TaxTMI 
TaxTMI 
2025 (1) TMI 880
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....ppeals preferred by the respondent-assessee Samsung Electronics Co. Ltd. [Samsung Korea] and pertaining to Assessment Years [AY] 2007-08 to 2009-10, 2011-12 to 2015-16 and 2017-18 came to be allowed. 2. ITAs 604/2019, 625/2019 and 289/2023 which are connected with the lead appeal, ITA 1029/2018, pertain to AYs 2013-14, 2015-16 and 2017-18 respectively, in which the view as expressed by the Tribunal in its judgment of 22 March 2018 has been followed. For the sake of convenience, we place hereinbelow a tabular chart which would encapsulate the details pertaining to all the appeals forming part of the batch:- ITA Nos. Assessment Year Order of the Tribunal challenged in the appeals ITA 1029/2018 2007-08 Order of 22 March 2018 for AYs 2004-05 to 2009-10; 2011-12; 2012-13 & 2014-15 ITA 1058/2018 2012-13 ITA 1060/2018 2008-09 ITA 1065/2018 2009-10 ITA 1066/2018 2011-12 ITA 1099/2018 2014-15 ITA 604/2019 2013-14 Order of 14 December 2018 for AY 2013-14 and 2015-16 which has followed the order of 22 March 2018 ITA 625/2019 2015-16 ITA 289/2023 2017-18 Order of 22 March 2021 for AY 2017-18 which has followed the order....
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....nt of it being a subsidiary. The DRP also negated the conclusion of the AO with respect to DAPE and Service PE. This becomes evident from a reading of paras 5.4.4.2 to 5.4.4.6 of the order of the DRP dated 29 September 2012 and which are extracted hereinbelow:- "5.4.4.2 Subsidiary as P.E: The Panel has also observed that all the conclusions made by the AO are based on the statements of various employees of SIEL during the survey conducted at its premises. Apart from these statements, the other material relied on by the AO is a presentation on Wi-max found during the survey, a layout plan of SIEL's factory at Chennai to cater for South east Asian market and the Technology Agreements between SIEL and SEC. Therefore in order to determine whether the claim that SEC exercises such a high level of control on the affairs of SIEL that it may in its entirety be treated as PE of the assessee, it would be in order to examine whether this is evidenced by the facts on record. The statements of employees attached with the remand report were therefore perused by us to sift our the responses under various heads. The result in respect of some salient aspects which are very relevant to dete....
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....ou back: In two way agreement (p-65) ii. Extent of control of SEC over launch of new products; instruction by SEC to employees of SIEL; role of SEC in other major decisions taken by employees of SEC: Anshuman Shah: Senior Management from. Sales and Marketing are responsible for product launch. The decision is democratic and based on collective leadership (Q. 8-Page4) Hyun Dong Lee, Head of CDMA business (P-26) (about who decides production of phones and takes decision about its launch in India): It will be decided by lots of people. After discuss internally. There are product Manager and Sales force and so on. After discuss with them we decide we will launch the model in India or not. (About last strategic decision about sales, marketing and launch of product): There was a meeting with TATA. I could not provide details for this Meeting. It was held in May 2010. The attendee was Mr. Jung Soo Shin, CEO of SIEL, Mr. Ranjit Yadav, Director of HHP. (P-27) Juno Soo Shin President and CFO: on being asked about who decide if a product is manufactured in India or Korea: It is decided by Factory Management and I do not personally look into this matter. (p-44) Respecti....
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.... Officer and Director January 2010 Not asked Not asked Not asked 2 to 4 times a week on internet and mobile phone With Global Support and Global business management team No regular reporting-only 1 to 2 time per year 5 HK Seo, President Sales and Marketing October 2009 Not asked Not asked SIEL asked him about shifting from Moscow to India and then it was arranged 7 Yong Hee Cho, VP (Sales and Marketing (North) April 2006 Not asked Not asked Communicates once a week. They usually ask me about aging stock. Because of global performance reason. 8 Byong Dae Park 2008 Not asked Not asked Not asked Normally daily 9 Chungseo p Song, G.M Purchase (Mobile Phones) 2010 Mr K. W Cho (MD) Not asked SIEL Some times 10 Chong Ho Yon, G.M. (R&D) & Visual Display 2005 Mr K. W Cho (MD) Not asked Samsung India Not asked 11 Byung Gwan Yun, Production Manager 2006 Mr K. W Cho (MD) Not asked Samsung India Not asked 12 Eungkyo Seo, C.F.O. 2008 Mr K. W Cho (MD) Not asked SIEL Not asked From above it is seen that SEC is not exercis....
