lakhs under head office account. During course of assessment proceedings, assessee claimed that it was maintaining liaison office and receipts were on account of remittance of expenses incurred. assessee stated that expenses included salary of its consultants and chief representative officer to whom payment of Rs. 7,20,000 per annum was paid as remuneration. Besides, remuneration of Rs. 6,60,000 per annum was paid to technical support manager. assessee disclosed that besides fixed remuneration, it had sales incentive plan under which employees were entitled to receive up to 25 per cent. of their annual remuneration as incentive. When called upon to disclose details of targets which were fixed and receipts under sales incentive plan, assessee submitted that during assessment year no incentive had been paid. Assessing Officer, while completing assessment under section 143(3) of Act, passed order dated February 21, 2006. Assessing Officer noted that assessee had claimed depreciation in income and expenditure account and ultimately had shown loss of Rs. 38.86 lakhs. Depreciation under section 32(1) of Act was claimed in respect of assets used for purpose of business activities. Assessing Officer recorded statement of chief representative officer of assessee and came to conclusion that activities of assessee were not restricted only to providing channel of communication between buyers of products sold by parent company but activities were, it was found, extended to searching for prospective buyers, providing required information and persuading them of worth of brand of assessee in US, which was, in turn, subsidiary of Swedish company. Assessing Officer held that activities of assessee involved marketing activities in India and that assessee was, in fact, carrying on business activities. On this basis, income of assessee was computed at Rs. 24.86 lakhs, comprising receipts of Rs. 63.72 lakhs less expenses of Rs. 38.86 lakhs, which was taken as profit from business activities carried on in India. Commissioner of Income-tax (Appeals) confirmed order of Assessing Officer. Tribunal by its judgment and order dated January 17, 2014, has come to conclusion that activities of assessee which were carried on by its liaison office were to promote sales of assessee in India and that Assessing Officer was justified in holding that income attributable to liaison office was taxable in India. Tribunal has also held that liaison office had received amount in excess of what was actually incurred by way of expenditure and, hence, Assessing Officer had correctly taxed amount received by assessee over and above reimbursement of expenses. assessee is in appeal. Learned counsel appearing on behalf of assessee submits that: (i) under article 5(3)(e) of Indo-US Double Taxation Avoidance Agreement "permanent establishment" has been defined so as to not include, inter alia, maintenance of fixed place of business solely for purpose of advertising or for other activities which have preparatory or auxiliary character for enterprise; (ii) in present case, activities of liaison office in India fall enterprise; (ii) in present case, activities of liaison office in India fall within exception which is carved out by article 5(3)(e) of DTAA. liaison office was engaged merely in acting as communication link between head office in US and prospective buyers in India and activities that were carried out in India were not in nature of marketing activities. More specifically, following submissions have been urged on each of points, which have been held against assessee concurrently by Assessing Officer, Commissioner of Income-tax (Appeals) and by Tribunal: (A) certificate of registration which has been issued by Registrar of Companies under section 591 of Companies Act, 1956, it is urged, is given to any office established by foreign company in India, irrespective of nature of activity; (B) approval which has been granted to assessee by Reserve Bank of India specifically prohibits liaison office from carrying on trading, commercial or industrial activities and there is no violation by assessee of approval; (C) provision under employment agreement for sales incentive plan is standard term which is incorporated in such contracts. only purpose of liaison office is to inform customers in India about range of products of assessee and promoting product is different from procuring orders. In present case, there was no evidence of liaison office having either conducted negotiations or of having executed any contract; and, (D) assessee while filing its return of income had claimed loss under head of "Profits and gains of business and profession" and had made claim of depreciation inadvertently, which should not be held against assessee. In alternative, it has been submitted on behalf of assessee that under article 7 of DTAA, even if enterprise carries on business in India, profits of enterprise may be taxed only to extent as is attributable to permanent establishment in India. On other hand, learned standing counsel appearing on behalf of Revenue, has submitted that: (i) Assessing Officer has proceeded on basis of admitted factual position as it emerged from answers which were furnished by representative of assessee during course of assessment proceedings. material disclosed by assessee would make it clear that activity of liaison office in India was not merely to carry on work of preparatory or auxiliary nature but was to promote products of assessee and, hence, assessee directly engaged in marketing activities. This is evident from replies furnished by chief representative officer of assessee which have been extracted in order passed by Assessing Officer. (ii) In present case, assessee had permanent establishment in India within meaning of article 5 of DTAA, since it had fixed place of business through which business of enterprise is partly or wholly carried on. expression "permanent establishment" includes "an office" under article 5(2)(c) of DTAA. exclusion contemplated under article 5(3)(e) of DTAA is not attracted since activity which was carried on was not merely in nature of advertising or of preparatory or auxiliary character for enterprise. (iii) As matter of fact, assessee had filed return of income claiming loss under head of "Profits and gains of business or profession" and had claimed depreciation under section 32(1) of Act. Hence, it was not open to assessee to resile from its claim. submissions which have now been urged by assessee are in nature of afterthought. rival submissions fall for consideration. Article 7 of DTAA reads as follows, in so far as is material (see [1991] 187 ITR (St.) 102, 109): "7. Business profits (1). profits of enterprise of Contracting State shall be taxable only in that State unless enterprise carries on business in other Contracting State through permanent establishment situated therein. If enterprise carries on business as aforesaid, profits of enterprise may be taxed in other State but only so much of them as is attributable to (a) that permanent establishment; (b) sales in other State of goods or merchandise of same or similar kind as those sold through that permanent establishment; or (c) other business activities carried on in other State of same or similar kind as those effected through that permanent establishment. (2) Subject to provisions of paragraph (3), where enterprise of Contracting State carries on business in other Contracting State through permanent establishment situated therein, there shall in each Contracting State be attributed to that permanent establishment profits which it might be expected to make if it were distinct and independent enterprise engaged in same or similar activities under same or similar conditions and dealing wholly at arm's length with enterprise of which it is permanent establishment and other enterprises controlling, controlled by or subject to same common control as that enterprise. In any case where correct amount of profits attributable to permanent establishment is incapable of determination or determination thereof presents exceptional difficulties, profits attributable to permanent establishment may be estimated on reasonable basis. estimate adopted shall, however, be such that result shall be in accordance with principles contained in this article." Under article 7 of DTAA, where enterprise of Contracting State results in profits, these profits are taxable only in that Contracting State unless enterprise carries on business in other Contracting State through permanent establishment situated therein. expression "permanent establishment" is governed by article 5 of DTAA, which reads as follows, in so far as is material (see [1991] 187 ITR (St.) 102, 106): "5. Permanent establishment (1) For purpose of this Convention, term'permanent establishment' means fixed place of business through which business of enterprise is wholly or partly carried on. (2) term'permanent establishment' includes especially: (a) place of management; (b) branch; (c) office; (d) factory; (e) workshop;... (3) Notwithstanding preceding provisions of this article, term'permanent establishment' shall be deemed not to include any one or more of following: (a) use of facilities solely for purpose of storage, display, or occasional delivery of goods or merchandise belonging to enterprise; (b) maintenance of stock of goods or merchandise belonging to enterprise solely for purpose of storage, display, or occasional delivery; (c) maintenance of stock of goods or merchandise belonging to enterprise solely for purpose of processing by another enterprise; (d) maintenance of fixed place of business solely for purpose of purchasing goods or merchandise, or of collecting information, for enterprise; (e) maintenance of fixed place of business solely for purpose of advertising, for supply of information, for scientific research or for other activities which have preparatory or auxiliary character, for enterprise." permanent establishment is fixed place of business through which business of enterprise is carried on either wholly or in part. definition of expression "permanent establishment" in clause (2) of article 5 includes in