The Delhi High Court has held that none of the activities undertaken by those seconded employees could be said or construed to be the carrying on or the conduct of business of Samsung Korea from the premises of Samsung India Electronics Pvt. Ltd. (SIEL).
The bench of Justice Yashwant Varma and Justice Harish Vaidyanathan Shankar has observed that the 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. Collection of market information, collation of data for development of products, market trend studies or exchange of information would not meet the qualifying benchmarks of a Permanent Establishment (PE).
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.4 and Samsung India Software Operations Pvt. Ltd.5, the latter of which for the sake of brevity shall be called “Samsung R&D”.
A survey was conducted on the premises of SIEL and which led to notices under Section 148 coming to be issued for six AYs.
The Assessing Officer6, 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 PlacePermanent Establishment7 by virtue of Article 5 of the India- Korea Double Tax Avoidance Agreement8. 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 Establishment9 as well as a Service PE.
When the matter reached the board of the Dispute Resolution Panel, 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.
The Commissioner of Income Tax (International Taxation) challenged the order passed by the Income Tax Appellate Tribunal.
The court held that the secondment of employees which may consist of technically trained personnel or persons with experience is an arrangement not uncommon in today’s world of business. What however needs to be considered is whether the deployment of such employees is in furtherance of the business of their formal employer or intended to be utilized for the business of the enterprise with whom they are placed.
The court noted that the weight of evidence which was collated unerringly leans towards their engagement being viewed as one which was for the benefit of SIEL.
The court held that the Tribunal was justified in interfering with the opinion formed by the DRP and which had spoken of a deemed PE having come into being merely on account of the secondment of employees.
Case Details
Case Title: PCIT Versus Samsung Electronics Co. Ltd.
Case No.: ITA 1029/2018
Date: 15 January, 2025
Counsel For Petitioner: Sanjay Kumar
Counsel For Respondent: Himanshu S. Sinha
