LO doing preparatory activities in India not constitute PE under Article 5 of India Switzerland DTAA

S.R. Technics Switzerland Limited Vs ACIT (International Taxation) (ITAT Mumbai)

The LO does not constitute a fixed place through which business of assessee is carried out in India. Employees of the LO do not negotiate, finalise or discuss the mechanics of contracts including pricing with the assessee’s customers. As such the employees of LO merely act as a communication link between the assessee and the airline companies. The LO did not carry any activity, beyond that permitted by the RBI. The activities carried by the LO are thus, preparatory (auxiliary) in nature. The activities/operations of the assessee in connection with the contracts are carried from outside India.

Further, as per Article 5(7) of India Switzerland DTAA, merely because an Indian company in controlled by a Switzerland company or fact that Switzerland Company carries business in India, does not result in Indian company being considered as a PE of Switzerland Company in India. Thus, it is submitted that SRT India cannot be regarded as a PE of the assessee merely because it is controlled by the assessee or merely because the assessee carries on business activities in India.

As per Article 7(1) of India Switzerland DTAA, if business is carried on through a PE, profits from business to the extent attributable to the PE in India is taxable in India. As discussed above, the assessee does not carry any activity through LO other than routine communication and client coordination, which can be called to constitute a PE in India. Therefore, in absence of any PE of the assessee in India, the business income earned by the assessee is not taxable under Article 7 of the India Switzerland DTAA.”

We have thoroughly considered the whole issue with reference to the order of AO, proceedings of DRP, submissions of the assessee and Paper Book submitted. It is an established fact that Revenue streams not offered by assessee were not chargeable to tax in India (accepted by AO also) until unless assessee has a PE in India. After a thorough study of assessment order, the foundation of allegations laid down by the AO to prove LO of subsidiary company as PE of assessee, no substantive and cogent evidence were produced on record. All the allegations and working done in that regard were merely a guess work and looks to be a conclusion drawn on conjunctions, surmises and wrong application of law on the given set of facts.

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