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Facts
The assessee, SAIC Motor Corporation Limited, is a tax resident of China, engaged in the automobile business. It supplied KD parts and technology licenses to its Indian subsidiary, MGMIPL. The Assessing Officer proposed to add income attributable to a Permanent Establishment (PE) in India, alleging supervisory, DAPE, and fixed place PE. The Dispute Resolution Panel (DRP) partly accepted the assessee's plea regarding offshore sales but upheld the PE argument.
Held
The Appellate Tribunal held that the sales conducted by the assessee were offshore sales, and the title and risk were transferred outside India. The Tribunal found that the seconded employees did not constitute a supervisory PE in India as their activities were not for the furtherance of the assessee's business. Furthermore, the Tribunal concluded that there was no fixed place PE in India, as MGMIPL was an independent entity and its premises were not at the disposal of the assessee.
Key Issues
Whether the assessee had a Permanent Establishment (PE) in India, and whether the income from offshore sales was taxable in India.
Sections Cited
143(3), 144C (13), 153(1), Article 5(3)(a), Article 5(1), Article 5(2)(a), 270A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH, ‘D’: NEW DELHI
Before: SHRI VIMAL KUMAR & SHRI BRAJESH KUMAR SINGH
This appeal by the assessee is directed against the order of the Assistant Commissioner of Income Tax (Assessing Officer), Gurgaon, dated 29.01.2025 passed u/s 143(3)/144C (13) of the Income Tax Act, 1961 (hereinafter ‘the Act’) arising out of directions of Dispute Resolution Panel dated 13.12.2024 pertaining to Assessment Year 2022-23
ITA No.- 1191/Del/2025 SAIC Motor Corpora�on Ltd.
The Assessee e-filed its return of income vide acknowledgment No.820838021251122 declaring an income of Rs. 19,90,73,130/- on 25/11/2022. Subsequently, the case was selected for scrutiny through CASS & notice undersection 143(2) of the Income-tax Act, 1961 ('the Act' for brevity) was issued by Asst./Dy. Commissioner of Income Tax (International Taxation), Circle- 1(1)(1), Delhi (Prescribed Income Tax Authority) on 31/05/2023 and duly served upon the assessee. Thereafter, notices under section 142(1) of the Act along with questionnaire were issued to the assessee. Response filed by the assessee are as per records. The Assessing Officer passed a draft assessment order (DAO) u/s 144C of the Act on 31.03.2024 proposing an addition of Rs. 23,11,82,270/- on supply of goods by the assessee to its subsidiary on account of the income attributable to the PE of the assessee in India. Aggrieved with the proposed addition, the assessee filed objections before the Ld. DRP. The Ld. DRP partly accepted the plea of the Assessing Officer as well as of the Assessee which is discussed in detail issue wise later in this order. After the receipt of the directions of the Ld. DRP, the Assessing Officer passed the final assessment order (FAO) u/s 143(3) r.w.s. 144C(13) of the Act on 29.01.2025, making an addition of Rs. 17,33,86,700/-. Aggrieved with the said order, the Assessee is in appeal before us.
2.1 Brief facts of the case are: The assessee SAIC Motor Corporation Limited (hereinafter referred to as ‘SAIC’) is a tax resident of the Republic of China
ITA No.- 1191/Del/2025 SAIC Motor Corpora�on Ltd. engaged in the business of research, production and sale of passenger cars and commercial vehicles. It is engaged in Automobile business under the brand "MG". In 2017 MG Motor India Private Limited (hereinafter referred to as ‘MGMIPL’) was incorporated in India as a wholly owned subsidiary of SAIC Motor HK Investment Limited which in turn is 100% subsidiary of SMCL and MGMIPL was engaged in assembling vehicles under the brand "MG" in India. During the subject year, the assessee SAIC entered into two types of agreements with MGMIPL viz. Technology License Agreement and KD (Knocked Down) Parts Supply Agreement, for granting of license to MGMIPL for production of the Licensed Products and for offshore supply of KD Parts to be used by MGMIPL for manufacture of motor vehicles. The details of the said agreement as submitted by the assessee are reproduced as under:
“ a. Knocked Down parts (‘KD parts’) supply agreement - Pursuant to KD parts supply agreement [placed at pages 220 to 267 of the paper book], the appellant supplies parts of the car in completely knocked down state to MGMIPL, as offshore supply on principal-to-principal basis. The risks and rewards in relation to the KD parts are transferred by the appellant to MGMIPL outside India. b. Technology License agreement - The appellant had also entered into a technology license agreement with MGMIPL [placed at pages 274 to 389 of the paperbook], pursuant to which MGMIPL pays 1% of the sale value of the cars to the appellant as Royalty for granting license to use technology for production of license products. The appellant had duly offered the royalty income to tax in its return of income filed in India.
2.2 The AO in the DAO held that the assessee did not conduct any offshore sales, had a Supervisory PE, DAPE and Fixed Place PE on supply of goods in ITA No.- 1191/Del/2025 SAIC Motor Corpora�on Ltd.
India and proposed to add the income attributable to the PE in India to the tune of Rs. 23,11,82,270/-.
Ground Nos. 1 and 2 of the Appeal are general in nature and do not need any separate adjudication.
In Ground No. 3, the assessee has submitted that the assessment in this case was barred by limitation in terms of section 153(1) of the Act and was therefore liable to be quashed. The Sr. Counsel of the Assessee made a statement before the Bar that this ground was not pressed. Hence, this ground of appeal is dismissed as not pressed.
5. Ground Nos. 4 to 4.1 of the Appeal are reproduced as under:
“ Re: attribution of profits on offshore supply 4. That on the facts and circumstances of the case and in law. the assessing officer erred in attributing profits on the goods sold by the appellant under offshore supply. 4.1. That on the facts and circumstances of the case and in law. the assessing officer erred in attributing profits on sale of goods by the appellant without appreciating that the title, risk and rewards related to the goods were transferred by the appellant outside India.”
5.1 The AO in the DAO held that the receipts from offshore supply are taxable in India as per the provisions of the Act and as per the provisions of the India- China DTAA.
ITA No.- 1191/Del/2025 SAIC Motor Corpora�on Ltd.
5.2 The AO held that there were no offshore sales conducted by the assessee because (i) the title of risk of the KD parts supplied by SAIC were never transferred outside India, rather it was transferred in India after completion of inspection process in presence of personnel designated by SAIC (ii) that SAIC had made certain purchase restrictions on MGMIPL with respect to KD parts and was not allowed to purchase them without the prior consent of SAIC. (iii) that SAIC motors would provide reasonable assistance to the manufacturing company as the latter would undertake/manage/defend all product liability claims, dispute and litigations, voluntary/compulsory products, retail/field action, etc.
5.3 The Ld. DRP noted that the gist of the arguments of the AO was captured at page 13 in the DAO, and the same was reproduced in its order as under:
"In view of the foregoing, it is evident that the assessee bears risk of its supplied goods even after such goods are assembled to make a car. It would also be pertinent to note that the assessee receives royalty @1% of sale value of every car by the Indian AE. Since stakes and interest of the assessee continues till a car is assembled and sold and subsequently, during any claims arising out of such sales, it cannot be accepted that sale of goods was offshore and title and risks got transferred outside India. Moreover, it needs to be appreciated that the assessee and manufacturer of car i.e., MGMIPL are related entities and agreements/contracts can be drafted to suit their requirements in such a way to portray them to be independent but conduct of the parties to the transaction has to be seen which in this 5
ITA No.- 1191/Del/2025 SAIC Motor Corpora�on Ltd. case, as discussed above, clearly demonstrates that sale was not completed outside India."
