In SAIC Motor Corporation Ltd., China v. Assistant Commissioner of Income Tax (International Taxation), Gurgaon, the Delhi Bench of the Income Tax Appellate Tribunal examined whether profits from offshore supply of KD (knocked-down) parts to an Indian subsidiary were taxable in India and whether the assessee had a Permanent Establishment (PE) in India under the India–China Double Taxation Avoidance Agreement for Assessment Year 2022–23.

The Assessing Officer attributed profits to India on the ground that the assessee had allegedly carried out in-India activities through supervisory presence, seconded employees, and inspection-related clauses in supply agreements. The Tribunal, after detailed examination of invoices, bills of lading, insurance documents, affidavits, and contractual terms, accepted the findings of the DRP that the sale of KD parts was an offshore supply, with title, risk, and rewards transferred outside India. Accordingly, profits from such offshore supply were held not taxable in India.

On the issue of Permanent Establishment, the Tribunal held that the presence of seconded employees in the Indian subsidiary did not constitute a Supervisory PE under Article 5(3)(a) of the India–China DTAA. The Tribunal found that the employees were working exclusively under the control, direction, and supervision of the Indian subsidiary, with salary costs borne by the Indian entity and taxes withheld in India. Relying on the Delhi High Court ruling in PCIT v. Samsung Electronics Co. Ltd., the Tribunal reiterated that secondment of employees for the benefit of the Indian entity does not result in a PE of the foreign parent in India.

The Tribunal further rejected the allegation of a Fixed Place PE, holding that the manufacturing and assembly facilities of the Indian subsidiary could not be treated as being at the disposal of the assessee. Mere economic dependence, brand licensing, royalty arrangements, or inspection clauses were held insufficient to establish a Fixed Place PE in the absence of control or right of disposal.

Accordingly, the ITAT held that the assessee had no Supervisory PE or Fixed Place PE in India and that no further attribution of profits was warranted in respect of offshore supplies. The appeal of the assessee was allowed on these substantive issues.

Source Link- https://itat.gov.in/public/files/upload/1767780824-3ZAuGc-1-TO.pdf

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