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TMI Blog2025 (1) TMI 880X X X X Extracts X X X X X X X X Extracts X X X X ..... cs Co. Ltd. [Samsung Korea] and pertaining to Assessment Years [AY] 2007-08 to 2009-10, 2011-12 to 2015-16 and 2017-18 came to be allowed. 2. ITAs 604/2019, 625/2019 and 289/2023 which are connected with the lead appeal, ITA 1029/2018, pertain to AYs 2013-14, 2015-16 and 2017-18 respectively, in which the view as expressed by the Tribunal in its judgment of 22 March 2018 has been followed. For the sake of convenience, we place hereinbelow a tabular chart which would encapsulate the details pertaining to all the appeals forming part of the batch:- ITA Nos. Assessment Year Order of the Tribunal challenged in the appeals ITA 1029/2018 2007-08 Order of 22 March 2018 for AYs 2004-05 to 2009-10; 2011-12; 2012-13 & 2014-15 ITA 1058/2018 2012-13 ITA 1060/2018 2008-09 ITA 1065/2018 2009-10 ITA 1066/2018 2011-12 ITA 1099/2018 2014-15 ITA 604/2019 2013-14 Order of 14 December 2018 for AY 2013-14 and 2015-16 which has followed the order of 22 March 2018 ITA 625/2019 2015-16 ITA 289/2023 2017-18 Order of 22 March 2021 for AY 2017-18 which has followed the orders of 22 March 2018 and 14 December 2018 3. We had by our order dated 09 August 2024, admitted these appeals on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from a reading of paras 5.4.4.2 to 5.4.4.6 of the order of the DRP dated 29 September 2012 and which are extracted hereinbelow:- "5.4.4.2 Subsidiary as P.E: The Panel has also observed that all the conclusions made by the AO are based on the statements of various employees of SIEL during the survey conducted at its premises. Apart from these statements, the other material relied on by the AO is a presentation on Wi-max found during the survey, a layout plan of SIEL's factory at Chennai to cater for South east Asian market and the Technology Agreements between SIEL and SEC. Therefore in order to determine whether the claim that SEC exercises such a high level of control on the affairs of SIEL that it may in its entirety be treated as PE of the assessee, it would be in order to examine whether this is evidenced by the facts on record. The statements of employees attached with the remand report were therefore perused by us to sift our the responses under various heads. The result in respect of some salient aspects which are very relevant to determine what is the exact level of control exercised by SEC over SIEL is as under: i. Level of control of SEC for appointment of expatriate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by employees of SEC: Anshuman Shah: Senior Management from. Sales and Marketing are responsible for product launch. The decision is democratic and based on collective leadership (Q. 8-Page4) Hyun Dong Lee, Head of CDMA business (P-26) (about who decides production of phones and takes decision about its launch in India): It will be decided by lots of people. After discuss internally. There are product Manager and Sales force and so on. After discuss with them we decide we will launch the model in India or not. (About last strategic decision about sales, marketing and launch of product): There was a meeting with TATA. I could not provide details for this Meeting. It was held in May 2010. The attendee was Mr. Jung Soo Shin, CEO of SIEL, Mr. Ranjit Yadav, Director of HHP. (P-27) Juno Soo Shin President and CFO: on being asked about who decide if a product is manufactured in India or Korea: It is decided by Factory Management and I do not personally look into this matter. (p-44) Respective Division decides this matter (which item to import and market in India) (p-44) J.H Kyung, Chief Financial Officer and Director: Who takes policy decisions regarding financing various business d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Not asked SIEL asked him about shifting from Moscow to India and then it was arranged 7 Yong Hee Cho, VP (Sales and Marketing (North) April 2006 Not asked Not asked Communicates once a week. They usually ask me about aging stock. Because of global performance reason. 8 Byong Dae Park 2008 Not asked Not asked Not asked Normally daily 9 Chungseo p Song, G.M Purchase (Mobile Phones) 2010 Mr K. W Cho (MD) Not asked SIEL Some times 10 Chong Ho Yon, G.M. (R&D) & Visual Display 2005 Mr K. W Cho (MD) Not asked Samsung India Not asked 11 Byung Gwan Yun, Production Manager 2006 Mr K. W Cho (MD) Not asked Samsung India Not asked 12 Eungkyo Seo, C.F.O. 2008 Mr K. W Cho (MD) Not asked SIEL Not asked From above it is seen that SEC is not exercising that kind of absolute control over posting of employees to SIEL that the A.O seem to assert. From above it can be seen that SEC does not unilaterally post its employees to SIEL. It is a tripartite arrangement in which SEC, SIEL and the concerned employee is involved. Repatriation of employees is also with agreement. Appointment is done by SIEL. In the A.O's compilation itself there are a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly relate to anything concerning the 'control or management' of subsidiary by SEC. Considering the gravity of the above assertion made by the AO and the bearing it may have on deciding the issue at hand, this Panel sifted through the compilation submitted by the AO and it was seen that it contains copies of the following Agreements: i. Agreement between SEC and SIEL dated 1.9.2006 pages 90-108 ii. Agreement between SEC and SIEL dated 1.6.2003 