5.4 After examining the findings of the AO, the submission offered by the assessee and the relevant agreements, the Ld. DRP opined that the AO had examined the contract and agreements governing the sale of KD parts in great detail but the actual nature of sales whether offshore/inshore was to be verified from the copy of invoices, FOB or CIF sales, freight and insurance borne by whom, who bears the risk and responsibility while goods are in transit/high seas, bills of lading is in whose name?, copy of insurance documents, treatment in books of accounts of the sold items etc which have not been examined nor rebutted by the AO in the DAO. The Ld. DRP viewed that these are some of the crucial facts which need to be examined to establish whether there were offshore sales or not and that merely relying on the various clauses of the agreement without examining the actual transactions, it would be inappropriate for the AO to deny the claim of the assessee in respect of offshore sales.
5.5 The Ld. DRP examined the copy of invoices, bill of lading, copy of insurance, Affidavit in respect of no inspection carried out for the goods and opined that the sales conducted by the assessee were offshore sales.
ITA No.- 1191/Del/2025 SAIC Motor Corpora�on Ltd.
5.6 The Ld. DRP noted that the main argument on the basis of which the AO had rejected the claim of offshore sale of the assessee was that the sales were completed on inspection of the parts by the employees of SAIC in India. It was stated by the AO that the personnel of SAIC were liable to inspect the shipped parts upon delivery after being unpacked by MGMIPL in India and compensate the buyer for any damage or other infirmities in the supplied parts. This observation of the AO was found to be incorrect by the Ld. DRP insofar all the documents as discussed by the Panel pointed towards the sale having completed offshore and bill of entry issued by Custom was the most important document which demonstrated that the sales were completed offshore. Further, the Ld. DRP noted that it was imperative to state that the clause of inspection is only to ensure that the goods received are in fine condition and in no way this clause could be instrumental in deciding the sales to be offshore or not. The Ld. DRP further noted that even otherwise, an affidavit was also submitted by the Deputy Managing Director of MGMIPL on a Non-Judicial Stamp Paper that even though, the agreement provided for the procedure of inspection of the KD Parts there were no employees or other personnel of the SMCL present in India for the FY 2021- 22 and hence no inspection was conducted by any employee/personnel of the SMCL during the subject year. The Ld. DRP noted that it was pertinent to mention here that affidavits are important legal documents that are used to present facts under oath and verified information and they are a key tool in Courts/
ITA No.- 1191/Del/2025 SAIC Motor Corpora�on Ltd.
Judicial/ Quasi-Judicial Proceedings to resolve disputes and verify facts and can also be used to impeach a witness if their testimony contradicts what they stated in the affidavit. The Ld. DRP opined that the affidavit could not have been ignored by the AO as an important document while examining the above issue.
5.7. In view of these facts, the DRP held that the sales conducted by the assessee were offshore sales wherein the title and risk of the goods sold were transferred outside India and held that the findings of the AO in respect of the assessee not having conducted the offshore sales are contrary to facts. The Ld. DRP was accordingly directed the AO to pass a speaking order insofar as offshore sales by the assessee is conducted in view of the findings of the Panel and the discussion of the Panel shall also be incorporated in the body of the order.
5.8. The above findings of the Ld. DRP were incorporated by the Assessing Officer in the FAO and the relevant findings of the Assessing Officer in this regard are in Para 10F on Page No. 48, 49 of the Assessment order. (placed at Pg. No. 57 and 58 of the appeal set) are reproduced as under:
“ 10(f) Based on the discussion and examination of relevant documents, the Hon'ble Panel concluded that the assessee's sales were offshore, with the title and risk of goods transferred outside India. Therefore, the AO's findings that the assessee did not conduct offshore sales are contrary to the facts. The AO is directed to issue a speaking order reflecting the Panel's findings. In view of the direction of the Hon'ble Panel, taking into consideration the Hon'ble Panel's detailed examination and findings, including the verification of various documents such as invoices, the Seaway Bill, insurance documents, bills of lading, and the affidavit provided by MGMIPL's Deputy Managing Director, it is evident that the title and risk of the goods were transferred to MGMIPL outside India, substantiating the offshore nature of 8
ITA No.- 1191/Del/2025 SAIC Motor Corpora�on Ltd. the sales. Therefore, in light of the Hon'ble Panel's comprehensive review and conclusions, the undersigned acknowledges the offshore sales conducted by the assessee.”
In view of the above facts, we are of the considered view that the contention of the assessee in Ground No. 4 and 4.1 of the appeal that in the present case, the assessee sold its goods to MGMIPL under offshore supply and the title, risk, and rewards related to the goods were transferred by the assessee outside India is acceptable. Ground No. 4 and 4.1 of the Appeal are allowed to that extent. Regarding the ground taken by the assessee in the above grounds about attributing profits on such goods sold by the assessee’s company to MGMIPL under offshore supply, our decision is given later in this order.
Ground Nos. 5, 6 to 6.5 and 7 to 7.4 of the Appeal are against the action of the Assessing Officer in determining Permanent Establishment (PE) of the Assessee in India by way of supervisory PE and Fixed Place PE. All the above grounds are therefore, dealt together. These grounds are reproduced as under:
“ Re: Constitution of Permanent Establishment ('PE') of the appellant in India 5. That on the facts and circumstances of the case and in law. the assessing officer/DRP erred in holding that appellant has a PE in India. Re: alleged Supervisory PE of the appellant in India 6. That on the facts and circumstances of the case and in law, the assessing officer/DRP erred in holding that appellant has a Supervisory PE in India.
ITA No.- 1191/Del/2025 SAIC Motor Corpora�on Ltd.
6.1. That on the facts and circumstances of the case and in law, the assessing officer/DRP erred in alleging that appellant has a Supervisory PE in India, without appreciating that the appellant does not have any building site or construction. installation or assembly project in India in connection to which the appellant had performed supervisory activities, as provided in Article 5(3)(a) of the Double Taxation Avoidance Agreement (DTAA) between India and China. 6.2. That on the facts and circumstances of the case and in law, the assessing officer/DRP erred in holding that the activities of the expatriate employees of MG Motor India Private Ltd. (*MGMIPL) constitute a Supervisory PE of the appellant in India, in terms of Article 5(3)(a) of the India-China DTAA. 6.3. That on the facts and circumstances of the case and in law, the assessing officer/DRP erred in not appreciating that MGMIPL was the economic and legal employer of the expatriate employees and taxes were withheld under section 192 of the Act on the salary including perquisites paid to such employees for employment exercised in India. 6.4. That on the facts and circumstances of the case and in law, the assessing officer/DRP erred in not appreciating that MGMIPL has borne the total salary expenditure of the expatriate employees during their tenure with MGMIPL and reimbursed the salary to the appellant on cost to cost basis without any profit mark-up. 6.5. That on the facts and circumstances of the case and in law, the assessing officer/DRP erred in levelling false allegations that (a) the expatriate employees performed supervisory activities in connection with manufacturing and assembly process of MGMIPL, on behalf of the appellant company. (b) the expatriate employees of MGMIPL continued to obtain instructions from and report to the appellant and were under the control of the appellant: (C) the expatriate employees were working in capacity of the employees of the appellant company. Re: alleged Fixed place PE of the appellant in India 7. That on the facts and circumstances of the case and in law, the assessing officer/DRP erred in holding that the appellant has a factory or place of management in India in terms of Article 5(1) of the India-China DTAA. 7.1. That on the facts and circumstances of the case and in law, the assessing officer/DRP erred in holding that the manufacturing unit of MGMIPL constitutes a Fixed place PE of the appellant in India. 10
ITA No.- 1191/Del/2025 SAIC Motor Corpora�on Ltd.
7.2 That on the facts and circumstances of the case and in law, the assessing officer/DRP erred in not appreciating the fact that MGMIPL is a separate legal entity incorporated under the Indian laws and alleging that MGMIPL is a mere representation and extension of the appellant in India. 7.3. That on the facts and circumstances of the case and in law, the assessing officer/DRP erred in not appreciating that the manufacturing unit of MGMIPL is wholly under the control and management of MGMIPL and no control has been exercised by the appellant on such manufacturing unit. 7.4. That on the facts and circumstances of the case and in law, the assessing officer/DRP erred in alleging that the employees of MGMIPL assisted in conducting the business of the appellant in India.”
