| COURT: | ITAT Delhi, Special Bench |
| CORAM: | Amit Shukla (JM), N. K. Saini (AM), Pramod Kumar (AM) |
| SECTION(S): | 9, Article 5, Article 7 |
| GENRE: | International Tax |
| CATCH WORDS: | attribution of profits to PE, Dependent Agent Permanent Establishment, Permanent Establishment |
| COUNSEL: | Deepak Chopra |
| DATE: | June 5, 2018 (Date of pronouncement) |
| DATE: | June 7, 2018 (Date of publication) |
| AY: | 1997-98 |
| FILE: | Click here to view full post with file download link |
| CITATION: | |
| Entire law explained on (a) whether a subsidiary of a foreign company constitutes "business connection" and/ or "fixed Permanent Establishment" and/or "Dependent Agent Permanent Establishment" of assessee in India, (b) whether any attributes of profits on account of signing, network planning and negotiation of off-shore supply contracts in India could be attributed to such business connection/ permanent establishment and (c) whether notional interest on delayed consideration of supply of equipment and licensing of software taxable in the hands of assessee as interest from vendor financing | |
HELD by majority in favour of the assessee:
According to the Supreme Court in Formula One World Championship Ltd. vs. CIT, reported in 394 ITR 80 (SC), the ‘disposal test’ is paramount which needs to be seen while analyzing fixed place PE under Article 5(1). Though in our humble understanding, the test of permanency qua fixed place has been slightly diluted by the Hon’ble Court but not the “disposal test”. Again this judgment of Hon’ble Supreme Court has been reiterated and referred extensively in a subsequent judgment by the Hon’ble Supreme Court in the case of ADIT vs. E-Fund IT Solution (2017) 86 taxmann.com 240, wherein the Hon’ble Apex Court had quoted extensively the same views and commentaries and also the judgment of Formula One World Championship Ltd. and held that there must exist a fixed place in India which is at disposal of foreign enterprise through which they carry on their own business. In that case, the Indian subsidiary company of the foreign enterprise was rendering support services which enabled the foreign enterprise in turn to render services to its client and the outsourcing of work to the Indian subsidiary was held to be not giving rise to fixed place of PE. This judgment of the Hon’ble Supreme Court nearly clinches the issue before hand in so far as role of Indian subsidiary while deciding the fix place PE.
HELD by minority in favour of the revenue:
The assessee company had a PE in India by way of the premises and existence of its Indian subsidiary Nokia India Pvt Ltd, and that the profit attributable to the specified operations of this PE are 3.75% of total sales of the equipment in India. The plea of the assessee against the existence of business connection and the existence of permanent establishment is to be rejected, and plea of the assessee on the attribution of profit is to be partly accepted in the terms
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