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.... a reference to page 111 and 112 of the Annexure shows that there is nothing in them to justify the above assertion. Pare 111-12 contain Article 2 to 4.3 of an Agreement dated 1.6.2003 between SEC and SIEL. The Articles contained in these pages relate to terms of licensing, acceptance of license, provision of technology, general obligations of SEC. However there is nothing in these two pages which could even distantly relate to anything concerning the 'control or management' of subsidiary by SEC. Considering the gravity of the above assertion made by the AO and the bearing it may have on deciding the issue at hand, this Panel sifted through the compilation submitted by the AO and it was seen that it contains copies of the following Agreements: i. Agreement between SEC and SIEL dated 1.9.2006 pages 90-108 ii. Agreement between SEC and SIEL dated 1.6.2003 pages 109-125 iii. Agreement between SEC and SIEL dated 1.6.2003 pages 126-142 iv. Agreement between SEC and SIEL dated 1.12.2004 pages 143-146 v. Agreement between SEC and STIPL dated 26.2.2006 pages 147-164 vi. Agreement between SEC and SIEL dated 1.12.2004 pages219-222 vii.....
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....under the Transfer Pricing regulations and examined by the TPO. In view of all these facts there can be no case for lifting of corporate veil and ignoring totally that the existence of the corporate entity (SIEL) and hold that it is merely a PE of SEC. The proposition made by the AO to treat the subsidiary company as a P.E is therefore rejected. 5.4.4.3 Fixed place P.E: This issue has already been discussed earlier and this Panel has agreed that in as much as the deputationists and other visiting expatriate employees of SEC perform the functions which actually belong to SEC through the premises of SIEL, a fixed-place P.E is deemed to come into existence. It may again be reiterated here that the direction given by this Panel is to hold the deemed P.E created owing to the facts narrated earlier as a 'fixed place P.E' and not a 'Service P.E'. This issue need not therefore be discussed again here. 5.4.4.4 Agency P.E: The proposal made by the AO to treat SIEL as Agency P.E is considered next. It is noted that there is no material brought on record by the AO on the basis of which it could be said that SIEL is an Agent of SEC. What the AO has asserted is that SIE is main....
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....om SIEL's premises and therefore the assertion with regard to SEC having place of management at SIEL's premises with reference to such activities is baseless and based on conjecture and surmises. No PE of SEC exists under Article 5 (2)(a) of the Treaty with regard to South West Asia operations. It has been pointed out by the assessee that this issue was examined by the AO in the original assessment proceedings and the assessee had filed its reply in this regard vide letter dated November 18, 2011, which was considered and accepted by the AO while framing the draft assessment order. The submissions of the assessee have been considered. As in the case of 'subsidiary P.E' and 'Agency P.E', it is seen that this suggestion has also been made by the AO merely on the basis of the response of the M.D of SIEL that he is looks after the operations of some south East Asian countries. However apart from this there is no other material on record in support of this suggestion. It is not possible to hold SIEL as SEC's place of management for south East Asian countries merely on the basis of this statement. However this issue is important from the point of view of the function of business developm....
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....t and which is reproduced hereinbelow:- "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 1.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 Sea) President Marketing and Sales also. Stated that. he communicates with SEC once a week in general. Sh. Yang Hee who, who is. The charge of sales has stated that he communicates with SEC once week. Statements of some of these officers who. are of the rank of Division Heads, also. Show that they continue to. be under the same can, the SEC for certain activities like research and development of products for the Indian market and development of marketing strategy, decisions relating to p....
