International TaxationPermanent Establishment In the Absence of PE, No Tax is Required to be Deducted at Source on Payment to NonResident

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The Tax Publishers International Taxation--Permanent Establishment In the Absence of PE, No Tax is Required to be Deducted at Source on Payment to Non-Resident Akhilesh Kumar Sah In this short write-up, the learned author has very lucidly explained the expression 'Permanent Establishment' which postulate the existence of substantial element of an enduring nature of a foreign enterprise of one country having a fixed peace of business on the sort of another country and it must have three characteristics viz. stability, productivity and dependence. He while discussing a recent decision of the ITAT, Delhi in Apurva Goswami's case concludes that if a Non-Resident has a PE in India then tax has to be deducted at source on payment made to it otherwise not. In absence of a PE, the assessee is not liable to withhold any tax on such payments to Non-Resident on the basis of plethora of judicial precedents; the ITAT held that payments made to the GBAs/BDAs were not subject to any withholding tax, such payments being not chargeable to tax in India. 1. Introduction The Delhi High Court in CIT v. Mitsubhishi Corporation India Pvt. Ltd., ITA No. 180/2014, decided on 17-11-2017 has observed that if the non- resident has a PE in India, then there is no doubt that tax has to be deducted at source on payments to it. The Supreme Court in Formula One World Championship Ltd. v. CIT (International Taxation) (CA Nos. 3849 to 3851 of 2017) has observed that the words 'permanent establishment' postulate the existence of a substantial element of an enduring or permanent nature of a foreign enterprise in another country which can be attributed to a fixed place of business in that country. It should be of such a nature that it would amount to a virtual projection of the foreign enterprise of one country into the soil of another country. A PE (Permanent Establishment) must have three characteristics: stability, productivity and dependence. A recent case [Apurva Goswami v. Dy. DIT (International Taxation), Chandigarh [ITA Nos. 2401, 2402 & 2403/Del/2016 A.Y.s : 2010-11, 2011-12 & 2012-13], is illustrative one in respect of no tax deduction at source, where no PE has been established. 2. Facts in brief In the above mentioned case the assessee being an individual was proprietor of M/s. Quantum Solutions India which was a contract research organisation and specialized in the area of pharmacovigilance (drug safety) services. Form 15CA/CB certificates filed by the assessee, the Assessing Officer ('AO') noted that the assessee had remitted amounts to various parties outside India without deducting tax at source. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers

International Taxation--Permanent Establishment

In the Absence of PE, No Tax is Required to be Deducted at Source on Payment to Non-Resident

Akhilesh Kumar Sah

In this short write-up, the learned author has very lucidly explained the expression 'Permanent Establishment' which postulate the existence of substantial element of an enduring nature of a foreign enterprise of one country having a fixed peace of business on the sort of another country and it must have three characteristics viz. stability, productivity and dependence. He while discussing a recent decision of the ITAT, Delhi in Apurva Goswami's case concludes that if a Non-Resident has a PE in India then tax has to be deducted at source on payment made to it otherwise not. In absence of a PE, the assessee is not liable to withhold any tax on such payments to Non-Resident on the basis of plethora of judicial precedents; the ITAT held that payments made to the GBAs/BDAs were not subject to any withholding tax, such payments being not chargeable to tax in India.

1. Introduction

The Delhi High Court in CIT v. Mitsubhishi Corporation India Pvt. Ltd., ITA No. 180/2014, decided on 17-11-2017 has observed that if the non- resident has a PE in India, then there is no doubt that tax has to be deducted at source on payments to it. The Supreme Court in Formula One World Championship Ltd. v. CIT (International Taxation) (CA Nos. 3849 to 3851 of 2017) has observed that the words 'permanent establishment' postulate the existence of a substantial element of an enduring or permanent nature of a foreign enterprise in another country which can be attributed to a fixed place of business in that country. It should be of such a nature that it would amount to a virtual projection of the foreign enterprise of one country into the soil of another country. A PE (Permanent Establishment) must have three characteristics: stability, productivity and dependence.

A recent case [Apurva Goswami v. Dy. DIT (International Taxation), Chandigarh [ITA Nos. 2401, 2402 & 2403/Del/2016 A.Y.s : 2010-11, 2011-12 & 2012-13], is illustrative one in respect of no tax deduction at source, where no PE has been established.

2. Facts in brief

In the above mentioned case the assessee being an individual was proprietor of M/s. Quantum Solutions India which was a contract research organisation and specialized in the area of pharmacovigilance (drug safety) services.

Form 15CA/CB certificates filed by the assessee, the Assessing Officer ('AO') noted that the assessee had remitted amounts to various parties outside India without deducting tax at source.