sub-clause (c) "an office". Article 5(3) of DTAA contains deeming fiction where, notwithstanding preceding provisions of article, certain activities of nature stipulated therein would not be deemed to constitute permanent establishment. But for exclusion in article 5(3) of DTAA, activities which are elucidated in clause (3) may have fallen within broad sweep and purview of article 5(1). But if activity falls within description of one of activities contained under article 5(3), as result of deeming provisions, expression "permanent establishment" shall not be deemed to include such activity. assessee relies on article 5(3)(e) of DTAA in support of plea of exclusion. That provision relates to maintenance of fixed place of business solely for purpose of advertising or, inter alia, for other activities which have preparatory or auxiliary character, for enterprise. In present case, Assessing Officer, during course of assessment proceedings, had called upon assessee to explain nature of its activities. chief representative officer of assessee, who attended proceedings before Assessing Officer on February 12, 2006, furnished detailed explanation to queries which were raised by Assessing Officer. Both queries and answers have material bearing on issue which arises in these proceedings and are hence reproduced below: "Question No. 8: Whether company of USA has deputed their agent in India to procure order and got supplied goods or have maintained their own office for this purpose in India, if so give details of both. Answer: M/s. Brown and Sharpe Inc has maintained liaison office in India which is called Brown and Sharpe Inc India liaison office. There was one agent during year 2002-03 only but thereafter there is no agent. liaison office explain about product/ machine to buyer and according to their requirement intimation is sent, technician to discuss commercial issue comes, thereafter order is placed by buyer direct to factory. Question No. 9: What is your activities in company in India. Answer: My activities is to visit prospective clients and inform them about Brown and Sharpe Inc and its products and organise further technical discussion with client. Question No. 14: How employee of liaison office justify their expenses to parent company of USA. Is there any minimum performance to be undertaken by employee or any incentive has to be given, if better performance is shown in providing/procuring order to get supplied machines from company. Answer: employee of liaison office was assigned task to promote Brown and Sharpe Brand's products and to understand Indian market. performance judged by number of direct orders that company received as well as extend awareness of Brown and Sharpe Co. in India. There was incentive plan which was based on assessment by parent company about extent of awareness of Brown and Sharpe in Indian market and same has been established. With result and taken into demand of market, parent company of USA, M/s. Hexagon Metrology of Sweden, has established Indian company, namely, Hexagon Metrology India P. Ltd. at same address of this company in which I am managing director." assessee also explained before Assessing Officer in pursuance of notice to show cause dated February 13, 2006, that initially it had agent in India for purpose of contacting buyers but during year relevant to assessment year, assessee had set up liaison office. assessee also explained before Assessing Officer that activities of liaison office also included various activities, for instance, co-ordinating commercial activities like purchase orders, letters of credit and shipment. This was carried out through office of assessee at Noida by chief representative officer and other technical staff. office also coordinated technical service and sales visits of company's representatives who visited India from overseas office. disclosures which were made by assessee before Assessing Officer clearly indicate that during year previous to assessment year in question, activities of liaison office were not confined only to being channel of communication between head office in US and prospective buyers in India. activities of liaison office included: (i) explaining products to buyers in India; (ii) furnishing intimation in accordance with requirements of buyers; and (iii) discussion of commercial issues pertaining to contract through technical representative, after which order was placed by buyer directly. Apart from this, it is significant that performance of personnel in India was, as disclosed by chief representative officer, judged by number of direct orders that assessee received and by extent of awareness of assessee that was generated in India. assessee had incentive plan, and it is not in dispute, as was disclosed by chief representative officer, that in sales incentive plan employee was allowed to receive up to 25 per cent. of its annual remuneration as SIP. Whether or not any incentive was, in fact, paid to employee during year in question is not material. What is relevant is that nature of incentive plan would clearly indicate that