pages 109-125 iii. Agreement between SEC and SIEL dated 1.6.2003 pages 126-142 iv. Agreement between SEC and SIEL dated 1.12.2004 pages 143-146 v. Agreement between SEC and STIPL dated 26.2.2006 pages 147-164 vi. Agreement between SEC and SIEL dated 1.12.2004 pages219-222 vii. Agreement between STIPL dated 26.2.2006 pages 223-241 There are two Agreements dated 26.2.2006; however both of them are between SEC and Samsung Telecommunication India P Ltd and not with SIEL. Giving discount of some inadvertence on the part of the AO, this Panel further examined at least one of the Technology Agreement between SIEL and SEC (the one at no. i. above at pages 90-118). This Agreement does not contain any thing which wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and other visiting expatriate employees of SEC perform the functions which actually belong to SEC through the premises of SIEL, a fixed-place P.E is deemed to come into existence. It may again be reiterated here that the direction given by this Panel is to hold the deemed P.E created owing to the facts narrated earlier as a 'fixed place P.E' and not a 'Service P.E'. This issue need not therefore be discussed again here. 5.4.4.4 Agency P.E: The proposal made by the AO to treat SIEL as Agency P.E is considered next. It is noted that there is no material brought on record by the AO on the basis of which it could be said that SIEL is an Agent of SEC. What the AO has asserted is that SIE is maintaining stock of goods of SEC. However there is no evidence in support of this proposition. The assessee has clarified that all the goods is sold by SEC to SIEL ex-Korea and that the title to these goods passes when they are shipped; these goods are imported. by SIEL in its own name and custom clearance etc is done by SIEL and these goods are stocked in SIEL's warehouse and all the subsequent operations relating to sales, collections of receivables etc are done by SIEL in its own name. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which was considered and accepted by the AO while framing the draft assessment order. The submissions of the assessee have been considered. As in the case of 'subsidiary P.E' and 'Agency P.E', it is seen that this suggestion has also been made by the AO merely on the basis of the response of the M.D of SIEL that he is looks after the operations of some south East Asian countries. However apart from this there is no other material on record in support of this suggestion. It is not possible to hold SIEL as SEC's place of management for south East Asian countries merely on the basis of this statement. However this issue is important from the point of view of the function of business development of Asian market performed by the M.D for the Head office which has been dealt with under the head 'fixed place' P.E earlier and compensation for which has been brought to tax by the AO in the draft order. 5.4.4.6. SIEL as a service P.E: The AO has suggested that SIEL can be considered inter-alia as a Service P.E of SEC. In this connection the assessee has made the following rebuttal: "....even if the seconded expatriate employees are said to have performed stewardship functions, as alleged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that he communicates with SEC almost daily. Sh J. H Kyung, Chief Financial Officer has stated that he is in touch with SEC two to three times a week. Sh H. K Sea) President Marketing and Sales also. Stated that. he communicates with SEC once a week in general. Sh. Yang Hee who, who is. The charge of sales has stated that he communicates with SEC once week. Statements of some of these officers who. are of the rank of Division Heads, also. Show that they continue to. be under the same can, the SEC for certain activities like research and development of products for the Indian market and development of marketing strategy, decisions relating to pricing of product exploration and development of new markets in the neighbouring countries. These are the functions that would normally have been performed by SEC through its own employees, or such functions would have been outsourced by it to some third party, in which case the third party would be entitled to some remuneration for these services. However in the present case it is the seconded employees of SEC are performing these functions in addition to their own duties performed by them for SIEL. For performing the above functions of SEC t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the middle of the year 200 Q5. What is your present Salary approximately? Ans. Approximately US 200 K a year. Q6. You are working in India, why is it convenient for you to remember your salary in US currency especially when you are getting your salary in INR? Ans. I am more comfortable in calculating in us dollars. Q9. For how much time have you been posted in India? Ans. It is not fixed, normally I expect to stay for three to four years Q10. Can you be replaced back to Samsung Korea, at your wish or would it be the decision of the headquarters to when to get you back? Ans. In two way agreement. Q16. What is the mode of communication with Samsung Korea? Ans. Over the phone & email (intranet). Q17. You have the intranet systems installed with the corporation, where is the server of the intranet situated? Ans. I have no idea. Maybe, in Korea, or in Singapore. Q18. How often do you communicate with the headquarter in Samsung Korea? Ans. Normally daily. Q19. You communicate