Maintenance of stock by customer does not constitute a PE of the foreign enterprise in India

In a recent ruling Mumbai Income Tax Appellate Tribunal (Tribunal) in the case of Airlines Rotables Ltd. UK (Taxpayer) [ITA No. 3254/Mum/06F ] on the issue of whether maintenance of stock of goods, belonging to the Taxpayer, by its Indian customer results in the Taxpayer having a permanent establishment (PE) in India, under the India UK Tax Treaty (UK Treaty)  reaffirmed some general principles relating to PE, the Tribunal further ruled that the Taxpayer does not have a PE under the basic rule or the agency rule. The Tribunal remanded the matter to the first appellate authority to determine if any part of the consideration could be taxed as royalty for use of equipment by the customer.

Facts

The Taxpayer is a company incorporated in the UK. Its main business is providing spares and component support to aircraft operators.

The Taxpayer entered into an agreement with Jet Airways Ltd. (Customer), an Indian aircraft operator, for providing certain support services in respect of aircraft.

The agreement requires the Taxpayer to repair the component when it becomes operationally unserviceable and to provide replacement of the component during the interim period.

Please become a Premium member. If you are already a Premium member, login here to access the full content.