Supervisory PE 7.1 AO in the DAO held that the Assessee had a supervisory PE in India. The same was accepted by the Ld. DRP that assessee had supervisory PE in India as per Article 5(3)(a) of the India China DTAA. The Article 5(3)(a) of the India- China DTAA is reproduced as under:
“3. The term "permanent establishment likewise encompasses: (a) a building site or construction, installation or assembly project or supervisory activities in connection therewith, but only if such site, project or activities last more than 183 days. ”
7.2 The Ld. DRP noted that the AO in para 5 of the DAO had elaborately discussed the same wherein the Ld. AO had stated that 6 employees of crucial and critical position were seconded to MGMIPL by the assessee company in financial, sale and purchase field and that the seconded employees stayed in India
ITA No.- 1191/Del/2025 SAIC Motor Corpora�on Ltd. for more than 182 days during the concerned year and that the assessee through these seconded employees performed supervisory activities in connection with manufacturing and assembling process of MG Cars by India AE, thereby holding that the assessee had a service PE as per India China DTAA. The Ld. DRP further noted that AO had also made reference to the findings of the Investigating Wing subsequent upon search taken place in the case of MGMIPL on 18/11/2022. The Ld. DRP noted that the Ld. AR of the assessee, during the course of hearing before the Ld. DRP had furnished written submissions rebutting the findings of the AO, which were reproduced by the Ld. DRP in its order and the relevant extract are reproduced below:
Sl. AO's Contention Assessee's Contention No. 1 To maintain its Global (i) Ld. AO has invoked Article 5(3)(a) of the India- Image of the brands, China DTAA which deals with supervisory PE assessee has to control (erroneously concluded as Service PE) in the draft and supervise the order. quality of product. (ii) Assessee has not submitted any response stating that Therefore, since the assessee is engaged in supervisory activities for the assessee has quality of the product which makes the conclusion of performed supervisory establishing supervisory PE (erroneously mentioned as activities in service PE by the Ld. AO) of the assessee by the Ld. AO connection with factually incorrect. manufacturing and assembling process of (iii) For ease of reference, the Article 5(3)(a) of the MG Cars by Indian AE India-China DTAA is reproduced as under: by deputing its skilled manpower and "3. The term "permanent establishment likewise duration of such encompasses: activities was exceeding 182 man (a) a building site or construction, installation or days, the same assembly project or supervisory activities in connection constitutes a service therewith, but only if such site, project or activities last PE as per India-China more than 183 days." DTAA. (iv) It is submitted that the assessee does not have any building site or construction, installation or assembly project in India. Its role is to supply products. Therefore, 12
ITA No.- 1191/Del/2025 SAIC Motor Corpora�on Ltd. provisions of Article 5(3)(a) of India-China DTAA should not apply. Further, no employees of assessee have visited India for rendering any services during the year under consideration. The employees seconded are the employees of MGMIPL and even their role in the Indian company are non-supervisory. (v) The assessee also submitted copies of employment agreements and the Form 16. (vi) The names and the roles of the seconded employees were submitted including the names of the persons to whom such expatriate employees were reporting in their employment with MGMIPL: Sl. Name of Designation Name of No. Employee in MG Reporting Person along with Designation 1 Chen Executive Rajeev Zhou Assistant to Chaba MD (Managing Director) 2 Wang Deputy Vikas Varma Hongbo Director (Director - Purchases Purchases) 3 Gao Deputy Rajesh Jianyi Director Mehrotra After Sales (Director - After Sales) 4 Wang Deputy Rajeev Jianwei Director Chaba Finance (Manging Director) via Xu Jie (CFO) 5 Tang Chief Rajeev Wensheng Operating Chaba Officer (Managing Director) 6 Xu Jie Chief Rajeev Financial Chaba Officer (Managing Director)
(vii) Accordingly, the Ld. AO has wrongly held that the expatriates were employees of the assessee whereas the 13
ITA No.- 1191/Del/2025 SAIC Motor Corpora�on Ltd. expatriates were in the employment of MGMIPL performing tasks assigned by MGMIPL and reporting to the senior employees of MGMIPL. Copy of employment agreements and the Form 16 issued by MGMIPL to its employees are enclosed. viii) Additionally, the assessee placed reliance on the judgement of Hon'ble Karnataka High Court in the case of M/S Flipkart Internet Private Limited vs The Deputy Commissioner Of Income Tax (139 Taxmann.com 595) [2022] wherein it was held that to determine the employer-employee relationship, the relationship during the period of secondment assumes significance. Therefore, the contention of the Ld. AO that the expatriate employees were earlier employed in the assessee company i.e., SMCL, is irrelevant for establishing the employer-employee relationship between the above expatriate employees and the assessee. (ix) Thus, considering the above facts, the Hon'ble Panel would appreciate the conclusion reached by the Ld. AO constituting supervisory PE (erroneously mentioned as service PE by the Ld. AO) of the assessee in India in the draft assessment order passed is irrational, without any basis and liable to be reversed.
7.3. The Ld. DRP examined the findings of the AO, the submission offered by the assessee and the relevant agreements. The Ld. DRP noted that AO in the DAO has held that the assessee through the 6 seconded employees (although alleged there were more) performed supervisory activities in connection with the manufacturing and assembling process of MG Cars by Indian AE by deputing its skilled manpower and duration of such activities was exceeding 183 man days, but mistakenly (typing error) held it to be constituting a Service PE as per the India China DTAA.
ITA No.- 1191/Del/2025 SAIC Motor Corpora�on Ltd.
7.4. The Ld. DRP on careful examination of the rival submissions opined that the AO had correctly invoked the provisions of 5(3)(a) of the India China DTAA which deals with supervisory PE and assembly PE. The Ld. DRP noted that AO in the DAO had discussed in detail that the assessee was performing supervisory activities in connection with manufacturing and assembly of MG Cars by Indian AE in order to maintain its global image of brand and maintain the product quality. Further, the Ld. DRP noted that the evidences found during the search u/s 132 of the Act also showed that the seconded employees of assessee in India were managing and controlling the affairs of the Indian entity and indirectly supervising the business activities of the Indian AE including the assembly process.
7.5. In respect of supervisory activity, the Ld. DRP noted that the assessee had categorically denied any supervisory activity being conducted by the assessee for the quality of the product and has also filed an affidavit in this regard wherein it has been categorically denied by the Deputy Managing Director of the MGMIPL that even though the agreement provided the inspection clause but during the subject FY, the assessee did not have any employee or other personnel present in India for the purpose of inspection.
7.6. The Panel after considering the affidavit of the assessee found that the affidavit was limited to the aspect that the employees of the assessee did not ITA No.- 1191/Del/2025 SAIC Motor Corpora�on Ltd. directly make inspection of goods in India but observed that the case of the AO was that the seconded employees of the assessee company were exercising influence and control over the affairs of Indian AE and indirectly supervising the business activities in India.
7.7. During the course of proceedings before the Ld. DRP, the Panel sought the designations and job descriptions/role in MGMIPL of the 6 seconded employees which was provided by the assessee after obtaining it from the MGMIPL.
