Our Hong Kong company wants an Indian liaison office that only gathers information from garment makers and chases up shipments. Does that create Indian tax?
No. The Authority ruled that on the activities described the applicant could not be held to have earned any income taxable in India. The proposed liaison office would collect information about garments and textiles from Indian manufacturers, communicate product information to the Hong Kong head office, act as a channel between the applicant and Indian exporters, and follow up the timely export of goods ordered. It would carry on no commercial activity, would have no authority to contract, and would be funded by remittances from the head office. Those operations were confined to the purchase of goods in India for the purpose of export, so clause (b) of Explanation 1 to section 9(1)(i) applied.
Pronounced by the Authority for Advance Rulings (Syed Shah Mohammed Quadri, J. (Chairman), A. S. Narang and A. Sinha, Members) on 2006-10-30. It bears on section 9(1)(i), section 5(2) of the Income Tax Act 1961, in Assessment & Scrutiny and How Tax Law Is Read matters.
The cleanest statement that a purchase-only liaison office is protected by the purchase-for-export exclusion, and the answer to an argument the Revenue still runs. Clause (b) of Explanation 1 to section 9(1)(i) says nothing about where the goods go, and the Authority held expressly that it is immaterial whether the export is to Hong Kong or to any other country because the clause does not specify. That closes off the suggestion that the goods must be exported to the buyer's own State. The other value is negative: the protection lasts only while the office stays inside the purchase function, and the reasoning gives you the boundary to keep your client behind.
Binding only on the applicant who sought it, in respect of the transaction the ruling was sought on, and on the Principal Commissioner or Commissioner and the authorities subordinate to him in respect of that applicant and that transaction — and only until the law or the facts change (section 245S). It binds nobody else. The Tribunal and the courts nonetheless treat a considered ruling as persuasive, which is why practitioners cite them.
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The applicant was a company based in Hong Kong. It proposed to open a liaison office in India and had applied to the Reserve Bank of India for permission, which was still pending. The office would collect information about garments and textiles from Indian manufacturers, communicate product information to the head office in Hong Kong, act as a channel of coordination between the applicant and Indian exporters, and follow up to see that the goods ordered were exported on time. It would carry on no commercial activity, would have no authority to enter into contracts on the applicant's behalf, and its expenses would be met by remittances from the head office. The applicant asked the Authority whether, on those activities, it could be held to have earned income taxable in India under the Income-tax Act 1961.
The Authority ruled that the applicant could not be held to have earned any income taxable in India under the provisions of the Income-tax Act 1961. The office's activities were confined to the purchase of goods in India for the purpose of export, and clause (b) of Explanation 1 to section 9(1)(i) provides that in the case of a non-resident no income shall be deemed to accrue or arise in India to him through or from operations which are so confined. The Authority rejected the suggestion that the exclusion is available only where the goods are exported to the country of the purchaser: it is immaterial whether the export of goods is to Hong Kong or to any other country, because clause (b) of Explanation 1 to section 9(1)(i) does not specify any destination. On those facts no business connection giving rise to taxable income arose. There being no agreement between India and Hong Kong at the time, the question was decided on the Act alone.
The Authority did not treat the presence of an office as decisive. It asked what the office was for. Section 9(1)(i) deems income to accrue in India through a business connection, but Explanation 1 carves out of that deeming, in the case of a non-resident, income from operations confined to the purchase of goods in India for the purpose of export. The description the applicant gave answered the carve-out: gathering information about what Indian manufacturers make, passing it to the buyer abroad, coordinating between the buyer and the Indian exporters, and chasing delivery are all steps in buying, and none of them is a step in selling, manufacturing or otherwise earning anything in India. The office was to generate no receipts at all; it was to be funded from Hong Kong. The Revenue's remaining argument was one of destination - that the exclusion is meant for a purchaser exporting to its own country, so that a Hong Kong company buying for shipment elsewhere falls outside it. The Authority answered by reading the clause. It speaks of operations confined to the purchase of goods in India for the purpose of export and stops there; it names no destination, and the Authority declined to write one in. With the deeming provision excluded, nothing else in the Act reached the applicant.