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....en issued the appointment letter for working in the Samsung Electronics India P. Ltd.? Ans. I have been issued the appointment letter by Samsung electronics Corporate Korea. Q10. Who decides the pricing of imports? Ans. I am guided by the Korean company Samsung electronics Korea, then I decided the purchase. Statement of Mr. B.D. Park, Director, Samsung India Electronics Ltd. Q1. Please identify yourself ? Ans. Name Byong Dae Park, working as a Director in Samsung India Electronics Ltd. Looking after the Mobile business & IT Business. Q2. Since when have you been with M/ s SIEL? Ans. Since the middle of the year 200 Q5. What is your present Salary approximately? Ans. Approximately US 200 K a year. Q6. You are working in India, why is it convenient for you to remember your salary in US currency especially when you are getting your salary in INR? Ans. I am more comfortable in calculating in us dollars. Q9. For how much time have you been posted in India? Ans. It is not fixed, normally I expect to stay for three to four years Q10. Can you be replaced b....
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....aid to the Expatriate employees, the said salary has been offered to tax by the employers in India. Far administration conveyance part of the salary is paid to Samsung Korea which in turn is paid to expatriate employees all In Korea. Q3. The part salary which IS remitted outside India is of the individual expatriate and if it has to be remitted for their conveyance then it should be in their respective South Korea Bank A/cs and not in the Bank a/c of Samsung Electronics Corporation. Please give reason for this Ans. For the administrative conveyance, the salary paid to Samsung Electronics Corporation Korea Q4. What is the administrative conveyance in getting the salary to the A/c of the parent company that is Samsung Electronics Corporation? Ans. The expatriate employees have personal obligations in Korea. To avoid any inconvenience for their personal obligation in Korea the salaries paid by Samsung Electronics Korea to expatriate Bank A/c and same is reimbursed by Samsung India Electronics Pvt.. Ltd. Q5. Does this reply in Q4 mean that the salaries of the employees of Samsung India Electronics Pvt. Ltd is paid by SEC South Korea and the ....
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....Samsung Electronics India Ltd. I have been working here for 7 months. 7) How frequently do you deal with the expats while carrying out your duties as VP-Sales eX Marketing? Please give a detailed note on it. We are a technology Company & sometimes like whenever there is a new launch, one or two experts to come and train us and & sometimes explain to our potential client. The request for such experts can be sent either by me or my Direct reports 10) Please refer to question sr. no 7 and your reply . Do you have such experts working for you at present: We have few expat came few days back. Normally they are here in 2-3 months as per requirement. There are 5 persons here: 1. Mr. Mahesh -for tech support. 2. Mr: Jiho Song -for tech marketing 3. Mr. Shin-for tech support 4. Ms. Cha -for tech support 5. Mr. Jaewoo Park-Marketing support. Are working to support my local unit as technical expert. They normally come to impart technical expertise to local engineers. They have come here on a local unit's request for training & some tech support. This request is made to the R&D or Technical support Group ....
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....6. What are the duties assigned to you in SIEL? Ans. Managing F/A, A/R, Logistics, Taxation & HR Q7. When you joined SIEL, was it your decision or you were simply posted to India? Ans. Own decision and MD's order and HO recommendation. Q9. How often do you communicate with the Head Quarter? What is the most common mode of communication? Ans. 2-4 times a week, internet and mobile phones. Q10. With whom do you generally communicate in headquarters at Korea for official purposes? Ans. Global support team and global Biz management Q11. Please clarify what is global biz management. Ans. Manage all functions of specific product all over the world. Q12. Are there different GBMS for different products? Ans. Yes, Mobile-Mobile phones & Video Display-TV, monitor. Q13. Do you regularly send reports to GBMS? How often are the report sent? Ans. No, 1-2 times by-yearly. Q14. Then how do the GBMS manage the functioning of different divisions in India, as stated by you in answer to question 11? Ans. GBM is more common sales they touch more sale teams then ....
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....an develop a product suitable for India? Ans. Definitely Q8. How Often do you communicate with HO and what is the mode of communication? Ans. In General once a week, Before communicating I hear and discuss with Local people and hear the necessities and I summarize and communicate with HQ Marketing and Other Department. Q9. Since you are having R&D centre's in India at Bangalore and Noida, Then why is not such technology develop in these R&D Centres? Ans. Basically Samsung's philosophy is to make localized for operation (Sales & Marketing) and production. When local environment is not ready, Samsung HQ support to develop. And when all local functions are ready, whole development & Material purchase occurs locally. In the meantime, localization rate is increasing year by year. Q10. What is the role of GBM (Global Business Management) at HQ in deciding which products to manufacture or Trade? Ans. It is not GBM's decision to decide a specific models. On SIEL's requirement they develop and also SIEL select the models of local market's demand. GBM has more product and strategy function from global market perspective they disc....