7.8. On the basis of the above details, the Ld. DRP observed that it was clear that the six seconded employees were not directly engaged in any inspection activity per se, but they apparently possessed skills pertaining to managing the identification and evaluating potential suppliers, monitoring stock of inventory, support the resolution of engineering issue, managing service centres, financial planning, treasury and cash management etc. Further, the Ld. DRP noted that the AO's reliance placed on the statements recorded during the search operation in the case of MGMIPL that the seconded employees were basically the Chinese expatriates working for the Chinese Parent Company all the on the payrolls of MGMIPL but their pay was decided by the Home room (under control of SAIC). Further, the Ld. DRP noted that the Email communications gathered with the seconded employee and the assessee company established that there was constant reporting/information sharing about the affairs of MG India to SAIC Motors by ITA No.- 1191/Del/2025 SAIC Motor Corpora�on Ltd. these seconded employees. In view of the facts, the Ld. DRP held that the seconded employees were working in the capacity of employees of the SAIC because not only did MGMIPL reimbursed the salary paid on cost to cost basis to the parent SAIC which was paying part of the salary in China, along with MGMIPL paying the Indian component of the salary to the seconded employees; but also the lien of the seconded employees continued in the parent SAIC. Further, the Ld. DRP noted that the circumstantial evidences also proved that the seconded employees were in full control of the parent SAIC and that the contractual agreement between the MGMIPL and the seconded employees was nothing but a facade to layer the control extended by the parent SAIC under the secondment agreement through which the control of the parent was exercised on MGMIPL. In view of these facts, the Ld. DRP upheld the action of the AO in holding that the assessee company had a supervisory PE in India.
7.9. Having held that however, the Ld. DRP also directed the AO to incorporate the above findings along with the findings of the search conducted by the investigation wing if any finding has been given in the search report in respect of the seconded employees engaged in the supervisory activity and pass a speaking order in this regard.
The Sr. Counsel for the Assessee submitted that such a finding of the Assessing Officer and affirmed by the Ld. DRP were both contrary to the facts as well as in law. The Sr. Counsel submitted that all the six employees as referred 17
ITA No.- 1191/Del/2025 SAIC Motor Corpora�on Ltd. above were working for the MGMIPL and not for the assessee company. Further, he submitted that all the six employees were released by the assessee company as per the terms and conditions contained in a sample letter dated August, 2017 (placed at Pg. No. 593 to 595 of the paper book). The Ld. Counsel submitted that as per the said terms and conditions, the assessee company had discharged all the above six employees from any responsibility of the assessee company and had also stipulated the employees to agree to release the Assessee Company from all obligations action, Claims and Rights towards the company during such period. Further, it was stated that the specific questions about employment and/or about working in India in MGMIPL will be managed by M/s. MGMIPL and the said respective six employees. In this regard, the Ld. Counsel relied upon various decisions, the lead case being the decision of the Hon’ble Delhi High Court in the case of PCIT vs Samsung Electronics CO. Ltd. 170 taxmann.com 417. In this regard, the relevant extract of the written submission filed by the assessee are reproduced as under:
“ …. Further, secondment of employees is a common scenario in the global economy. It had been accepted by the courts that the employees seconded by foreign group companies to Indian group en��es, working solely and exclusively for Indian en�ty do not cons�tute a PE of the foreign en�ty in India.
Specific reliance in this regard is placed on the decision of the Delhi High Court in the case of PCIT vs. Samsung Electronics Co. Ltd.: 170 taxmann.com 417/ 303 Taxman 212 wherein the assessee, a Korean company was engaged in the 18
ITA No.- 1191/Del/2025 SAIC Motor Corpora�on Ltd. business of manufacturing various electronic items. Pursuant to survey opera�ons undertaken on the Indian subsidiary of the assessee, the department alleged that the Indian subsidiary’s office was used as place of management by the assessee and would cons�tute a PE of the assessee in India since the Korean company had deputed/ seconded employees to the Indian subsidiary who, according to the Revenue, looked a�er the interests of the Korean company. The court on evalua�ng the agreement for secondment of employees from South Korean group company to the Indian company along with the judicial precedents and OECD commentary, observed that where the seconded employees were solely working for the business of the Indian company and their remunera�on was reimbursed by the Indian company to foreign company, it cannot be said that seconded employees were discharging func�ons or working for furtherance of the business of foreign company in India. The court further observed that the arrangement of secondment of employees by which the skilled and experienced personnel are deployed/seconded to group companies across the world is quite common in the global business scenario. The Court accordingly held that seconded employees working exclusively for the Indian company would not cons�tute a PE of the foreign company in India. The relevant observa�ons of the Court are reproduced hereunder: “21. In Hya� Interna�onal, the Full Bench of our Court had explained that PE itself was a concept based upon an enterprise undertaking economic ac�vity in a par�cular State irrespec�ve of its residence. The taxability of business profits, we had explained, is itself dependent upon a PE exis�ng in the Contrac�ng State notwithstanding that establishment being a cons�tuent of a larger enterprise which may be domiciled in the other Contrac�ng State. However, and as the Tribunal itself has no�ced, the DRP had not concurred with the opinion of the AO that a Fixed Place PE, DAPE or Service PE of the respondent-assessee had come into existence. While the DRP had disagreed with the AO on those aspects, it ul�mately came to hold against the respondent-assessee, taking the view that by virtue of secondment of 19
ITA No.- 1191/Del/2025 SAIC Motor Corpora�on Ltd. employees, a deemed PE had come into being. It is this view that the Tribunal has proceeded to overturn.
We find ourselves in complete agreement with the opinion expressed by the Tribunal, since the secondment of employees has not been found to be for the furtherance of the business or enterprise of the respondent. Those seconded employees were not discharging func�ons or performing ac�vi�es connected with the global enterprise of the respondent. Their placement in India was with the objec�ve of facilita�ng the ac�vi�es of SIEL. Collec�on of market informa�on, colla�on of data for development of products, market trend studies or exchange of informa�on would not meet the qualifying benchmarks of a PE. ……………………………………………………… 29. As is manifest from the above, 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 u�lized for the business of the enterprise with whom they are placed. In the facts of the present case, the weight of evidence which was collated unerringly leans towards their engagement being viewed as one which was for the benefit of SIEL.
We thus find no error in the view expressed by the Tribunal in this regard. In our considered opinion, 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. 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 in India, the decision of the Tribunal cannot be faulted.”
It is respec�ully submi�ed that the facts of the appellant’s case are iden�cal to the case of Samsung Electronics (supra). A comparison of the factual posi�on is tabulated below:
ITA No.- 1191/Del/2025 SAIC Motor Corpora�on Ltd.
Par�culars Samsung’s Appellant’s case case Employees of the Foreign en�ty (Samsung Korea) Yes Yes seconded to the Indian En�ty (Samsung India). The agreement between the Foreign and Indian en�ty Yes Yes gives complete control to the Indian en�ty in regard to the personnel seconded to the Indian en�ty. Seconded employees were engaged wholly and Yes Yes exclusively in the business of the Indian en�ty and have not been working in furtherance of business of the foreign en�ty. Remunera�on/salaries of the seconded employees is Yes Yes borne by the Indian en�ty on which tax is duly deducted under sec�on 192 of the Act. Place of business of Indian en�ty is not at the disposal Yes Yes of the foreign en�ty. Indian en�ty reimbursed the remunera�on of Yes Yes seconded employees to the foreign en�ty on cost-to- cost basis without charging any profit markup.