purpose of liaison office in India was not merely to advertise products of assessee or to act as link of communication between assessee and prospective buyer but involved activities which traversed actual marketing of products of assessee in India because it was on basis of orders generated that incentive was envisaged for employees. assessee sought to explain away incentive plan by stating before Assessing Officer that incentive which was provided for in letters of appointment was only "standard language of appointment letter of company", which had inadvertently not been deleted from contract of appointment by liaison office. Such explanation was, to say least, far-fetched because assessee which has transnational business with range of advisors cannot readily be assumed to have committed inadvertent mistake on issue as significant as this. Assessing Officer has quite justifiably declined to accept explanation. Tribunal while affirming order of Commissioner of Incometax (Appeals) has relied upon relevant documentary material in arriving at conclusion that activities of liaison office established that it was promoting sales of assessee in India and Assessing Officer was justified in holding that income attributable to liaison office was taxable in India. In appeal under section 260A of Act, this court ought not to interfere with aforesaid finding. There has been no perversity in approach of Tribunal nor has it misapplied itself either in fact or in law. Reliance was sought to be placed in present case on decision of Delhi High Court in U.A.E. Exchange Centre Ltd. v. Union of India [2009] 313 ITR 94 (Delhi). That decision is distinguishable. This is evident from nature of activity which was carried on in that case by liaison office in India of company based in UAE. This is evident from following extract from decision of Delhi High Court (page 112): "The only activity of liaison offices in India is simply to download information which is contained in main servers located in UAE based on which cheques are drawn on banks in India whereupon said cheques are couriered or despatched to beneficiaries in India, keeping in mind instructions of NRI remitter. Can such activity be anything but auxiliary in character. Plainly to our minds, instant activity is in'aid' or'support' of main activity." liaison office, in that case, therefore, was only engaged in downloading information contained in main servers located in UAE, based on which certain cheques were drawn in India and couriered to beneficiaries in India in accordance with NRI remitter. This was held to be merely in aid or support of main activity. In clear distinction, Tribunal has correctly noted that, in present case, liaison office was promoting sales of goods of assessee-company through its employees, to whom sales incentive plan was provided for achieving sales target and performance of employees was being judged by orders secured by assessee. Similarly, in earlier decision of Delhi High Court in Director of Income Tax v. Nokia Networks OY [2012] 253 CTR (Delhi) 417; [2013] 358 ITR 259 (Delhi), it was held by Tribunal that liaison office was not carrying on any business activity for assessee in India and that its role was only to assist assessee in preliminary and preparatory work. In contrast, in present case, activity of liaison office during year relevant to assessment year was not of preliminary or preparatory nature so as to attract exclusion under article 5(3)(e) of DTAA. For these reasons, we hold that questions Nos. 1, 2, 5 and 6 will not give rise to any substantial question of law. We now deal with alternative submission. Article 7(1) of DTAA provides that if enterprise carries on business in other Contracting State through permanent establishment situated therein, "the profits of enterprise may be taxed in other State but only so much of them as is attributable to" (a) that permanent establishment; (b) sales in other State of goods or merchandise of same or similar kind as those sold through that permanent establishment; or (c) other business activities carried on in other State of same or similar kind as those effected through that permanent establishment. Assessing Officer did not apply his mind to this crucial requirement which defines extent of taxability. Assessing Officer followed simplistic course of deducting expenses of Rs. 38.86 lakhs from receipts of Rs. 63.72 lakhs from head office. Whether any part of profits were attributable to permanent establishment, has not been considered either in order of Assessing Officer or, for that matter, by Tribunal. In this view of matter, we are of view that on alternative submission, it would be appropriate and proper to restore proceedings back to Assessing Officer for fresh determination of extent of taxable income having due regard to provisions of article 7 of DTAA. proceedings shall, accordingly, stand restored back to Assessing Officer for that purpose. appeal is, accordingly, disposed of in aforesaid terms. There shall be no order as to costs. *** Brown and Sharpe Inc. v. Commissioner of Income-tax