In a recent ruling in the case of Tekmark Global Solutions LLC (Taxpayer) [[2010] 3 taxmann 38 (Mum. – ITAT)] the Mumbai Income Tax Appellate Tribunal (ITAT) held that as the deputed personnel do not work under the control and supervision of the Taxpayer, such personnel do not create a PE for the Taxpayer in India.
Background and facts of the case
- The Taxpayer had entered into an arrangement with an Indian company for deputation of personnel on a hire-out basis. It was agreed that the deputed personnel would work under the supervision and control of the Indian company. The deputed personnel would remain on the payroll of the Taxpayer. The Taxpayer would recover the costs of the deputed personnel from the Indian company.
- The Taxpayer sought benefits under the provisions of the India-USA tax treaty (Tax Treaty). Article 5(2)(l) of the Tax Treaty, which contains the Service PE rule, provides that furnishing of services in India by a US enterprise, beyond a specified number of days, would result in a PE for the US enterprise.
- The Tax Authority contended that the Taxpayer rendered services to the Indian company through the deputed personnel and, thus, created a Service PE in India under the Tax Treaty.
- The Taxpayer contended that it did not have a PE under the Service PE rule as it was merely deputing personnel to work under the supervision and control of the Indian company.
- The first level appellate authority upheld the Taxpayer’s contention and ruled in favour of the Taxpayer.
- The Tax Authority filed an appeal before the ITAT against the first level appellate authority’s ruling.
Ruling of the ITAT
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