”
On the other hand, the Ld. CIT (DR) supported the orders of the Assessing Officer and the Ld. DRP. He submitted that a search and seizure operation was carried out in the case of MGMIPL on 18.11.2022 wherein various e-mails were found to show that assessee company was controlling and managing the affairs of MGMIPL through the above six employees posted at all the key positions of MGMIPL. The Ld. CIT(DR) also submitted that the present assessment year i.e., F.Y. 2021-22 was a period of Covid where physical presence of the employees of ITA No.- 1191/Del/2025 SAIC Motor Corpora�on Ltd.
the assessee company could not happen at premises of MGMIPL but still carried out visual instructions of the goods supplied by the assessee to MGMIPL and thereby carried out the necessary inspection of the goods received. Further, he submitted that the assessee had kept a lien of all the employees thereby retaining a control over them and all the six employees were still working with MGMIPLor have rejoined the Assessee Company. The Ld. CIT(DR) also referred to the statement of Shri. Rajeev Chhaba, Managing Director of MGMIPL wherein in response to question No. 32, he submitted that typically, Home Rooms suggest the names of the candidates based on the job requirements and the current salary is decided by Home Rooms and the local allowances are decided by MGMIPL. In light of this statement, the Ld. CIT(DR) submitted that when the employment was given by the assessee company then it was very logical to come to a conclusion that these employees would be performing their work more towards the assessee company rather than MGMIPL. The Ld. CIT(DR) also referred to various e-mails as reproduced by the Assessing Officer on Page 28 to 43 of DAO (placed at Pg. No. 273 to 288 of the Appeal set) of the order to submit that the key decisions were approved by the assessee company thereby controlling the affairs of MGMIPL. In the light of these facts, he submitted that the assessee company had a “Supervisory PE” in India.
We have heard both the parties and perused the material available on record. In the era of globalization and when the Indian economy opened up in ITA No.- 1191/Del/2025 SAIC Motor Corpora�on Ltd.
1990, various multinationals started setting-up their subsidiary in India at various locations for manufacturing their products locally and selling them in the Indian markets. In the present case of the assessee, also the assessee set-up a subsidiary at Halol, Gujarat for manufacturing its cars and selling them in India. To achieve this, the assessee entered into two types of agreements with MGMIPL viz. Technology License Agreement and KD (Knocked Down) Parts Supply Agreement, for granting of license to MGMIPL for production of the Licensed Products and for offshore supply of KD Parts to be used by MGMIPL for manufacture of motor vehicles and also the above six employees were sent by the assessee company on secondment to MGMIPL.
10.1 On perusal of the activities carried out by the above six employees as mentioned in the DAO/FAO and the various e-mails discovered during the course of search and seizure operations in the case of MGMIPL on 18.11.2022, it does not show that the assessee company was controlling the business of MGMIPL through the said six employees and it was carrying out its own business in India. Even though the Ld. DRP admitted that the six seconded employees were not directly engaged in any inspection activity per se, but they apparently possessed skills pertaining to managing the identification and evaluating potential suppliers, monitoring stock of inventory, support the resolution of engineering issue, managing service centres, financial planning, treasury and cash management etc. Further, the Ld. DRP noted that the AO's reliance placed on the statements
ITA No.- 1191/Del/2025 SAIC Motor Corpora�on Ltd. recorded during the search operation in the case of MGMIPL that the seconded employees were basically the Chinese expatriates working for the Chinese Parents all on the payrolls of MGMIPL but then pay was decided by the Home room (under control of SAIC). Further, the Ld. DRP noted that the Email communications gathered with the seconded employee and the assessee company established that there was constant reporting/information sharing about the affairs of MG India to SAIC Motors by these seconded employees. In view of the facts, the Panel opined that the seconded employees were working in the capacity of employees of the SAIC because not only did MGMIPL reimbursed the salary paid on cost to cost basis to the parent SAIC which was paying part of the salary in China, along with MGMIPL paying the Indian component of the salary to the seconded employees; but also the lien of the seconded employees continued in the parent SAIC. Further, the Ld. DRP noted that the circumstantial evidences also proved that the seconded employees were in full control of the parent SAIC and that the contractual agreement between the MGMIPL and the seconded employees was nothing but a facade to layer the control extended by the parent SAIC under the secondment agreement through which the control of the parent was exercised on MGMIPL. In view of these facts, the Panel upheld the action of the AO in holding that the assessee company had a supervisory PE in India.
10.2 The above findings of the Ld. DRP have been carefully perused by us, but not found fully acceptable to us. The view of the Ld. DRP that the six seconded
ITA No.- 1191/Del/2025 SAIC Motor Corpora�on Ltd. employees apparently possessed skills pertaining to managing the identification and evaluating potential suppliers, monitoring stock of inventory, support the resolution of engineering issue, managing service centres, financial planning, treasury and cash management etc. is acceptable but the key question is as to whether the above skills were utilized by the said employees for the assessee company or for MGMIPL. As noted above that MGMIPL had purchased KD goods from the assessee company amounting to Rs. 1189.20 Crores which was estimated to be 24% of its total purchases. Further, the assessee also purchased other goods from other than assessee company amounting to Rs. 5054.94 crores showing that substantial business activities were carried out by MGMIPL (sale of goods- Rs. 4899.17 crores during the year) and it was quite logical that trained and highly-skilled man power would be deputed by the assessee company to MGMIPL in the interest of its business because the business of supply of goods by the assessee company to MGMIPL would be directly related to the volume of business/ cars sold by M/s. MGMIPL. We also are of the view that the volume of business/ cars sold by M/s. MGMIPL would be more favourable to MGMIPL when it gets the best skilled man power to achieve the said targets.
10.3 The various e-mails as reproduced by the Assessing Officer on Pg. 28 to 43 of DAK has been carefully perused and it is seen that it relates to submission of reports by the seconded employees to the assessee company like “Overall Goals during the 14th Five Year Plan Period”, relevant transportation cost being
ITA No.- 1191/Del/2025 SAIC Motor Corpora�on Ltd. borne by the Indian Company i.e. MGMIPL in respect of its parent company, grille tooling cost will be 6,000,000 RMB vs Initial Cost being 3,500,000 RMB, various projects pertaining to SAIC Global entities and progress reports regarding the projects. On the basis of these e-mails, the Assessing Officer concludes that the seconded employees are acting on behalf of the SAIC. However, the above e-mails as reproduced by the Assessing Officer in the assessment order and briefly discussed above does not show that the assessee was carrying out its business through MGMIPL so as to constitute supervisory PE. Not a single e- mail was found from the assessee company to the six seconded employees or to MGMIPL showing that it was controlling or directing as to how its subsidiary MGMIPL was to conduct its business. When the assessee company is the holding company of the MGMIPL, such e-mails to keep its parent company informed about the activities by its subsidiary cannot amount to Supervisory PE by the assessee company. There are some instances according to the Assessing Officer the assessee did not submit in the reply as to why MGMIPL will bear the cost of transportation of the assessee company but such one-off instance cannot be a sufficient ground to constitute the Supervisory PE of the assessee company. Further, we also note that the emails found during the course of search in the case of MGMIPL on 18.11.2022 and as reproduced by the Assessing Officer in the draft assessment order do not show that these mails written by the seconded
ITA No.- 1191/Del/2025 SAIC Motor Corpora�on Ltd. employees divulge any confidential or any strategic information to suggest that the assessee company was controlling the business affairs of MGMIPL.
10.4 Further, regarding the e-mails of Sh. Ruan Jingjie which, the Assessing Officer noted that the said employee was not shown as an expatriate working actively with MGMIPL during F.Y. 2021-22 relevant to A.Y. 2022-23 in the list of expatriate list in its replies filed by the assessee which according to Assessing Officer proved that the number of expatriate working was more than six. In this regard, the assessee submitted that MGMIPL had informed the assessee that Mr. Ruan Jingjie was employed with MGMIPL and left Indian during the first wave of Covid-19 and, after that he never returned to India and continued working with MGMIPL during the subject year. The above explanation of the assessee in the given facts is found to be acceptable. Thus, we are of the considered view that the evidences brought on record do not show that the assessee company had operational control over the activities of MGMIPL and that there was no operational independence to MGMIPL.
