TaxTMI 
TaxTMI 
2021 (3) TMI 1470
X X X X Extracts X X X X
X X X X Extracts X X X X
....ncorporated under the laws of South Korea and is a tax resident of South Korea; that its principal activity is manufacturing and sales of various categories of televisions, home appliances, telecommunication terminals, semi-conductors as well as other state of the art IT products for global markets; that the assessee company also has two wholly owned subsidiaries in India under the name and style of Samsung India Electronics Private Limited ('SIEL') and Samsung R&D institute Bangalore India Private Limited ('Samsung R&D'). For the assessment year 2017-18 the assessee filed its return of income on 29.11.2017 declaring a total income of Rs. 2555,57,30,380/-. 3. During the course of assessment , it was found that the assessee has seconded certain expatriate employees to Samsung India Electronics Private Limited (a wholly owned Indian subsidiary of SEC) ('SIEL'); that the seconded -employees were taken specifically into employment by SIEL for the purpose of its own business operations and they performed business activities of SIEL under its control and supervision. 4. Assessee pleaded that mere presence of seconded expatriate employees does not create a fixed place PE of SEC ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....T,193 ITR 321 (SC). 8. Per contra, Ld. DR submitted that the view taken by the Tribunal for the earlier assessment years has not been accepted by the Department and is under challenge by the Department before the Hon'ble High Court and therefore, the matter needs to be decided afresh. He, however, does not dispute that the facts giving rise to the additions for all these years are identical and, for that matter, there is no change in the law governing the issue. 9. We have gone through the record in the light of the submissions made on either side. The orders of the authorities below clearly establish that the facts involved in this appeal are identical to the facts involved for the earlier assessment years rights Assessment Year 2004- 05 to 2015-16. It could be seen from the record that during the courseof reassessment /assessment proceedings for earlier years (i.e., AY's 2004- 05 to AY 2009-10., AY:s 2011-12 to AY 2015-16), in assessee's own case learned Assessing Officer held that the seconded expatriates constitute a Fixed Place Permanent Establishment (PE) of the assessee in India; that the assessee filed objections before the Hon'ble DRP against such draft orders passed....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g officer, there is a constant exchange of information between the subsidiary and the Global Business Management ( "GBM") to perform the product/strategy functions from a global market perspective. 21. Learned AR submitted that it is to be noted that none of the statements of the employees reveal that the key decisions with regard to the products, pricing, launching etc are taken by the assessee but they are well within the realm of the Indian subsidiary. He submits that none of the statements recorded by the assessing officer would show that any activity of the GBM is done in India. He further submitted that the assessee does not carry out any market survey in India, but whatever the market survey that was spoken by the employees was in relation to the business of the subsidiary to understand the business of the Indian customers and provide India specific information to GBM's which in turn then carry out research and development to develop India specific products. 22. It is further submitted on behalf of the assessee that is not the case of even the assessing officer that any core management decision relating to the assessee business was taken in India and the in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....id as if such expats were their own employees and then a debit note in respect of such salaries is raised by SIL India. Basing on this he argues that the expatriate employees are in fact the employees of the Korean entity and the beneficiary of the payments from SIL is the Korean entity. 25. Ld. DR further drew our attention to Point No. 9 of the letter of appointment of Mr K W Cho, wherein it is stated that, - "your services may be utilized in any of the offices of the branches of the company or in any department of the company or in any of the associated companies as may be required from time to time. Your services can be transferred to any of the branches of the company located in India, whether in existence at the time of your appointment are set at a later date at the sole discretion of the management without detriment to your status and emoluments." and to point No 12 where it is stated that,- during your appointment with a company, since you are on depredation, you will be governed by service as rules as applicable to Samsung India Electronics Co Ltd Korea employees. 26. He lastly submitted that the expatriate employees, as revealed by the....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... assessee exists under Article 5(2)(a) of the treaty with regard to south east operations. 30. Vide paragraph no. 5.4.4.6, Ld. DRP rejected the suggestion of the Ld. AO that SIEL can be considered as a service PE of the assessee. Lastly Ld. DRP held that the SIEL had nothing to do with the provision for royalty and fee for technical services. 31. Having rejected all the grounds pleaded by the AO, Ld. DRP reached a conclusion that SIEL be treated as a deemed fixed place PE of the assessee, and the relevant observation is to the effect that,- "Although they derive their remuneration from SIEL, their formal contract of employment is with the Parent company. The statements of some of these employees report frequently to SEC. Sh. B. D Park, Director (Mobile and I.T business), who is at number two position in SIEL has acknowledged that he communicates with SEC almost daily. Sh. J. H Kyung, Chief Financial Officer has stated that he is in touch with SEC two to three times a week. Sh. H. K Seo, President Marketing and Sales also stated that he communicates with SEC once a week in general. Sh. Yong Hee Cho, who is in charge of sales has stated that he communicates....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the market survey that is conducted in India, as spoken by the expatriate employees has nothing to do with the business of the Indian subsidiary and it is solely for the benefit of the assessee. All the activities that are spoken by the expatriate employees related to the specificity of the products, stock verification, they designs according to the preferences of the Indian consumers, the market strategies to be adopted etc are clearly within the ambit of the business of the Indian subsidiary. Such a communication would primarily benefit the Indian subsidiary, and would help the assessee in its GBM to sustain its supply chain management and to place optimized purchase orders at a right timing or to acquire the most promising manufacturing technologies, as is submitted on behalf of the assessee. 34. At the best, the statements and other material relied upon by the revenue show that by way of the seamless communication between the Indian subsidiary and the assessee, the expatriate employees were only discharging the duties of the subsidiary company towards the holding company. Whatever the benefits that are derived by the Indian subsidiary by such communication are....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... these reasons, we are of the considered opinion that there is neither any business conducted by the assessee in India through the expatriated employees nor any income is derived by them though the activities of the employees. Consequently, we hold that there is no fixed place PE of the assessee constituted through the expatriated employees. Issue is, therefore, answered in favour of the assessee. ADDITION OF 10% ESTIMATED INCOME ON THE TOTAL REMUNERATION COST OF EXPATRIATE EMPLOYEES SECONDED TO SIEL IN INDIA, 40. Ld. AO, in the assessment order, proceeded to attribute income in respect of such permanent establishment as per Article 7 of the Indo South Korean treaty. While making recourse to clause (iii) of Rule 10 of the Income Tax Rules, 1962, he took the remuneration cost of the expatriate employees seconded to SIEL as the basis for attributing income and added an estimated income of 10% on the understanding that had such services been rendered by an unrelated entity to SIEL, 10% would be a reasonable markup that would have been earned by it. Ld. DRP confirmed this finding of the Ld. AO. However, in view of our finding that there is no business activit....