it cannot be held to have earned any income taxable in India under the provisions of the Income-tax Act, 1961
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Handle my notice → Ask a CA on WhatsAppNo. The Authority ruled that on the activities described the applicant could not be held to have earned any income taxable in India. The proposed liaison office would collect information about garments and textiles from Indian manufacturers, communicate product information to the Hong Kong head office, act as a channel between the applicant and Indian exporters, and follow up the timely export of goods ordered. It would carry on no commercial activity, would have no authority to contract, and would be funded by remittances from the head office. Those operations were confined to the purchase of goods in India for the purpose of export, so clause (b) of Explanation 1 to section 9(1)(i) applied. This was decided by the Advance Ruling (Syed Shah Mohammed Quadri, J. (Chairman), A. S. Narang and A. Sinha, Members) and bears on section 9(1)(i), section 5(2) of the Income Tax Act 1961. The cleanest statement that a purchase-only liaison office is protected by the purchase-for-export exclusion, and the answer to an argument the Revenue still runs. Clause (b) of Explanation 1 to section 9(1)(i) says nothing about where the goods go, and the Authority held expressly that it is immaterial whether the export is to Hong Kong or to any other country because the clause does not specify. That closes off the suggestion that the goods must be exported to the buyer's own State. The other value is negative: the protection lasts only while the office stays inside the purchase function, and the reasoning gives you the boundary to keep your client behind. If it applies to you, the first step is this: Keep the office inside the purchase function, and write that limit into the Reserve Bank application and into the office's internal mandate.
The applicant was a company based in Hong Kong. It proposed to open a liaison office in India and had applied to the Reserve Bank of India for permission, which was still pending. The office would collect information about garments and textiles from Indian manufacturers, communicate product information to the head office in Hong Kong, act as a channel of coordination between the applicant and Indian exporters, and follow up to see that the goods ordered were exported on time. It would carry on no commercial activity, would have no authority to enter into contracts on the applicant's behalf, and its expenses would be met by remittances from the head office. The applicant asked the Authority whether, on those activities, it could be held to have earned income taxable in India under the Income-tax Act 1961. The matter was decided on 2006-10-30 by the Advance Ruling (Syed Shah Mohammed Quadri, J. (Chairman), A. S. Narang and A. Sinha, Members). On those facts the Advance Ruling held as follows. The Authority ruled that the applicant could not be held to have earned any income taxable in India under the provisions of the Income-tax Act 1961. The office's activities were confined to the purchase of goods in India for the purpose of export, and clause (b) of Explanation 1 to section 9(1)(i) provides that in the case of a non-resident no income shall be deemed to accrue or arise in India to him through or from operations which are so confined. The Authority rejected the suggestion that the exclusion is available only where the goods are exported to the country of the purchaser: it is immaterial whether the export of goods is to Hong Kong or to any other country, because clause (b) of Explanation 1 to section 9(1)(i) does not specify any destination. On those facts no business connection giving rise to taxable income arose. There being no agreement between India and Hong Kong at the time, the question was decided on the Act alone.