10.5 Further, the finding of the Ld. DRP that the circumstantial evidences also proved that the seconded employees were in full control of the parent SAIC and that the contractual agreement between the MGMIPL and the seconded employees was nothing but a facade to layer the control extended by the parent SAIC under the secondment agreement through which the control of the parent was exercised on MGMIPL is not supported by any documentary evidence. The 27
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Ld. DRP has made these observations without pin pointing any specific material/ e-mail to support the above contentions. This fact is also acknowledged by the Ld. DRP in its concluding Para No. 7.2.8, wherein the Ld. DRP directed the Assessing Officer incorporate its findings along with the findings of the search conducted by the investigation wing if any finding has been given in the search report in respect of the seconded employees engaged in the supervisory activity and pass a speaking order in this regard. Thus apparently, the Ld. DRP was also not fully satisfied that evidences were there on record in respect of the seconded employees to establish that they were engaged in supervisory activity so as to constitute supervisory PE of the assessee.
10.6 Upon receipt of the above directions, the Ld. DRP, the Assessing Officer in FAO, after fresh perusal of the case records only stated that it was inadvertently mentioned in the FAO “service PE” whereas it should be “supervisory PE”. In this regard, the AO referred to the employment agreement wherein the job profile assigns “supervisory responsibilities” but did not bring on record any material/ findings of the search conducted by the Investigation Wing to show that the seconded employees were engaged in the supervisory activity by the assessee company. The relevant findings of the Assessing Officer in Para No. 10, on Pg. No. 52 and 53 of the FAO (placed at Pg. No. 61-62 of the Paperbook) are reproduced as under:
ITA No.- 1191/Del/2025 SAIC Motor Corpora�on Ltd.
“Further, the case records of the assessee company has been pursued and it has been observed that Sh. Hongbo Wang, Tang Wensheng, RuanJingjie and Chen Zhou, all Chinese expatriates who are working as a seconded employee with the MGMIPL. During the course of post search analysis of the seized data, certain e-mail communications were identified, which clearly pointed towards the expatriate working for the Chinese parent, even though they were shown to be on the rolls of the Indian company. Further, employment agreement of the expatriates with the MGMIPL also suggests that seconded employees were involved in the supervisory activities. Upon further review of the records, it was found that the term 'Service PE' was erroneously mentioned instead of 'Supervisory PE' due to a clerical error. The term is now being corrected to 'Supervisory PE' in the Final Assessment Order.”
10.7 In this regard, the sample copy of the letter dated August, 2017 placed at Pg. No. 593-595 of the Paper book is are reproduced as under:
Le�er of Intent/Release “意向书 Date: August, 2017 HEXU SHANYIN ROAD, SHANGHAI Dear JIE, This le�er confirms the terms and condi�ons between SAIC Motor Corpora�on Limited, a corpora�c organized and exis�ng under the laws of China and having its principal place of business at No.489, Weih Road, Shanghai (hereina�er called "SAIC" or "the Company") and you during the tenure of you employment with MG Motors India Private Limited, a company organized and exis�ng under the law of India and having its registered office at 1501-1503, 15th Floor, Tower-A, Signature Towers, Sector-25 Gurugram, Haryana-122001, (hereina�er referred to as "MGI").
在您就职于名爵印度公司期间,本意向书明确了上海汽车集团(以下简称“公司”)与您遵循的一 些规定,名爵印度公司是一家根据印度法律设立的印度公司(以下简称“名爵印度”)。.
For this purpose, MGI will issue you an "Employment Le�er" to absorb you in their employment. Furthe this release is subject to the approval by the various authori�es in India such as work permit or visa fo India which will be the responsibility of MG1. 在您入职之前,名爵印度将向您发放聘任信。发放手续仍需要经过印度相关部门批准,如工作 词可部门或签证部门。名爵印度有责任帮助员工获取这些批准手续。 29
ITA No.- 1191/Del/2025 SAIC Motor Corpora�on Ltd.
TERMS OF THE LETTER L Effec�ve October 2017, the Company hereby agrees to release you from your obliga�ons and from all ac�ons, claims and rights towards the Company during the period of your employment with MG in India, i.e., for a period of 1" September 2017 to 31" August 2020 which can be extended by MGI Similarly you also agree to release the Company from all obliga�on, ac�ons, claims and right towards the Company, during such period.
您在名爵印度就业期间,公司不会就您工作期间的行为行使索赔的权利。同样,您也不会对公 司行使索赔的权利。 2. The services to be rendered by you to MGI shall be in your personal capacity only and not for and on behalf of the Company, Further, during your employment with MGI, the Company shall not be responsible for any acts or omissions commi�ed by you or assume any risk for the results produced from any work performed by you. 您为名爵印度提供的的工作服务仅代表个人,而不是代表公司。此外,在名爵印度就业期间, 公司不对您的任何行为或疏忽负责,也不对您从事工作的任何结果承担责任。 3. You will func�on as a full-�me employee of MGI and work under the complete control, direc�on and supervision of MGI, and in accordance with the policies, rules and guidelines of MGI during the period of employment. You shall not during such period be deerned in any manner to be represen�ng or ac�ng on behalf of or as employees of the Company while performing your services nor should convey such impression. 作为名爵印度的全职员工,您在名爵印度的全面控制,指导和监督下工作,并在就业期间遵循 名爵印度的政策、规则和指引。在此期间,您不得代表公司执行任何工作或被视为代表公司 承担任何工作。 4 You shall, during the period of employment with MGI, not in any way be subject to any kind of instruc�ons or control or supervision of the Company. The obliga�on of the Company would cease on entering of your Employment Contract with MGI. 在名爵印度工作期间,您不得以任何方式受公司的控制、指导和监督,在您与名爵印度签订雇 佣合同后,与公司的义务随即停止。 5. The salary, bonus and other en�tlements including your social security incen�ves rela�ng to your employment will be paid by MGI as per your employment agreement with MGI in the bank account maintained by you in India. However, from an administra�ve convenience perspec�ve on your request, the company may pay a por�on of your salary and other en�tlements in the bank account maintained by you in China on behalf and under the request of MGI. 在您与名爵印度签订的雇佣合同中,工资、奖金和其他权益(包括与工作相关的社会保险费) 将由名爵印度承担,但是,出于便捷的考虑,在名爵印度的要求下,公司可以替名爵印度支付您 在中国境内的部分工资及社会保险费。
6 MGI shall be responsible for complying with the requirements of withholding tax under the Indian tax laws, on your salary and other related en�tlements. Payment of taxes in China shall be your responsibility. 名爵印度对您的工资及其他相关权益遵循印度税法关于预提所得税的要求。在中国境内缴 纳个人所得税是您的责任。
ITA No.- 1191/Del/2025 SAIC Motor Corpora�on Ltd.
Specific ques�ons about your employment contract and/or about working in India will be managed by MGI. 关于您的金佣合同成在印度期间工作的具体问题由名爵印度负责。 EXECUTION OF THE LETTER 意向书执行 By signing this le�er in the space provided below, you acknowledge that you have read and understand this le�er, and you further acknowledge your acceptance of the terms and condi�ons set forth herein. If these terms and condi�ons are acceptable to you, please sign in the space provided below and return the original 10 通过在下面提供的空白处签署此意向书,表明您已阅读并理解意向书内容,并且进㇐步确认您 接受上述的条款和条件,如果您接受这些条款和条件,请在下面提供的空白处签名并将原件送 回至:上海市威海路489号。 No.489, Weihai Road, Shanghai For SAIC MOTOR CORPORATION LIMITED ”
10.8 The above terms and conditions which have not been contradicted by the Revenue clearly shows that the deployment of the said six seconded employees were in furtherance of the business of MGMIPL with whom they are placed/ employed. In this regard, the relevant finding of the Hon’ble Delhi High Court in the case of PCIT vs Samsung Electronics CO. Ltd. (supra) in Para No. 22 & 29 as reproduced below supports the case of the Assessee.
