Branch Office set up in India which merely remunerated employees seconded by US Group Company does not constitute a Permanent Establishment in India

Recently, the Delhi bench of the Income-tax Appellate Tribunal (the Tribunal) in the case of Whirlpool India Holdings Ltd. v. DDIT [201 1-TII-15-ITAT-DEL-INTL] held that Branch Office set up in India which merely remunerated employees seconded by US group company does not constitute a Permanent Establishment (PE) in accordance with Article 5 of India- USA tax treaty (the tax treaty) and therefore was not taxable in India.

Further, the Tribunal held that since the taxpayer was not chargeable to tax in India in terms of Article 5 of the tax treaty, it was unnecessary to go into the question whether any transfer pricing adjustment could be made in determining such profit.

Facts of the case

• The taxpayer, a company incorporated in USA, is a wholly owned subsidiary of Whirlpool Corporation, USA (Whirlpool USA). The taxpayer’s main object was to watch and safeguard the interest of the parent company in India and accordingly, it had opened a branch in India.

• Whirlpool Corporation, USA, also has a subsidiary company in India, Whirlpool of India Ltd (WIL) engaged in the business of manufacture and sale of consumer durable goods.

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