[2019] 101 taxmann.com 402 (Delhi – Trib.) 25.
ITA No: 6892 (Delhi) of 2017 GE Nuovo Pignone SPA vs. DCIT Date of Order: 1st January, 2019 A.Y.: 2009-10
Articles 5, 7 of India-Italy DTAA; Section
9 of IT Act – Where liaison office was involved in strategic business decision
making in India including price negotiation and agreement finalisation, liaison
office would constitute fixed place PE. Employees of a group entity in India
carrying on core sale related activities, results in the emergence of a
Dependent Agency PE in India
FACTS
The Taxpayer, an
Italian company and part of an MNE (GE) group was engaged in the business of
supplying key equipment for oil and gas industry across the globe. One of the entities of the Taxpayer’s MNE
group (US Co) had set up a liaison office (LO) in India to act as a
communication channel with the customers in India. Further, the MNE group had
an Indian entity (ICo) which provided marketing support services to the group
companies including the Taxpayer in India. During
the relevant year, Taxpayer earned income from onshore services and as well as
offshore supply of spare parts and equipment to customers in India. However,
only income from onshore services was offered to tax as Fees for technical
services(FTS) in its return of income. Income from offshore supplies was not
offered to tax on the grounds that there was no business connection or PE in
India.
A survey was conducted at the premises of the LO of the group entity.
During the scrutiny proceedings, the AO relied on various documents and
correspondences found during the survey pertaining to the Taxpayer as well as
other entities of the MNE group. AO also made an enquiry about the sales made
by various entities of the Taxpayer group in India, employees/expatriates of
the group working from the LO premises and their roles and responsibilities.
From the material
collected during such survey and post survey enquiry, AO noted that various
expatriates of the group carried on overall business of the group, including
that of Taxpayer in India, Further the documents revealed that the employees of
ICo and expatriates in India had active involvement in conclusion of sale
contracts on behalf of the group entities of the MNE group including Taxpayer
in India
Based on this
evidence, AO held that Taxpayer had business connection in India with a fixed
place PE at the LO premises and Agency PE in the form of ICo. Aggrieved by the
draft assessment order, Taxpayer filed objections before the DRP.
The DRP upheld AO’s
order. Aggrieved, the Taxpayer appealed before the Tribunal.
HELD
- Article 5 of India-Italy
DTAA describes a PE as a place which is used by a foreign enterprise for
carrying on business in India with some kind of regularity or permanence.
- Basis the following facts,
Tribunal concluded that Taxpayer had a fixed place PE in India at LO’s
premises.
- Taxpayer deputed an expatriate employee,
designated as ‘Oil and Gas, India Country Leader’ to India, who worked at the
LO premises along with active assistance of ICo’s employees in India.
- The expatriate along with the support of
employees of ICo undertook activities like finalisation of contracts, strategic
decision making and negotiating sale prices with Indian customers from the
premises of LO. This fact was supported by the Tribunal decision2 in
case of another member-company of the group. Thus, the role of the LO was not
limited merely to preparatory or auxiliary activities.Thus LO resulted in a
Fixed place PE in India.
- Further, the Taxpayer did not make any off
the shelf sales to its customers in India. The sales were made on the basis of
prior contracts finalized in India. These contracts were negotiated and
finalized by the expatriates along with ICo’s employees in India.
- Thus, the expatriates/ ICo created an agency
PE in terms of Article 5(4) of India-Italy DTAA for the Taxpayer in India.
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2. GE Energy Parts Inc vs. Addl DIT [2017] 78
taxmann.com 2 (Delhi-Trib)