directly or through your GEO? Ans. It depends on the issues. Something which may affect the business result seriously will be discussed with my boss, MD but in most cases of simple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Korea the salaries paid by Samsung Electronics Korea to expatriate Bank A/c and same is reimbursed by Samsung India Electronics Pvt.. Ltd. Q5. Does this reply in Q4 mean that the salaries of the employees of Samsung India Electronics Pvt. Ltd is paid by SEC South Korea and the same is reimbursed by SIEL. Ans. No. Samsung Electronics is only a conduit for the payments in expatriate Bank a/cs in Korea. Salary expenses are incurred in SIEL India and proper income tax on the salaries is deducted from individual of expatriate employees' salary and deposited. Q6. Pls explain why such remittances are termed as reimbursements. Ans. The salary paid IS expense of SIEL, India as stated above. Just for Administration purpose the amount is paid to SEC Korea which in turn paid to expatriate personal bank a/cs. Q7. In reply to Q4 and Q3 you stated that the above the methodology adopted for the Administration conveyance of the expatriate employees, where is in reply of Qno. 6 you have stated that SEC paid 1.his amount to personal Bank a/c of the employees when such amount is remitted to SEC.since the remittance of salaries are made to SEC on a Qtrly basis, this would mean that a person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on a local unit's request for training & some tech support. This request is made to the R&D or Technical support Group bases out of South Korea. 11) How are these expats compensated for their services? I do not know. 12) For how long these experts would be in India? There is no fixed tenure but generally, they come for 3-4 days & go back by the weekend 13) Please refer to the question @ Sr. No. 10 and your subsequent reply to that. You have said that these expats "come to 'impart technical expertise to local engineers". Please elaborate on this. To impart technical details of new technology or products, expat engineers are required once the local engineers acquire requisite knowledge & expertise the local support is, handled by them. Some such support also is arranged through tele conferencing Statement of Sh Kyong Yeol Kim, vice President, HA marketing, Q1. Please identify yourself and your nationality Ans. I am Sh.. Kyung Yeol Kim, Vice President, Samsung Electronics Pvt ltd (Home appliences) Marketing I am a national of the Republic of Korea Q8 How often do You travel back to Korea Ans. I travel back to Korea 1-2 times a year for business trip and family vis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the board meetings or your independent decisions? Ans. Both Q17. But none of the minutes of board meetings show any such policy decisions being taken in board meetings? Ans. I am not sure because have joined less than 6 month but major issue show all board members. Q20. Who takes the policy decision regarding which product/ model are to be manufactured and which are to be purchased and traded? Ans. Sales. I just concern Profit and Loss Q26. In case of major investment or policy decision of setting up a factory in Chennai etc, is the consent or approval of headquarters at Korea taken? Ans. Yes Q27. Is this approval necessary? Say if you have your own funds and you want to launch a manufacturing unit of new product, still you would require approval from headquarter at Korea? Ans. Yes Statement of Mr. H.K. Seo, Vice President-CE Sales & Marketing in M/s Samsung India electronics (P)Ltd. (SIEL) Q5. What are the duties assigned to you in current posting?' Ans. Sales & Marketing related job: - Involve local sales & marketing in SIEL's strategic direction. For example: to introduce Samsung products on Global consumer's requirements; - Sales Forecast for sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ket research of Indian Market & coordination with GBM, a new product is developed in Korea, Later on this technology is transformed to SIEL for domestic production. Is it true? Ans. Yes. Market research is done two ways, a,) by SIEL alone b) by the request of SIEL together with GBM. As recent research, MWO, it is found that Indian consumers prefer more small oavity of MWO, and more black colour. This is done by Focus group Interview. As results it was sent to HO under progress of Development. Statement of Mr. Y.H. Cho, VP ,Sales -North Region in M/ s Samsung Electronics (P) Ltd (SIEL) Q5. How did you carry product marketing as GBM GM in India? Ans. Discussion about, proper USP with each country subsidiary. We don't arrange direct marketing, which will be done by Subsidiary. GBM is focusing on developing special features for each market subsidiary. Q6. How do you get technical input to develop special features for Indian Market? Ans. SIEL sends each requirement of USP to GBM. We discuss on these Requirements with internal R&D Department in GBM. Q7. This means that the technical input for a specific products specialization are provided by SIEL? Ans. Feature Require ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of Mr. Chungseop Song Q13. Do you receive the Guidelines from Korea regarding Purchases? Ans. Yes, Sometimes I receive guideline from Korea. Q14. What type of Guidelines you receive? Ans. Regarding Vendors (Foreign Suppliers)" 10. Ultimately and upon evaluation of the aforenoted statements, the Tribunal had come to the following