“ 22. We find ourselves in complete agreement with the opinion expressed by the Tribunal, since the secondment of employees has not been found to be for the furtherance of the business or enterprise of the respondent. Those seconded employees were not discharging func�ons or performing ac�vi�es connected with the global enterprise of the respondent. Their placement in India was with the objec�ve of facilita�ng the ac�vi�es of SIEL. Collec�on of market informa�on, colla�on of data for development of products, market trend studies or exchange of informa�on would not meet the qualifying benchmarks of a PE. ……………………………………………………… 31
ITA No.- 1191/Del/2025 SAIC Motor Corpora�on Ltd.
As is manifest from the above, 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 u�lized for the business of the enterprise with whom they are placed. In the facts of the present case, the weight of evidence which was collated unerringly leans towards their engagement being viewed as one which was for the benefit of SIEL
10.9 Thus, we are of the considered view that the evidence on record does not show that the activities carried out by the six seconded employees were such nature to establish the supervisory PE of the Assessee.
10.10 Thus, we hold that the assessee does not have a supervisory PE in India. Ground No. 6 to 6.1 of the Appeal are allowed.
Fixed Place PE
The AO in view of the facts stated in DAO held that the Assessee had a Fixed Place PE of the assessee in India in the assembly unit owned by MFIPL. The relevant extract of the AO’s findings is reproduced as under:
“ 5.3 Fixed Place PE: The SAIC supplies technology and raw material to the MGMIPL, #MG Motor, Halol, GIDC, Kanjari Part, Chandrapura, Gujarat & 10th Floor, 32nd Avenue, Saini Khera, Sector-15, Gurgaon to assemble the parts and convert into Final product. And charge 1% Royalty on the each Car sold by MGMIPL in India. Hence, MGMIPL is nothing but representa�on or extension of SAIC in India because without final assembling of parts sold by SAIC to MGMIPL has no value vis- à-vis no source of Income for the MG India P Ltd., as well as for SAIC. The SAIC sell parts, so�ware, license and brand name to the MGMIPL And MGMIPL assemble all the hardware parts along with the so�ware installa�on to make final consumable Car. Now the final car is sold in the market on which SAIC drive income. Hence it is very crystal clear that without assembling of cars neither 32
ITA No.- 1191/Del/2025 SAIC Motor Corpora�on Ltd.
MGMIPL drive/earn money nor SAIC. Therefore the assembly or manufacturing unit in India becomes important or crucial to complete the whole business transac�on Manufacturing/Assembly unit of MGMIPL, #MG Motor, Halol, GIDC, Kanjari Part, Chandrapura, Gujarat & 10th Floor, 32nd Avenue, SainiKhera, Sector- 15, Gurgaon, add value to the parts sold by SAIC to MGMIPL and then sale it to the Indian Market for which SAIC take 1% Royalty on each Car sold. Therefore, the assembly unit of MGMIPL is nothing but a fixed place of SAIC to assemble of parts of the Car and sale it to the Indian Market and derive income therefrom. Therefore, MGMIPL is ac�ng as Fixed Place PE of the assessee
Following are the observa�ons which unearthed the role of the SAIC:-
Clause 8.1 of Inspec�on of the KD Parts Supply Agreement which says that "SAIC Motor shall inspect the KD parts in terms of the quality specifica�on, quan�ty, weight, and packaging etc before shipment in accordance with the then in force produc�on and inspec�on standards of SAIC Motor and such inspec�on report shall be issued to the Manufacturing Company and Clause 82 of the same says that The Manufacturing Company shall complete promptly the unpacked inspec�on of each shipment in the presence of SAIC Motor's designated or authorized personnel. If any visualized defect is discovered during the inspec�on (including but not limited to surplus shipment, short shipment, wrong shipment or faulty parts), the Manufacturing Company shall accept the delivered KD Parts and then submit to SIAC Motor an applica�on for compensa�on or 8D report within the claim period as provided in the KD Procedures for Handling Claims a�ached hereto as Annex I. The aforesaid applica�on documents shall be signed and verified by SIAC Motor's designated or authorized personnel, SAIC Motor is en�tled to conduct re-inspec�on of relevant defec�ve parts at its own cost, and the expenses of such re-inspec�on shall be borne by the Manufacturing Company if it is proved by the result of the re- inspec�on that such defect is not caused by SAIC Motor
1.1 Clause 8 reveals that the parts will go through thorough inspec�on including packaging by assessee company before shipment and will share the inspec�on report with MGMIPL, MG India, #MG Motor, Halol, GIDC, Kanjari Part, Chandrapura, Gujarat & 10th Floor, 32nd Avenue, Saini Khera, Sector-15, Gurgaon, will promptly unpack the parts and complete the inspec�on of each shipment in the presence of the SAIC's designated or authorized personnel or employee. That means apart from the six seconded employees assessee company has planted its employee in India for such inspec�on and if any defect is found in the parts MGMIPL will have to submit applica�on to SAIC a�er ge�ng verified and signed from the employee of SAIC. SAIC is en�tled to re-inspect relevant defec�ve parts though its employee at its own cost if defect is found. It means that designated personnel of the assessee company will have a permanent place in the office of MGMIPL, #MG Motor, Halol, GIDC, Kanjari Part, Chandrapura, Gujarat & 10th Floor, 32nd Avenue, Saini Khera, Sector-15, Gurgaon to fulfill his du�es in India as described above because without which the contracts could not get competed. Designated
ITA No.- 1191/Del/2025 SAIC Motor Corpora�on Ltd. personnel will have to be present with the MGMIPL for inspec�on to complete the supply contract. In view of the above facts, it is held that the assessee has Fixed Place PE in India under ar�cle 5(3)(a) & 5(2)(a) read with ar�cle 5(1) of the India and China tax treaty 5(2)(a) & (d) . “The term permanent establishment "includes especially:- a place of management, a factory 5(3)(a) The term permanent establishment "includes especially-
As per the Ar�cle 5 (3)(a) of the India China Treaty "Permanent Establishment a building site or construc�on, installa�on or assembly project or supervisory ac�vi�es in connec�on therewith, but only of such site, project or ac�vi�es last more than 183 days As per the assessee's submission, to maintain its Global Image of the brands, assessee has to control and supervise the quality of product. Hence this cons�tutes the PE of M/s SAIC in India.
From the above, it will be observed that no formal legal right needs to be required for using the place for carrying out the business ac�vi�es. What is important is that the assessee should be carrying business in the source state through a fixed placed for sufficiently long period so that such fixed place becomes permanent in nature. Therefore, there cannot be any dispute that the premises was not at the disposal of the assessee.”
11.1. The Ld. AR of the assessee submitted before the Ld. DRP that the assessee does not have a Fixed Place PE in India and furnished the arguments supporting its contentions. The rebuttal of the AO's contention as submitted by the assessee before the Ld. DRP in a tabulated form are reproduced below.