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....Q concerned with Ageing Stock? Ans. Because of Global performance. Statement of Mr. Mahesh Suttagati Q1. Please give your introduction. Ans. Working as manager in Samsung Electronics, since 2004 Oct 15 at their HQ R&D in Suwon, before this I had taken a sabbatical of approx. 1 year, before this worked with L&T Infotech (Bangalore) for 3 years approx. as Project Leader, before that worked in Arvind Mills (Pune) for approx. 8yr. Q2. You are drawing your salary from which company and what is the amount of salary? Ans. Samsung Electronics Corp. Suwon South Korea, my salary is being paid by Samsung Electronics approx 3200000-3500000 Won (net in my salary account) in Won. Q3. What is your scope of work in Samsung Electronics South Korea? Ans. Incharge for interoperational testing between base station and mobile devices, Also take care of trail test with operators for mobile wimax. Q4. Since when have you been in India and what is your scope of work in India? Ans. Arrived at Bombay on 18th June, Scope of work is to plan POC/proof of concept trial test with RIL and assist states assets. Q7. W....
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....ny incorporated under the laws governing the companies in India and is confirming to all the rules and regulations that govern the operations of a cooperate body, filing its returns of income and paying taxes by reporting the international transactions under Transfer Pricing Regulations, it cannot be said that the SIEL which is subsidiary company is a PE and rejected the findings of the AO on that aspect. 29. So also the Ld. DRP by paragraph no 5.4.4.4 rejected the contention of the AO that SIEL may be treated as a dependent agent for the purpose of Article 5. Ld. DRP also rejected the view of the AO that SIEL is a place of management for south east operations and held that no PE of the assessee exists under Article 5 (2)(a) of the treaty with regard to south east operations. ⃰ ⃰ ⃰ 32. We have considered the observations of ld. DRP in the light of the above statements. There is no doubt that there is seemless information exchange between the employees of the assessee and the expat employees. However, on a careful consideration of the entire matter including the statements of the expatriate employees, extracted sup....
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....e assessee, we find it difficult to agree with the authorities below that through the expatriate employees the assessee has been conducting the business of assessee in India. Further, except stating that 10% of the remuneration of these employees has to be assumed as the income of the assessee, absolutely there is no evidence that is placed on record by the assessing officer to show that by way of business through these expatriate and seconded employees, the assessee derived any business income in India." 11. As is manifest from the aforesaid conclusions rendered by the Tribunal, the appellants appear to have woefully failed to establish that the seconded employees were engaged in the carrying on of any activity pertaining or relating to the business of Samsung Korea. The Tribunal also found on fact that the seconded employees were being posted to India pursuant to a tripartite agreement entered into between the respondent-assessee, SIEL and the concerned employees. 12. On consideration of the statements of those seconded employees, the Tribunal noted that although information was exchanged and plans and strategies for the Indian market were also discussed, none of the activi....
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....ay or delivery of goods or merchandise belonging to the enterprise; (b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or delivery; (c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise; (d) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise or of collecting information, for the enterprise; (e) the maintenance of a fixed place of business solely for the purpose of carrying on, for the enterprise, any other activity of a preparatory or auxiliary character; (f) the maintenance of a fixed place of business solely for any combination of activities mentioned in subparagraphs a) to e), provided that the overall activity of the fixed place of business resulting from this combination is of a preparatory or auxiliary character. 5. Notwithstanding the provisions of paragraphs 1 and 2, where a person - other than an agent of an independent status to whom paragraph 7 applies - is acting in a Contracting State on behalf of an ente....
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....te either company a permanent establishment of the other." 14. A Full Bench of this Court in a recent decision handed down in Hyatt International Southwest Asia Ltd. v. CIT 2024 SCC OnLine Del 6546 had an occasion to explain in some detail the concept of a PE and which question occurs repeatedly in taxation related disputes emanating from DTAAs'. While Hyatt International was concerned with the DTAA between India and United Arab Emirates [UAE], the definition of a PE as appearing in that Treaty and Convention is similar to Article 5 of the India-Korea DTAA. In any event, we fail to discern any significant conceptual distinction in the manner in which a PE has been defined in those two Conventions. We thus proceed further. 15. In Hyatt International, the Full Bench while explaining the concept of a PE had observed as follows:- "33. It becomes pertinent to note that Article 5 while defining the expression "PE" brings within its ambit a varied nature of establishments and which need not necessarily be those which have a separate legal persona. As we view Article 5, it becomes apparent that the nature of establishments which are included within the meaning of the phrase ....
