A permanent establishment requires a fixed place of business through which an enterprise conducts its business; mere employee secondments do not establish a PE if not integral to the enterprise's core activities.

JUDGMENT : 

YASHWANT VARMA, J.

1. The Commissioner of Income Tax (International Taxation) in this batch of appeals impugns the order of 22 March 2018 passed by the Income Tax Appellate Tribunal (Tribunal) and which had been followed by the Tribunal in its orders dated 14 December 2018 and 22 March 2021, pursuant to which composite appeals preferred by the respondent-assessee Samsung Electronics 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:-

3. We had by our order dated 09 August 2024, admitted these appeals on the following questions of law:-

“A. Whether the Income Tax Appellate Tribunal [“Tribunal”] erred in law in holding that the assessee company had no Fixed Place Permanent Establishment [“PE”] in India within the meaning of Article 5 of the Double Tax Avoidance Treaty [“DTAA”] between India and Korea without appreciating the detailed finding of the Dispute Resolution Panel?

B. Whether the Tribunal erred in holding that the activities of the assessee in India were of the nature specified in Article 5(4) of the DTAA and consequently there was no PE in India, when the facts on record clearly indicate that critical business decisions such as decisions relating to the product to be manufactured, pricing of the product and decisions relating to launch of new products were being taken in India? ”

4. The salient facts which merit notice for the purposes of disposal of these appeals are as follows. Samsung Korea, the respondent- assessee is stated to be a company incorporated in South Korea and a tax resident of that country. It had two wholly owned subsidiaries in India being Samsung India Electronics Pvt. Ltd. (SIEL) and Samsung India Software Operations Pvt. Ltd. (Samsung R&D) , the latter of which for the sake of brevity shall be called “Samsung R&D” . It appears that a survey was conducted on the premises of SIEL on 24 June 2010 and which led to notices under Section 148 coming to be issued for six A.Y.s, namely 2004-05 to 2009-10.

5. The Assessing Officer (AO) , as the Tribunal noticed in the course of proceedings undertaken, had held against the respondent by coming to the conclusion that the premises of SIEL constituted a Fixed Place Permanent Establishment (PE) by virtue of Article 5 of the India- Korea Double Tax Avoidance Agreement (DTAA) . The AO had further held that SIEL, being a subsidiary of Samsung Korea, was liable to be considered as a PE per se. It had additionally held that SIEL also met the tests of a Dependent Agent Permanent Establishment (DAPE) as well as a Service PE.

6. When the matter reached the board of the Dispute Resolution Panel (DRP) , it proceeded to set aside the conclusions which had come to be recorded by the AO with respect to SIEL being liable to be viewed as a PE of Samsung Korea solely on account of it being a subsidiary. The DRP also negated the conclusion of the AO with respect to DAPE and Service PE. This becomes evident from a reading of paras 5.4.4.2 to 5.4.4.6 of the order