The Authority did not treat the presence of an office as decisive. It asked what the office was for. Section 9(1)(i) deems income to accrue in India through a business connection, but Explanation 1 carves out of that deeming, in the case of a non-resident, income from operations confined to the purchase of goods in India for the purpose of export. The description the applicant gave answered the carve-out: gathering information about what Indian manufacturers make, passing it to the buyer abroad, coordinating between the buyer and the Indian exporters, and chasing delivery are all steps in buying, and none of them is a step in selling, manufacturing or otherwise earning anything in India. The office was to generate no receipts at all; it was to be funded from Hong Kong. The Revenue's remaining argument was one of destination - that the exclusion is meant for a purchaser exporting to its own country, so that a Hong Kong company buying for shipment elsewhere falls outside it. The Authority answered by reading the clause. It speaks of operations confined to the purchase of goods in India for the purpose of export and stops there; it names no destination, and the Authority declined to write one in. With the deeming provision excluded, nothing else in the Act reached the applicant. In the words reproduced by the source cited on this page: "it cannot be held to have earned any income taxable in India under the provisions of the Income-tax Act, 1961"
It was decided by the Advance Ruling on 2006-10-30. Binding only on the applicant who sought it, in respect of the transaction the ruling was sought on, and on the Principal Commissioner or Commissioner and the authorities subordinate to him in respect of that applicant and that transaction — and only until the law or the facts change (section 245S). It binds nobody else. The Tribunal and the courts nonetheless treat a considered ruling as persuasive, which is why practitioners cite them. An advance ruling binds only the applicant who sought it, only for the transaction it was sought on, and only the Commissioner and the officers under him in relation to that applicant and that transaction — and only until the law or the facts change. That is section 245S, and it means the ruling is not a precedent and binds nothing in your case. You cite it because the Authority reasoned the point out, often first and most fully, and the Tribunal and the courts treat a considered ruling as persuasive. Check before you rely on one: most of these were pronounced before 2009, and a great deal of cross-border tax has been rewritten since by amendment, protocol and judgment. On section 9(1)(i), section 5(2), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The Authority ruled that the applicant could not be held to have earned any income taxable in India under the provisions of the Income-tax Act 1961. The office's activities were confined to the purchase of goods in India for the purpose of export, and clause (b) of Explanation 1 to section 9(1)(i) provides that in the case of a non-resident no income shall be deemed to accrue or arise in India to him through or from operations which are so confined. The Authority rejected the suggestion that the exclusion is available only where the goods are exported to the country of the purchaser: it is immaterial whether the export of goods is to Hong Kong or to any other country, because clause (b) of Explanation 1 to section 9(1)(i) does not specify any destination. On those facts no business connection giving rise to taxable income arose. There being no agreement between India and Hong Kong at the time, the question was decided on the Act alone. It arises in Assessment & Scrutiny and How Tax Law Is Read matters, on section 9(1)(i), section 5(2) of the Income Tax Act 1961, and was decided by Syed Shah Mohammed Quadri, J. (Chairman), A. S. Narang and A. Sinha, Members. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Quote clause (b) of Explanation 1 to section 9(1)(i) as it stands: the exclusion is unqualified as to the country of export. Do not let the office negotiate prices, conclude contracts or collect payments if you want to stay within the exclusion. Check Explanation 2A to section 9(1)(i) on significant economic presence, which did not exist in 2006 and supplies a separate business connection limb.
Still good law. Checked the current official text of section 9. Clause (b) of Explanation 1 to section 9(1)(i) stands in the terms the Authority applied - in the case of a non-resident, no income shall be deemed to accrue or arise in India to him through or from operations which are confined to the purchase of goods in India for the purpose of export - and it still names no destination. What has been added around it is Explanation 2A, substituted by the Finance Act 2020 with effect from 1 April 2022, which makes a significant economic presence a business connection; that is a separate limb the Authority never considered. I searched for later judicial treatment and found no High Court or Supreme Court decision dealing with this ruling. Under section 245S it binds only Angel Garment. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Indian Kanoon prints no AAR application number and no law-report citation for this ruling. The Reserve Bank's permission had not been granted when the ruling was given, so the description of the office's activities is the applicant's own, and a differently worded permission would change the analysis. The input note described the ruling accurately. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The Authority ruled that the applicant could not be held to have earned any income taxable in India under the provisions of the Income-tax Act 1961. The office's activities were confined to the purchase of goods in India for the purpose of export, and clause (b) of Explanation 1 to section 9(1)(i) provides that in the case of a non-resident no income shall be deemed to accrue or arise in India to him through or from operations which are so confined. The Authority rejected the suggestion that the exclusion is available only where the goods are exported to the country of the purchaser: it is immaterial whether the export of goods is to Hong Kong or to any other country, because clause (b) of Explanation 1 to section 9(1)(i) does not specify any destination. On those facts no business connection giving rise to taxable income arose. There being no agreement between India and Hong Kong at the time, the question was decided on the Act alone.
TaxSphere, “In re Angel Garment Ltd”, https://taxnotice.vittsphere.com/caselaw/case/angel-garment-ltd-vs-unknown-aar-2006/ (validity last checked 2026-09-02)
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