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....s liable to be drawn between a PE with respect to income earned in the Contracting State where it is domiciled or deemed to exist and the global enterprise of which it may be a part. Vogel explains the PE concept as constituting the threshold and the "essential demarcation line" in the source State which sanctions the imposition of a tax in a fiscal jurisdiction other than the State of residence. This would clearly appeal to logical since the right of taxation which inheres in the source State is connected to the "economic life" of that transnational enterprise which is moored and berthed by virtue of the existence of a PE which may be found to exist. Regard must also be had to the fact that right of the source State to tax does not extend to profits which are not allocable to the PE. All of the above, thus clearly leads us to hold that the existence and identity of the PE is separate and distinct and subject to tax to the extent of activities that it may undertake in a State distinct from that of its principal. 45. It would also be pertinent to note that a cross-border entity may structure its operations in a manner where it operates in more than one taxing jurisdiction. ....
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....res to determine the economic presence of an entity in a given State and the functional integration of such an entity in the economic activity undertaken in that State." 16. Proceeding further to explain the extent to which the profits of an enterprise could be taxed in a Contracting State where a PE existed, our Court in Hyatt International had held as follows:- "52. Article 7 of the DTAA postulates that the profits of an enterprise shall be taxable only in that State. It thus, and as a matter of first principle, restricts the taxation of profits of an enterprise only to and in the State of which it may be a resident. However, it then proceeds to expand the scope of taxability by taking into consideration the activities that may be undertaken by such an enterprise in the other Contracting State through a PE situate therein. This is further explained with Article 7(1) prescribing that if the enterprise were carrying on business through a PE situate in the other Contracting State, its profits would become liable to be taxed in the other State, restricted however, to the extent that those profits are attributable to that PE. 53. On a plain reading of Article 7(1)....
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....s and the activities undertaken therein. As those commentaries pertinently observe, the profits attributable to a PE are not liable to be ignored on the basis of the performance of the entity as a whole. This position also finds resonance in the decisions of the Supreme Court in Morgan Stanley and Ishikawajama and relevant parts whereof have been extracted above." 17. Having noticed the broad legal principles underlying the concept of a PE, we proceed further to take note of the salient precepts which courts have identified as being germane for answering the question of when a PE could be said to have come into existence. We in our recent decision in Progress Rail Locomotive Inc. v. Deputy Commissioner of Income-tax (International Taxation) and Others 2024 SCC OnLine Del 4065 had an occasion to review the body of precedent which has come to evolve around this question and thus deem it appropriate to refer to the following passages from that decision. 18. It becomes pertinent to note at the outset that Progress Rail too was a case where a corporate entity whose activities straddled various tax jurisdictions had two units in India. The Revenue in that case had asserted that tho....
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....es. In the first type of permanent establishment, i.e., associated permanent establishments, primary requirement is that there must be a fixed place of business through which the business of an enterprise is wholly or partly carried on. It entails two requirements which need to be fulfilled : (a) there must be a business of an enterprise of a contracting State (FOWC in the instant case); and (b) permanent establishment must be a fixed place of business, i.e., a place which is at the disposal of the enterprise. It is universally accepted that for ascertaining whether there is a fixed place or not, permanent establishment must have three characteristics : stability, productivity and dependence. Further, fixed place of business connotes existence of a physical location which is at the disposal of the enterprise through which the business is carried on... The principal test, in order to ascertain as to whether an establishment has a fixed place of business or not, is that such physically located premises have to be 'at the disposal' of the enterprise. For this purpose, it is not necessary that the premises are owned or even rented by the enterprise. It will b....