conclusions:- "27. It is pertinent to note that having gone through the statements and also some other material relating to the aspects as to who pays the salary, whom the senior employees reported to, frequency of communication with headquarters in Korea etc, ld. DRP dealt with almost all the aspects argues by the ld. DR before us. They found that the assessee is not exercising that kind of absolute control over posting of employees to the Indian subsidiary, but the assessee has been posting the employees only pursuant to the Triparte agreements between the assessee, Indian subsidiary and the concerned employee. Ld. DRP further held that the Indian subsidiary is a company incorporated under the laws governing the companies in India and is confirming to all the rules and regulations that govern the operations of a corporate body in the country, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. All the activities that are spoken by the expatriate employees related to the specificity of the products, stock verification, they designs according to the preferences of the Indian consumers, the market strategies to be adopted etc are clearly within the ambit of the business of the Indian subsidiary. Such a communication would primarily benefit the Indian subsidiary and would help the assessee in its GBM to sustain its supply chain management and to place optimized purchase orders at a right timing or to acquire the most promising manufacturing technologies, as is submitted on behalf of the assessee. 34. At the best, the statements and other material relied upon by the revenue show that by way of the seamless communication between the Indian subsidiary and the assessee, the expatriate employees were only discharging the duties of the subsidiary company towards the holding company. Whatever the benefits that are derived by the Indian subsidiary by such communication are offer to tax in India. We therefore find that the activities spoken by the expatriate employees in their statements are in the nature of reporting required in the course of discharge of the functions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to existence. 13. Article 5 of the India-Korea DTAA reads as follows:- "ARTICLE 5 PERMANENT ESTABLISHMENT 1. For the purposes of this Agreement, the term "permanent establishment" means a fixed place of business through which the business of an enterprise is wholly or partly carried on. 2. The term "permanent establishment" includes especially : (a) a place of management ; (b) a branch; (c) an office; (d) a factory; (e) a workshop; (f) a sales outlet; (g) a warehouse in relation to a person providing storage facilities for others; (h) a farm, plantation or other place where agricultural, forestry, plantation or related activities are carried on; and (i) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources. 3. The term "permanent establishment" also encompasses: (a) a building site or construction, installation or assembly project or supervisory activities in connection therewith, only if such site, project or activities last more than 183 days; (b) the furnishing of services, including consultancy services, by an enterprise through employees or other personnel engaged by the enterprise for such purpose, but only w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate, wholly or almost wholly for the enterprise itself. 6. Notwithstanding the preceding provisions of this Article, an insurance enterprise of a Contracting State shall, except in regard to re-insurance, be deemed to have a permanent establishment in the other Contracting State if it collects premiums in the territory of that other State or insures risks situated therein through a person other than an agent of an independent status to whom paragraph 7 applies. 7. An enterprise shall not be deemed to have a permanent establishment in a Contracting State merely because it carries on business in that State through a broker, general commission agent or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business. However, when the activities of such an agent are devoted wholly or almost wholly on behalf of that enterprise, and conditions are made or imposed between that enterprise and the agent in their commercial and financial relations which differ from those which would have been made between independent enterprises, he will not be considered an agent of an independent status within the meaning of this paragraph. 8. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es the source. The PE concept thus creates a functional relationship and connect between the principal entity and the place of business whose activities give rise to the income or profit. It is this fictional creation of an independent economic center in a Contracting State which informs the allocation of taxing rights. Once the DTAA confers an independent identity upon the PE, it would be wholly erroneous to answer the question of taxability basis either the activities or profitability of the parent or the entity which seeds and sustains the PE. 43. The Contracting State in which this imagined entity is domiciled and undertakes business thus becomes identified as an independent profit or revenue earning center which is liable to be taxed. Once such an entity is found to exist in one of the Contracting State, it is viewed as a unit which contributes to the economic life of that State and thus be liable to tax. It is these basic precepts which convince us to debunk the theory of taxation in the source State being dependent upon a global profit or taxation being subject to income or profit having been earned at an entity level. 