Delhi High Court Upholds ITAT Ruling: Samsung India Not a Permanent Establishment of Parent Company
Kiran Raj
The Delhi High Court dismissed appeals filed by the Income Tax Department challenging the Income Tax Appellate Tribunal’s (ITAT) order, which had held that Samsung India Electronics Pvt. Ltd. (SIEL) is not a Permanent Establishment (PE) of Samsung Electronics Co. Ltd., South Korea (Samsung Korea) under the Double Taxation Avoidance Agreement (DTAA) between India and Korea.
The Department contended that Samsung Korea operated a PE in India through its wholly owned subsidiary SIEL, making the parent company liable for taxation in India. Notices under Section 148 of the Income Tax Act were issued for reassessment, deeming SIEL to be a Fixed Place PE of Samsung Korea.
The Department argued that the secondment of Samsung Korea employees to SIEL demonstrated control by the parent company over SIEL’s operations. The Dispute Resolution Panel (DRP) concluded that this arrangement amounted to a deemed Fixed Place PE.
However, the ITAT found that the seconded employees were engaged in assisting SIEL’s business in India and not furthering Samsung Korea’s global business objectives. It held that the Department failed to establish a direct connection between the seconded employees’ activities and the business of Samsung Korea.
The High Court examined whether the secondment of employees and the operations of SIEL constituted a PE under Article 5 of the India-Korea DTAA.
The Court referred to Article 5(1) of the DTAA, which defines a PE as “a fixed place of business through which the business of an enterprise is wholly or partly carried on.” Articles 5(2) and 5(3) provide examples of fixed places that may qualify as a PE, while Article 5(4) excludes certain places that do not meet the criteria.
The Court agreed with ITAT’s finding that the secondment of employees did not establish a PE. It recorded:
“The secondment of employees has not been found to be for the furtherance of the business or enterprise of the respondent (Samsung Korea). Those seconded employees were not discharging functions or performing activities connected with the global enterprise of the respondent. Their placement in India was with the objective of facilitating the activities of SIEL.”
It was further noted that tasks such as market research, data collection, and product development support performed by the seconded employees fell within the scope of SIEL’s independent business activities.
The Court relied on the judgment in Progress Rail Locomotive Inc. v. Deputy Commissioner of Income-Tax (International Taxation), which held that a PE would only exist if a fixed place of business in India was “at the disposal” of the foreign enterprise and used to carry out its business. In this case, the High Court observed that:
“The seconded employees stood solely at the disposal of SIEL, and the premises where they operated were not under the control of Samsung Korea.”
The Court also referred to Hyatt International Southwest Asia Ltd. v. CIT (2024), which clarified that profits attributable to a PE may be taxed in the host country, but only if the business activities directly contribute to the foreign entity’s enterprise. It stated:
“Absent any material that would have even tended to indicate that the functioning of the seconded employees was concerned with the business or the generation of income of the respondent (Samsung Korea) in India, the decision of the Tribunal cannot be faulted.”
The Court recorded the following observations:
- The seconded employees did not further Samsung Korea’s global business and were engaged in assisting SIEL’s independent operations.
- The premises of SIEL were not at the disposal or under the control of Samsung Korea, eliminating the possibility of a Fixed Place PE.
- Market research and support services performed by the seconded employees did not meet the benchmarks required to constitute a PE.
The High Court dismissed the Department’s appeals, upholding the ITAT’s findings that Samsung Korea did not have a PE in India through SIEL. The Court held that the secondment arrangement was merely a business facilitation measure for SIEL and not indicative of a PE under the DTAA.
The Income Tax Department was represented by Mr. Sanjay Kumar, Ms. Monica Benjamin, and Ms. Easha Kadian. Samsung Electronics Co. Ltd. was represented by Mr. Himanshu S. Sinha, Mr. Prashant Meharchandani, Mr. Jainender Singh Kataria, and Ms. Kanika Jain.
Case Title: Pr Commissioner of Income Tax - International Taxation-3 v. Samsung Electronics Co. Ltd.
Case Numbers: ITA 1029/2018 & Connected Matters
Bench: Justice Yashwant Varma, Justice Harish Vaidyanathan Shankar
[Read/Download order]
