A tax tribunal has accepted information on social networking site LinkedIn as additional evidence to determine whether the liaison office of a foreign entity generated taxable income in India.

GE Group had set up a liaison office in India to act as a communication channel between the foreign enterprise and its customers in India. The tax department conducted an investigation at the local office, and found it was carrying out certain impermissible income-generating activities in India.

The department found various expatriates were acting as business heads for Indian operations and certain employees were actively involved in concluding sales for the foreign entities of GE in India. The department alleged that it could be a permanent establishment (PE) and thus taxable.

The tax department adduced the details of various expatriate employees of GE available on LinkedIn as additional evidence in this case and produced it during the proceedings before the Delhi bench of the income-tax appellate tribunal (ITAT). The tribunal passed an interim order admitting the information as additional evidence. Whether a PE existed or not was to be decided in another hearing.

However, the interim order has been stayed by the jurisdictional high court, barring the tax authorities from producing or placing reliance on LinkedIn profiles of past and present GE employees as evidence.

“Such innovative measures demonstrate tax authorities’ additional efforts towards mining for information from open platforms and their probable use in tax assessments and appellate proceedings,” consulting firm PwC said in a note.

If the high court lifts the stay and allows information available on social networking sites as evidence, the tax department would be able to use all this data in a bigger way in future. The department is looking at innovative ways to gather information from third party sources and web is one of the options. ITAT had observed that LinkedIn profiles were not in the nature of hearsay because it was the employees themselves who had given all the relevant details and these details related to them.

“This case also emphasises the importance of filing all information sought by the tax officer at the first stage of assessment. One of the significant reasons as to why additional evidence was admitted by the tribunal was that the taxpayer had not filed all the sought details at the assessment stage,” PwC said.

GE had contended that the LinkedIn profiles of various employees filed by the tax authority had no probative value whatsoever and no relevance to or bearing on the issue at hand. (Business Standard)