44. The identity which attaches to a PE for the purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an objective criterion for identification of a PE and when a foreign enterprise with sufficient economic presence would become subject to tax. All of the above, convinces us to hold against the argument of a PE not being taxable on an independent evaluation being misconceived. 47. On a jurisprudential plane, the sovereignty concept is based on a State's power over a territory and a set of subjects which accept its authority. It was these aspects which governed and regulated the right of a State to levy a tax. However, as trade and commerce transcended boundaries and borders, nations were confronted with profits and incomes being shifted and claimed as exempt. It is the aforenoted factors which appear to have moved the League of Nations in the early 1920s' to constitute a group of economists to study the issue of double taxation. That group is stated to have identified the fundamental factors worthy of consideration to be (a) the origin of wealth or income, (b) the situs of income, (c) enforcement of rights connected with the above and (d) domicile of the person vested with the power to use or dispose of that income or wealth. It was the factor pertaining to "origin" of income whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the other Contracting State. Article 7(1) proceeds to clarify that if the enterprise were carrying on business through a PE in the other Contracting State, its profits to the extent attributable to that PE would become subject to tax in the other State. ⃰ ⃰ ⃰ 58. Consequently, even though a PE may be merely a part of the larger entity, the profits generated from its activities undertaken in the other State becomes subject to taxation. Article 7(1) further requires us to undertake an exercise of identifying the extent of profits as are attributable to the PE. It is to that extent alone that the profits of the enterprise ultimately come to be taxed. ⃰ ⃰ ⃰ 63. As was noticed hereinabove, the profits of an enterprise do not become subject to taxation unless it be found that it functions in the other Contracting State through a PE. Article 7 further postulates that it is only such income which is attributable to the PE which would be subjected to tax in the source State. As is pertinently noted in the OECD and UN Commentaries, it would be wholly incorrect to found taxation on the basis of the ove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fixed place permanent establishment were more lucidly explained by the Supreme Court in Formula One World Championship Ltd. [Formula One World Championship Ltd. v. CIT (International Taxation), (2017) 394 ITR 80 (SC); (2017) 15 SCC 602; (2017) 295 CTR 12 (SC); (2017) 248 Taxman 192 (SC).] in the following terms (page 100 of 394 ITR): "Emphasising that as a creature of international tax law, the concept of permanent establishment has a particularly strong claim to a uniform international meaning, Philip Baker discerns two types of permanent establishments contemplated under article 5 of Organization for Economic Co-operation and Development Model. First, an establishment which is part of the same enterprise under common ownership and control-an office, branch, etc., to which he gives his own description as an 'associated permanent establishment'. The second type is an agent, though legally separate from the enterprise, nevertheless who is dependent on the enterprise to the point of forming a permanent establishment. Such permanent establishment is given the nomenclature of 'unassociated permanent establishment' by Baker. He, however, pointed out that there is a possibility of a th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vention mentions that a general definition of the term 'permanent establishment' brings out its essential characteristics, i.e., a distinct 'situs', a 'fixed place of business'. This definition, therefore, contains the following conditions : (i) the existence of a 'place of business', i.e., a facility such as premises or, in certain instances, machinery or equipment; (ii) this place of business must be 'fixed', i.e., it must be established at a distinct place with a certain degree of permanence; (iii) the carrying on of the business of the enterprise through this fixed place of business. This means usually that persons who, in one way or another, are dependent on the enterprise (personnel) conduct the business of the enterprise in the State in which the fixed place is situated. The term 'place of business' is explained as covering any premises, facilities or installations used for carrying on the business of the enterprise whether or not they are used exclusively for that purpose. It is clarified that a place of business may also exist where no premises are available or required for carrying on the business of the enterprise and it simply has a certain amount of space at i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess; and (b) through that place business of an enterprise is wholly or partly carried out.... We are of the opinion that the test laid down by the Andhra Pradesh High Court in CIT v. Visakhapatnam Port Trust [(1983) 144 ITR 146 (AP); 1983 SCC OnLine AP 287; (1984) 38 CTR 1 (AP); (1983) 15 Taxman 72 (AP).] fully stands satisfied. Not only the Buddh International Circuit is a fixed place where the commercial/economic activity of conducting F-1 Championship was carried out, one could clearly discern that it was a virtual projection of the foreign enterprise, namely, Formula-1 (i.e., FOWC) on the soil of this country. It is already noted above that as per Philip Baker (A Manual on the Organization for Economic Co-operation and Development Model Tax Convention on Income and on Capital), a permanent establishment must have three characteristics : stability, productivity and dependence. All characteristics are present in this case. Fixed place of business in the form of physical location, i.e., Buddh International Circuit, was at the disposal of FOWC through which it conducted business. Aesthetics of law and taxation jurisprudence leave no doubt in our mind that taxable event has tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where the following pertinent observations came to be rendered (page 421 of 292 ITR): "With globalisation, many economic activities spread over to several tax jurisdictions. This is where the concept of permanent establishment becomes important under article 5 (1). There exists a permanent establishment if there is a fixed place through which the business of an enterprise, which is multinational enterprise (MNE), is wholly or partly carried on. In the present case MSCo is a multinational entity. As stated above it has out sourced some of its activities to MSAS in India. A general definition of permanent establishment in the first part of article 5 (1) postulates the existence of a fixed place of business whereas the second part of article 5 (1) postulates that the business of MNE is carried out in India through such fixed place. One of the questions which we are called upon to decide is whether the activities to be undertaken by MSAS consist of back office operations of MSCo and if so whether such operations would fall within the ambit of the expression 'the place through which the business of an enterprise is wholly or partly carried out' in article 5 (1).... In our view, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present case : fixed place of business permanent establishment under articles 5 (1) and 5 (2)(a) to 5 (2)(k); service permanent establishment under article 5 (2)(1) and agency permanent establishment under article 5 (4). Specific and detailed criteria are set out in the aforesaid provisions in order to fulfil the conditions of these permanent establishments existing in India. The burden of proving the fact that a foreign assessee has a permanent establishment in India and must, therefore, suffer tax from the business generated from such permanent establishment is initially on the Revenue. With these prefatory remarks, let us analyse whether the respondents can be brought within any of the subclauses of article 5.' " Dealing with 'support services' rendered by an Indian company to American companies, it was held that the outsourcing of such services to India would not amount to a fixed place permanent establishment under article 5 of the aforesaid treaty, as follows (SCC p. 320, para 22 and page 63 of 399 ITR): "This report would show that no part of the main business and revenue earning activity of the two American companies is carried on through a fixed business place in India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndents, bearing in mind the aforesaid precepts as culled out from the various judgments noticed hereinabove, we find ourselves unable to sustain even the prima facie formation of opinion by the first respondent in this respect. It is pertinent to note that the impugned notices and the reasons set out for initiating action under section 147/148 nowhere allude to a particular space or a part of the premises situated in Noida or Varanasi having been placed under the exclusive or significant "control" or "disposal" of the petitioner. The first respondent fails to rest its prima facie opinion with respect to fixed place permanent establishment on any part of the Noida or Varanasi premises which may have been set apart or exclusively placed in and under the "control" of the petitioner for use of its business activities and which may have tended to indicate that the space was made available for the use of the petitioner and from where it was conducting its business activities. It would have had to be shown that the "control" of that space answered the test of considerable extent. We recall Vogel describing this particular genre of a permanent establishment as being akin to an "instrument ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... existing in the Contracting State notwithstanding that establishment being a constituent of a larger enterprise which may be domiciled in the other Contracting State. However, and as the Tribunal itself has noticed, the DRP had not concurred with the opinion of the AO that a Fixed Place PE, DAPE or Service PE of the respondent-assessee had come into existence. While the DRP had disagreed with the AO on those aspects, it ultimately came to hold against the respondent-assessee, taking the view that by virtue of secondment of employees, a deemed PE had come into being. It is this view that the Tribunal has proceeded to overturn. 