P.V. Reddi, J. (Chairman) - (1.) 1. The Small Business Corporation (for short 'SBC') is an undertaking of the Korean Government which assists small enterprises for the purpose of promotion of small and medium size business organizations in various ways, having its office in Seoul. Articles of incorporation of SBC has been filed along with the application. SBC has opened liaison office in India at Gurgaon after obtaining the permission from the RBI. RBI in its letter dt. 24th Jan., 2007 stipulated among other things that the liaison office should not involve in any trading activities and the entire expenses of the office should be met exclusively out of funds received from abroad through normal banking channels. The purpose of opening liaison office in India is stated to be to assist and facilitate the Korean businesses in India and to act as an interface between them and the Governmental authorities. The applicant states that the SBC is a non-profit entity. For the purpose of looking after the affairs of liaison office Mr. Ji Hoon Lee was appointed as a general manager at its India office. The exigibility of income-tax on the emoluments received by the said officer in charge of the liaison office is the issue raised in this application. The advance ruling is sought on the following question: Whether remuneration payable to the said Korean national by the Republic of Korea and/or by the India liaison office will be exempt from tax in India in terms of Article 20 of the DTAA between India and the Republic of Korea?
(2.) Article 20 of the DTAA between India and Republic of Korea (for short 'DTAA') lays down: Article 20 : Government Junctions: 1. (a) Remuneration, other than a pension, paid by a Contracting State or a political sub-division or a local authority thereof, to an individual in respect of service rendered to that State or sub-division or authority shall be taxable only in that State. (b) However, such remuneration shall be taxable only in the other Contracting State if the services are rendered in that State and the individual is a resident of that State who: (i) is a national of that State: or (ii) did not become a resident of that State solely for the purpose of rendering the services. 2. (a) Any pension paid by or out of funds created by a Contracting State or a political sub-division or a local authority thereof to an individual in respect of services rendered to that State or sub-division or authority shall be taxable only in that State. (b) ... 4. The provisions of para (1) of this article shall likewise apply in respect of remuneration or pensions paid, in the case of Korea, by the Bank of Korea, the Export Import Bank of Korea and the Korea Trade Promotion Corporation and in the case of India, by the RBI and the EXIM Bank of India, and by organizations recognized by and agreed between the competent authorities of the Contracting States. The applicant submits that by virtue of Clause (a) of Article 20 the remuneration paid/received by Mr. Ji Hoon Lee from SBC Korea is not liable to be taxed in India under the IT Act, 1961. On the facts placed before us it is not possible to give a ruling that the benefit of Clause (1)(a) of Article 20 can be invoked by the applicant. Mr. Ji Hoon Lee be it noted is an employee of SBC but not the employee of the State i.e. Government of Republic of Korea. He is an employee to the undertaking permitted by the Government which is a legal entity by virtue of its incorporation. SBC does not appear to be the Department of the Government. The applicant guardedly states in the application that the liaison office of SBC 'is similar to a Government Department'. A Government undertaking with corporate status cannot obviously be equated to the Government. Though articles of incorporation contain various provisions which disclose that the Korean Government through its official, namely, Administrator of small and medium business administration has pervasive control over SBC, it cannot however be treated to be a wing or integral part of the Government of Korea. Though sufficient opportunities were given to the applicant, the applicant could not also produce any material to substantiate that salary is being drawn out of the Government funds. It is seen from the articles of incorporation that SBC creates and manages its own funds, it has annual budget for gross income and outlays including the fund operation and management plan and the budget plan shall be approved by the administrator of S.B. Administration. All this will lead to the conclusion prima facie that the SBC, which is a State managed corporation, pays the remuneration to Mr. Ji Hoon Lee employed in its liaison office in India out of its own funds.
(3.) IN an apparent bid to establish that the source of salary payment to Mr. Hoon Lee is the Government funds placed at the disposal of SBC, the applicant has filed an affidavit of the Administrator of SMBA. The contents of the affidavit are as follows:;