ASSISTANT DIRECTOR OF INCOME TAX-I, NEW DELHI versus MIS. E-FUNDS IT SOLUTION INC.

Citation: [2017] 10 S.C.R. 157 · Decided: 24-10-2017 · Supreme Court of India · Bench: R.F. NARIMAN, SANJAY KISHAN KAUL · Disposal: Dismissed

Cited by 3 judgment(s) · cites 1 · see the full citation network in Lexace

Judgment (excerpt)

[2017] 10 S.C.R. 157 
ASSISTANT DIRECTOR OF INCOME TAX-I, NEW DELHI 
A 
v. 
MIS. E-FUNDS IT SOLUTION INC. 
(Civil Appeal No. 6082 of 2015) 
OCTOBER 24, 2017 
[R. F. NARIMAN AND SANJAY KISHAN KAUL, JJ.] 
Income Tax Act, 1961: 
Business _income of companies incorporated in US - Taxability 
B 
of - Permanent establishment (PE) - The Income Tax Act, in 
C 
particular s.90 thereof, does not speak of the concept of a PE -
This is a creation only of the DTAA - By virtue of Art. 7( 1) of the 
DTAA, the business income _of companies which are incorporated 
in the US will be taxable only in the US, unless it is found that they 
were PEs in India, in which event their business income, to the extent 
D 
to which it is attributable to such PEs, would be taxable in India -
There must exist a fixed place of business in India, which is at the 
disposal of the US companies, through which they carry on "their 
own business - ln the instant case, there is no specific finding in 
the assessment order or the appellate orders that applying the said 
tests, any fixed place of business was put at the disposal of these 
E 
companies - No part of the main business and revenue earning 
activity of the two American companies was carried on through a 
fixed business place in India which has been put at their disposal -
The Indian company only renders support services which enable 
the assessees in tum to render services to their clients abroad -
F 
This outsourcing of work to India would not give rise to a fixed 
place PE - Insofar as a service PE is concerned, the requirement of 
Art.5(2)(1) of the DTAA is that an enterprise must furnish services 
"within India" through employees or other personnel - None of the 
customers of the assessees are located in India or have received 
any services in India - Therefore, the assessing officer, CIT (Appeals) 
G 
and the lTAT essentially adopted a fundamentally erroneous 
approach in saying that they were contracting with a 100% 
subsidiary and were outsourcing business to such subsidiary, which 
resulted in the creation of a PE - Intelference wit!! the judgmellt of 
H 
157 
158 
SUPREME COURT REPORTS 
f2017] 10 S.C.R. 
A 
High Court not called for - Double Taxation Avoidance Agreement 
of 1990 - Arts.5, 7. 
Foreign assessee - Burden to prove PE - Held: The burden 
of proving the fact that a foreign assessee has a PE in India and 
must, therefore, suffer tax from the business generated from such 
B 
PE is initially on the Revenue. 
c 
Permanent establishment (PE) - Meaning of - Distinct types 
of PEs - Discussed - Double Taxation Avoidance Agreement of 
1990 - Art.5. 
Dismissing the appeals, the Court 
HELD: 1. Article 5 of the DTAA provides for three distinct 
types of PEs. They are business PE under Articles 5(1) and 5(2)(a) 
to 5(2)(k); service PE under Article 5(2)(1) aPd agency PE under 
Article 5( 4). Specific and detailed criteria arc set out in the said 
provisions in order to fulfill the conditions of these PEs existing 
D in India. The burden of proving the fact that a foreign assessee 
has a PE in India and must, therefore, suffer tax from the business 
generated from such PE is initially on the Revenue. Under Article 
5(1), a PE means a fixed place of business through which the 
business of an enterprise is wholly or partly carried on. [Paras 
E 
10, 11] [174-D-E, F] 
F 
2. Reiiance placed by the Rcvenu.e on the United States 
Securities and Exehange Commission Form lOK Report, as 
correctly pointed out by the High Court, is also misplaced. It is 
clear that the report speaks of the e-Funds group of companies 
worldwide as a whole, which is evident not only from going 
through the said report, but also from the consolidated financial 
statements appended to the report, which show the assets of the 
group worldwicJe. This report would ~how that no part of the 
main business and ·revenue earning activity of the two American 
companies is carried on through a· fixed business place in India 
G which has been put at their disposal. It is clear that the Indian 
company only renders support services which enable the 
assessees in turn to render services to their clients abroad. This 
outsourcing of work to India would not give rise to a fixed place 
PE and the High Court judgment is, therefore, correct on this 
H score. [Paras 14, 16] [181-D-E; 187-D-E] 
ASSISTANT DIRECTOR OF INCOME TAX-I, NEW DELHI v. 
159 
MIS. E-FUNDS IT SOLUTION INC. 
3. Insofar as a service PE is eoncerned, the requirement A 
of

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