22. We find ourselves in complete agreement with the opinion expressed by the Tribunal, since the secondment of employees has not been found to be for the furtherance of the business or enterprise of the respondent. Those seconded employees were not discharging functions or performing activities connected with the global enterprise of the respondent. Their placement in India was with the objective of facilitating the activities of SIEL. Collection of market information, collation of data for development of products, market trend studies or exchange of informa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are essentially back office functions and support services and which would not be sufficient to acknowledge a fixed place permanent establishment existing. **** 134. In so far as the MES Agreement and other allied agreements are concerned, it is clear that in terms of the said agreements, the employees of the Indian subsidiary were to keep track of monetary balances and record the movement of goods, maintain and co-ordinate the implementation of accounting control procedures, assist in the development of both short term and long-term strategy plans, study market trends and other such allied activities. Regard must be had to the fact that the Indian entity - PRIPL was undoubtedly a wholly owned subsidiary of the petitioner, and formed part of the multi-national group - Caterpillar. There would undoubtedly be some degree of collaboration and exchange of information between a principal and its wholly owned subsidiary. However, that alone would not justify a presumption of a permanent establishment having come into existence. As has been repeatedly emphasized, a subsidiary would be deemed to become a permanent establishment only if it satisfies the tests as laid out in article 5 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he group and to perform business activities that clearly belong to the business of that other company. In such cases, administrative reasons (e.g. the need to preserve seniority or pension rights) often prevent a change in the employment contract. The analysis described in paragraphs 8.13 to 8.15 of the Commentary on Article 15 will be relevant for the purposes of distinguishing these cases from other cases where employees of a foreign enterprise perform that enterprise's own business activities." 27. While dealing with Article 15 and the subject of taxation of income from employment, we find the following relevant passages which would guide us in answering the challenge which is raised before us: - "8.5 In some cases, services rendered by an individual to an enterprise may be considered to be employment services for purposes of domestic tax law even though these services are provided under a formal contract for services between, on the one hand, the enterprise that acquires the services, and, on the other hand, either the individual himself or another enterprise by which the individual is formally employed or with which the individual has concluded another formal contract for s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the nature of the services rendered by the individual with the business activities carried on by his formal employer and by the enterprise to which the services are provided points to an employment relationship that is different from the formal contractual relationship, the following additional factors may be relevant to determine whether this is really the case: - who has the authority to instruct the individual regarding the manner in which the work has to be performed; - who controls and has responsibility for the place at which the work is performed; - the remuneration of the individual is directly charged by the formal employer to the enterprise to which the services are provided (see paragraph 8.15 below); - who puts the tools and materials necessary for the work at the individual's disposal; - who determines the number and qualifications of the individuals performing the work; - who has the right to select the individual who will perform the work and to terminate the contractual arrangements entered into with that individual for that purpose; - who has the right to impose disciplinary sanctions related to the work of that individual; who determines the holi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tee considers that the following part of the Commentary on Article 5 of the 2017 OECD Model Tax Convention, which deals with the interpretation of the phrase "through which the business of an enterprise is wholly or partly carried on" in paragraph 1 of the Article, is applicable to paragraph 1 of Article 5 of this Model (the modifications that appear in italics between square brackets, which are not part of the Commentary on the OECD Model Tax Convention, have been inserted in order to provide additional explanations or to reflect the differences between the provisions of the OECD Model Tax Convention and those of this Model): "39. There are different ways in which an enterprise may carry on its business. In most cases, the business of an enterprise is carried on mainly by the entrepreneur or persons who are in a paid-employment relationship with the enterprise (personnel). This personnel includes employees and other persons receiving instructions from the enterprise (e.g. dependent agents). The powers of such personnel in its relationship with third parties are irrelevant. It makes no difference whether or not the dependent agent is authorised to conclude contracts if he works a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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