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No income would arise to the American company in India in the course of deputing personnel to an Indian company who work under the control and supervision of the Indian company and carry out the work allotted to them by the Indian Company and the American company is reimbursed by the Indian company.
Depending on the facts, the activity of storage and supply of goods in India by a foreign enterprise may need examination to determine impact of the above ruling. For the purpose of the computation of the profit, a PE should be regarded as separate and distinct enterprise wholly independent of the non-resident foreign company.
Under the specific facts of the case the research activities were held to be in the nature of core business activities and not preparatory and auxiliary services so as to be covered in the exclusionary Article for Fixed Place PE.
This is yet another decision on the issue of whether the deputation of personnel by an overseas entity results in Permanent Establishment in India and the related attribution of profit and withholding tax issues.
The Tribunal has held that a simple maintenance of stock of goods by the foreign enterprise at the customer?s location for standby use may not constitute a PE, while keeping the issue open with regard to royalty on use of equipment.
The assessee, a division of Technical Resources Prt. Ltd. Australia, had entered into contracts with Rio Tinto India Pvt. Ltd. (RTIPL) for evaluation of coal deposits in Maharashtra and Orissa and for corresponding feasibility studies for transporting the same.
The Tribunal concluded that the sale of rig was precursor to the process of cessation of PE, termination of the contract and movement of equipment in international waters. The rig was situated in India when the process of sale had commenced and substantially completed. The deferral of receipt of part sale consideration and postponement of handing over of the rig was immaterial, so far as tax liability in connection with the sale of PE or its assets are concerned.
The assessee, an Australian company, set up a permanent establishment (PE) in India to render technical services for evaluation of coal deposits and conducting feasibility studies for transportation of iron ore. The AO accepted that the income was business profits under Article 7 of the DTAA
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.
Mumbai Ruling: In order to constitute a fixed place permanent establishment (PE), three criteria have to be satisfied viz. (a) the physical criterion (existence of physical location) (b) subjective criterion (right to use that place) and (c) functional criterion (carrying on business through that place). It is only when the three conditions are satisfied that a PE under the basic rule can be said to have come into existence. The onus is on the Revenue to show that the assessee has a PE (Airlines Rotables Limited v JDIT).