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....ns are owned or rented by or are otherwise at the disposal of the enterprise. A certain amount of space at the disposal of the enterprise which is used for business activities is sufficient to constitute a place of business. No formal legal right to use that place is required. Thus, where an enterprise illegally occupies a certain location where it carries on its business, that would also constitute a permanent establishment. Some of the examples where premises are treated at the disposal of the enterprise and, therefore, constitute permanent establishment are : a place of business may thus be constituted by a pitch in a market place, or by a certain permanently used area in a customs depot (e.g. for the storage of dutiable goods). Again the place of business may be situated in the business facilities of another enterprise. This may be the case for instance where the foreign enterprise has at its constant disposal certain premises or a part thereof owned by the other enterprise. At the same time, it is also clarified that the mere presence of an enterprise at a particular location does not necessarily mean that the location is at the disposal of that enterprise.... As per ....
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.... tax in India on the income it has earned on this soil." 87. As per the Manual on the Organization for Economic Co-operation and Development Model Tax Convention, and the precedents rendered on the subject, there are two basic conditions which are spelt out and which must be fulfilled for acknowledging a permanent establishment being existent and constituting a fixed place of business. They are: (a) a place which stands placed at the "disposal" of an enterprise; and (b) The establishment answering the characteristics of stability, productivity and dependence. 88. The expression "disposal" was explained to mean a right to use a place and exercise "control" thereupon. "Control" was explained further to mean the place of business being at the "disposal" of an enterprise and which may have use of the same to a considerable extent. It was further observed that the test of place of business being under the "control" of a foreign enterprise would be met even though the said premises may not be directly owned or taken by way of lease or on rental basis. In Formula One World Championship Ltd., the Supreme Court observed that even a certain amount of space....
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....irement of article 5 (1) of the Double Taxation Avoidance Agreement is not satisfied as regards back office functions. We have examined the terms of the Agreement along with the advance ruling application made by MSCo inviting the AAR to give its ruling. It is clear from a reading of the above Agreement/ application that MSAS in India would be engaged in supporting the front office functions of MSCo in fixed income and equity research and in providing Information Technology enabled services such as data processing support centre and technical services as also reconciliation of accounts. In order to decide whether a permanent establishment stood constituted one has to undertake what is called as a functional and factual analysis of each of the activities to be undertaken by an establishment. It is from that point of view, we are in agreement with the ruling of AAR that in the present case article 5 (1) is not applicable as the said MSAS would be performing in India only back office operations. Therefore to the extent of the above back office functions the second part of article 5 (1) is not attracted." 90. Morgan Stanley and Co. Inc. was followed by the Supreme Court in Sam....
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.... business place in India which has been put at their disposal. It is clear from the above that the Indian company only renders support services which enable the assessees in turn to render services to their clients abroad. This outsourcing of work to India would not give rise to a fixed place permanent establishment and the High Court judgment (DIT v. E-Funds IT Solution); is, therefore, correct on this score " A reading of the aforesaid judgments makes it clear that when it comes to 'fixed place' permanent establishments under double taxation avoidance treaties, the condition precedent for applicability of article 5 (1) of the double taxation treaty and the ascertainment of a 'permanent establishment' is that it should be an establishment 'through which the business of an enterprise' is wholly or partly carried on. Further, the profits of the foreign enterprise are taxable only where the said enterprise carries on its core business through a permanent establishment. What is equally clear is that the maintenance of a fixed place of business which is of a preparatory or auxiliary character in the trade or business of the enterprise would not be considered to be a permanent ....
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....stablishment as being akin to an "instrument (equalling or resembling an operating asset) for his entrepreneurial activity". The concept of "virtual projection" is concerned with a functional integration between the two units and which would mean an establishment which has been virtually used for all purposes to carry out the paramount business activity of the petitioner. None of these factors are either alluded to or appear to have been borne in consideration before arriving at the conclusion that the Indian establishment constituted a fixed place permanent establishment. ⃰ ⃰ ⃰ 94. We also take note of the judgment in Formula One World Championship Ltd. [Formula One World Championship Ltd. v. CIT (International Taxation), (2017) 394 ITR 80 (SC); (2017) 15 SCC 602; (2017) 295 CTR 12 (SC); (2017) 248 Taxman 192 (SC).] and where it was significantly observed that a permanent establishment must qualify and meet the tests of stability, productivity and dependence. Of equal significance were the observations which explained the phrases "at the disposal of" and "through". Tested on the aforesaid precepts also, the impugned notic....
