By Geeta Jani, Dhishat B. Mehta Chartered Accountants
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On the facts, premises of the client or the hotel where the employees stayed could be regarded as a fixed place permanent establishment (PE) through which the business of the Taxpayer was carried on.
Facts:
The Taxpayer (FCo) is a non-resident company registered in Mauritius. It entered into a contract with an Indian Company (ICo) for rendering services in relation to planning and implementing Performance Index Programme which would help in improving the management performance of ICO, by improving the work methods/services and providing efficient management control.
FCo deputed its employees comprising consultants and principal consultants to India. The duration of the contract was 50 weeks and it required 874 man days of consultants and 81 days of principal consultants’ time to be spent in India. There was no office available for these personnel to work in India.
FCo contended that the hotel rooms/accommodation used by its employees were only for stay, i.e., for residence and were not used as an office. Hence, it did not have any place of business in India.
It was also argued that employees in India were only carrying out preparatory and auxiliary services by only gathering and collating the data and transmitting the same to FCo and they worked as per directions of the Board of directors situated in Mauritius. Thus, the place of management of FCo was situated in Mauritius where the entire decision-making powers were located.
The Tax Authority contended that the hotel rooms where the FCo’s employees stayed in India from where they carried out their activities in India must be regarded as a Fixed Place PE of FCo in India and the income received from ICo should thus be taxed in India.
The finding of the Tax Authority was upheld by the First Appellate Authority. Aggrieved by the order of the First Appellate Authority on this issue, FCo appealed to the Tribunal.
Held
The right to use a fixed place of business may be owned, rented or otherwise acquired in any other manner. Further, a right which is not legal in its nature may, therefore, be of no adverse consequence. In the instant case, whether the hotel rooms could be legally or contractually used for business purposes was not ascertained. Even if such use was proscribed, but was factually used, it could be considered as a PE.
Also, in the present case there is no doubt that the use of hotel rooms and ICo’s premises is only for business purposes.
The modus operandi used by FCo for executing ICo’s contract clearly shows that it required extensive execution, continuous interaction with ICo and a detailed study followed by actual implementation in India. All this required FCo’s presence in India.
The claim of FCo that work performed in India was merely preparatory or auxiliary was incorrect and was inconsistent with facts where principal consultants came to India on frequent visits.
Further, the Fixed Place of business is not confined to a place where the top management of the company is located.
The contention that there is no Fixed Place because the personnel are operating from different places is without merit. The personnel are required to operate from different places due to the nature and requirement of the contract and is similar to a situation of a salesman.
It is for the FCo, to specify as to how and from where it has performed its work. If the employees have not performed their work from ICo’s premises, then there has to be some other place from where they had performed their activities during the time period that spans over 874 man-days for the consultants and 81 days for the principal consultants. One cannot perform activities in vacuum.
Thus, the fact that some place is at the disposal of the FCo or its employees during the entire period of their stay in India is manifest and eminent and follows from the work nature/profile and the modus operandi followed. Thus, the FCo had a Fixed Place PE in India.
