Mitsubishi Corporation PE Attribution Reopened

The assessee, Mitsubishi Corporation Japan, carried on diversified trading operations globally and maintained business presence in India through liaison offices, branch offices, and project offices. Following a survey under Section 133A in earlier years, the Revenue had historically treated the Indian Liaison Office as constituting a Permanent Establishment under the India-Japan DTAA and applied an agreed attribution formula taxing a percentage of Indian sales and purchases.

For AY 2009-10, the assessee changed its position and contended that the newly established Branch Office catered only to the Machinery Division of the Japanese Head Office and therefore profits from unrelated divisions and offshore direct sales could not be attributed to India. 

The Revenue, however, continued to apply earlier attribution approaches and made substantial additions exceeding Rs. 158 crores by attributing profits from direct sales and project activities to the Indian PE.

The Tribunal observed that similar issues for earlier assessment years had already been remanded by a co-ordinate bench for fresh adjudication after permitting the assessee to raise additional grounds departing from the earlier “consistency-based” settlement formula. 

The Tribunal noted that the Assessing Officer and CIT(A) had not fully examined the assessee’s revised factual case regarding the actual functional profile of the Branch Office. Accordingly, the entire matter was restored to the Assessing Officer for de novo consideration with specific directions to examine the assessee’s contentions regarding the limited functional role of the Branch Office and the attribution methodology under Article 7 of the India-Japan DTAA.