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....elopment of products, market trend studies or exchange of information would not meet the qualifying benchmarks of a PE. 23. This was an aspect which we had noticed even in our decision in Progress Rail where we had held as follows:- "96. We then proceed to test the correctness of the prima facie conclusions arrived at by the first respondent on the anvil of article 5 (3) of the India-USA Double Taxation Avoidance Agreement ((1991) 187 ITR (Stat) 102). As was noticed hereinabove, article 5 (3) excludes permanent establishments which may otherwise fall within the ambit of article 5 (1) or article 5 (2), if it were found that the said permanent establishment were engaged in the discharge of functions enumerated therein. While and undisputedly sub-clauses (a), (b) and (c) of article 5 (3) are not even invoked, even if we were to examine the correctness of the view taken by the first respondent based on sub-clauses (d) and (e), we find ourselves unable to sustain the impugned notices and the reasons set out for initiating action under section 147/148, basis which the impugned notices were issued. 97. In terms of article 5 (3)(d), if a permanent establishment were to....
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....d to become a permanent establishment only if it satisfies the tests as laid out in article 5 (1), 5 (2), 5 (4) and 5(5). A group of companies may well engage in discussions at different levels so as to evolve a marketing strategy or identify a research output with respect to future prospects. That, however, cannot be viewed as being sufficient to hold that the Indian establishment attains the character of a permanent establishment. The exchange and collaboration between entities forming part of a larger conglomerate would clearly be intended towards subserving the growth of the group as a whole and could relate to not only operations in India, but also to any market in the globe in which the petitioner may have a footprint." 24. Regard must also be had to the fact that Paragraph 3(b) of Article 5 would also not be applicable since it was not even the case of the appellants that the respondent was rendering services, consultative or otherwise, to SIEL through the employees who stood seconded or placed at the disposal of the latter. 25. This would constitute an appropriate juncture to pause and take into consideration how the secondment of employees is explained in the UN and ....
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....by which the individual is formally employed or with which the individual has concluded another formal contract for services. (Added on 22 July 2010; see HISTORY) 8.6 In such cases, the relevant domestic law may ignore the way in which the services are characterised in the formal contracts. It may prefer to focus primarily on the nature of the services rendered by the individual and their integration into the business carried on by the enterprise that acquires the services to conclude that there is an employment relationship between the individual and that enterprise. (Added on 22 July 2010; see HISTORY) 8.7 Since the concept of employment to which Article 15 refers is to be determined according to the domestic law of the State that applies the Convention (subject to the limit described in paragraph 8.11 and unless the context of a particular convention requires otherwise), it follows that a State which considers such services to be employment services will apply Article 15 accordingly. It will, therefore, logically conclude that the enterprise to which the services are rendered is in an employment relationship with the individual so as to consti....
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....work and to terminate the contractual arrangements entered into with that individual for that purpose; - who has the right to impose disciplinary sanctions related to the work of that individual; who determines the holidays and work schedule of that individual. (Added on 22 July 2010; see HISTORY) 8.15 Where an individual who is formally an employee of one enterprise provides services to another enterprise, the financial arrangements made between the two enterprises will clearly be relevant, although not necessarily conclusive, for the purposes of determining whether the remuneration of the individual is directly charged by the formal employer to the enterprise to which the services are provided. For instance, if the fees charged by the enterprise that formally employs the individual represent the remuneration, employment benefits and other employment costs of that individual for the services that he provided to the other enterprise, with no profit element or with a profit element that is computed as a percentage of that remuneration, benefits and other employment costs, this would be indicative that the remuneration of the individual is directly charged ....
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....rsons receiving instructions from the enterprise (e.g. dependent agents). The powers of such personnel in its relationship with third parties are irrelevant. It makes no difference whether or not the dependent agent is authorised to conclude contracts if he works at the fixed place of business of the enterprise (see paragraph 100 below [of the Commentary on Article 5 of the 2017 OECD Model Tax Convention] ). As explained in paragraph 8.11 of the Commentary on Article 15 [of the 2017 OECD Model Tax Convention, as quoted in paragraph 5 of the Commentary on Article 15 of this Model] , however, there may be cases where individuals who are formally employed by an enterprise will actually be carrying on the business of another enterprise and where, therefore, the first enterprise should not be considered to be carrying on its own business at the location where these individuals will perform that work. Within a multinational group, it is relatively common for employees of one company to be temporarily seconded to another company of the group and to perform business activities that clearly belong to the business of that other company. In such cases, administrative reasons (e.g. the need to....