Case Law Details
Progress Rail Locomotive Inc. (Formerly Electro Motive Diesel Inc.) Vs DCIT (International Taxation) (Delhi High Court)
Progress Rail Locomotive Inc. (formerly Electro Motive Diesel Inc.) and the Deputy Commissioner of Income Tax (International Taxation) engaged in a legal battle over the establishment of a Permanent Establishment (PE) in India. The dispute revolved around whether the activities of Progress Rail in India constituted a fixed place PE, which would have tax implications under the India-USA Double Taxation Avoidance Agreement (DTAA).
The court analyzed various factors to determine the existence of a fixed place PE. It emphasized that for a fixed place to qualify as a PE, it must be at the disposal and under considerable control of the foreign enterprise. Despite claims by the tax authorities, the court found insufficient evidence to suggest that the premises in Noida or Varanasi were at the constant disposal of Progress Rail.
To establish a fixed place PE, it’s crucial to prove that the core business of the foreign entity is being carried out through that establishment. Progress Rail’s core business involved manufacturing a range of products, but the court found that the activities in India mainly constituted supportive “preparatory” and “auxiliary” services rather than core business functions.
The court scrutinized agreements such as the MES Agreement and the General Services Agreement, noting that the services provided by the Indian subsidiary were supportive rather than integral to Progress Rail’s core business. It also highlighted that arm’s length remuneration had been settled, rendering the question of PE essentially academic.
Please become a Premium member. If you are already a Premium member, login here to access the full content.
Author Bio