Sl. No. AO’s Contention Assessee’s Contention 1. (i) MGMIPL is a (i) AO in the entire order has overlooked representation or extension the following points: of SMCL in India. SMCL sells parts, software, license 34
ITA No.- 1191/Del/2025 SAIC Motor Corpora�on Ltd. and brand name to MGMIPL (ii) MGMIPL is a separate legal entity and MGMIPL is only engaged in manufacturing and selling engaged in assembly of parts of passenger vehicles to its consumers sold by SMCL. Without final on its own account. assembly of such parts sold (iii) The raw material is sourced by by SMCL, MGMIPL does MGMIPL in its own name. not have any value or any source of income. (iv) The sale of goods is made by MGMIPL's own name (Sale of INR (ii) As per Clause 8 of KD 4,899.17 Cr during the subject year) Parts Supply Agreement, the and GST on the same is paid on its own parts sold by SMCL will be account. unpacked and inspected in presence designated of v) Both MGMIPL and SMCL have SMCL's personnel (ignoring other sources of income. the submissions and the affidavit filed by the (vi) The role of assessee is to supply assessee) at the premises of goods from outside India and to MGMIPL resulting in provide license to MGMIPL. Thus, the permanent place of such allegation made by the Ld. AO that personnel in the office of a MGMIPL is carrying out assembly on MGMIPL. behalf of the assessee is incorrect. (iii) Manufacturing/assembly (vii) Further, with regard to the unit of MGMIPL at Saini allegation made by the Ld. AO that the Khera, Sector 15, Gurgaon goods are unpacked and inspected in adds value to the parts sold presence of SMCL's designated by SAIC to MGMIPL and personnel at the premises of MGMIPL, then selling it to the Indian the Ld. AO has categorically ignored market for which the the affidavit filed by the Appellant assessee takes 1% Royalty on which provides the following: each car sold demonstrate by [enclosed as Annexure 13 to the the assembly unit of paperbook (page 319 of the MGMIPL is nothing but a paperbook)] Fixed Place of a assessee to assemble the parts of the car "That even though the agreement and sale it to the Indian provided the manner/procedure for market and derived income inspection of KD Parts, SMCL does not therefrom. Therefore, have any employee or other personnel MGMIPL acts as Fixed Place present in India during the Financial PE of the assessee. Year 2021-22 for the purpose of the inspection as specified in the agreement. Thus, no inspection has been done in India by any employee or other personnel of SMCL in India during the Financial Year 2021-22." (viii) Further for the sake of completeness, the inspection process of 35
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MGMIPL is also submitted before the Hon'ble Panel wherein the Hon'ble Panel would appreciate that no employee of SMCL is present with MGMIPL for the inspection process (please refer pages 14 & 15 of the detailed submission filed before the Hon'ble Panel). (ix) From the above affidavit and the inspection process, it is abundantly clear that no employee of the assessee was present in India for any inspection of goods supplied by the assessee. Therefore, the allegation made by the Ld. AO is factually incorrect and the order which is not a speaking order is bad in law. (x) The Assessee does not fulfill any of the below mentioned conditions to constitute fixed place PE as per Article 5(1) of the India-China DTAA: A place of business exists in source state (place of business test) Such place is 'fixed' in terms of location (location test) Such place is 'fixed' in terms of permanence (permanence test) Such place is at the disposal of foreign enterprise (power of disposition test or right of use test) Foreign enterprise carries on business wholly or partly in source State (business activity test) (xi) The premises of MGMIPL are used by MGMIPL to conduct its own business as an Independent and a full risk bearing entity. The premises are owned by MGMIPL in its own capacity and not by the assessee. The assessee does not have any place of business in India.
ITA No.- 1191/Del/2025 SAIC Motor Corpora�on Ltd.
(xii) Further, various factors considered in the case laws which were considered by the Courts as contributing in meeting the disposal test are as follows - Control in terms of factual use of the place Local connection with the place Removal only by consent of manager Exclusive right for the use of business premises A separate (not a specific) room had to be made available for the management activity. Long term availability of the place to carry out business (xiii) As none of the conditions for establishment of Fixed Place PE are fulfilled in the present case, thus the Assessee does not have a fixed place PE in India. The allegation of Ld. AO that the Assessee has a Fixed place PE in India is factually incorrect and is bad in law. (xiv) In addition to the above, the assessee wishes to highlight the fact that PE is a matter of fact and the onus is on the department to prove that assessee has a PE in India. The assessee places its reliance on: (xv) ADIT Vs. E-Funds IT Solutions Inc. [2017] 86 taxmann.com 240 (SC) (xvi) Supreme Court decision in case of Sofema SA order dated 26th August 2008 in Civil Appeal No.14694/2007
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11.2. The Ld. DRP examined the findings of the AO, submissions of the assessee and the relevant agreements and observed that the determination of Fixed Place PE requires satisfaction of certain criteria which are discussed as under. i) The Supreme Court in the case of Formula One World Championship Ltd. vs. CIT: [2017] 394 ITR 80 has laid down certain principles for determination of fixed place PE:
(a) entire business arrangement and various agreements have to be seen together in a wholesome manner and not in an isolated fashion to determine the dominant control (Para 67); (b) role of the foreign company and its affiliates in carrying out various activities in India have to be seen together (Para 73); (c) a PE must have three characteristics stability, productivity and dependence (Para 76); (d) the place of business of an agent who carries out a sales function on behalf of the non-resident principal can be treated as the fixed place PE of the non-resident (citing with approval - In Universal Furniture Ind. AB v. Government of Norway Case No. 99-00421, dated 19-12-1999).
11.3. Applying the above tests in the instant case, on perusing the agreements and contracts as well, the Ld. DRP held that the assessee exercised reasonable control over the day-to-day administration of the MGMIPL through its seconded employees. The Ld. DRP noted that the assessee sold KD Parts, Software License and Brand etc. to its India subsidiary i.e. MGMIPL which was only engaged in assembling of parts acquired from the assessee company and without
ITA No.- 1191/Del/2025 SAIC Motor Corpora�on Ltd. assembly of such parts MGMIPL. does not have any value or any source of income. Thus, the Ld. DRP noted that until the parts sold by the assessee to MGMIPL are assembled, the activities undertaken by the assessee and MGMIPL directly contributes towards the earning of assessee's income from its cohesive business activities. The Ld. DRP held that these facts clearly show that the revenue earned by the assessee company is through a business connection in India and had taken place through the Indian subsidiary in India.
11.4. Further, the Ld. DRP noted that findings as a result of search u/s 132 of the Act revealed that the assessee's business is carried in India with the help of its seconded employees as well as the employees of MGMIPL who regularly work on behalf of the assessee company. It was noted by the Ld. DRP that in the statements recorded during the course of search, the key persons of MGMIPL have admitted that the assessee company was exercising full control over the activities of MGMIPL. In view of the facts, the Ld. DRP confirmed the action of the AO in holding that the assessee company constitutes Fixed Place PE in India.
11.5. Upon receipt of the above directions, the AO noted that in view of the above directions of the Ld. DRP, no modification was required in the DAO.
The Sr. Counsel opposed the above findings of the AO and the Ld. DRP referred to Paragraph 1 of Article 5 of the India-China DTAA which defines the term to meet a “fixed place of business through which the business of an ITA No.- 1191/Del/2025 SAIC Motor Corpora�on Ltd.
enterprise is wholly or partly carried on is similarly warded as Paragraph 1 of Article 5 of the OECD Model Conventions wherein the following conditions should exist in order to constitute (fixed place of business) for the purpose of Paragraph 1 of the Article. The Ld. AR submitted that the fixed place of business need not be owned or leased by the foreign enterprise provided it was at the disposal of the enterprise in the sense of having some right to use the premises for the purposes of its business and not solely for the purposes of the project undertaken on behalf of the owner of the premises. The Ld. AR thereafter submitted that it should also satisfy the ‘business activity test’ and the core business of the foreign enterprise should be conducted through the place of business. The Ld. Counsel further submitted that mere existence of a step-down subsidiary in India does not constitute a PE in India. It was further submitted that the assessee sells KD parts to MGMIPL on principal-to-principal basis outside India and in India in as much all the risks and rewards attached with the KD parts are transferred to MGMIPL outside India. The Sr. Counsel further stated that the same was also evident from the insurance policy for the KD parts sold by the assessee wherein MGMIPL was named as insured. The Ld. AR submitted that In order that the foreign enterprise resident of a Contracting State can be said to have a fixed place PE in the other Contracting State, it is essential to demonstrate that the foreign enterprise has a fixed place available at its disposal in the other Contracting State, which is used for purposes of undertaking core business
ITA No.- 1191/Del/2025 SAIC Motor Corpora�on Ltd. activities of that foreign enterprise in that other contracting State, which has not been established by the Revenue. The Ld. AR also submitted that no core revenue yielding business was carried out by the assessee company through its so-called PE. In this regard, the Ld. AR filed a written submission and the relevant extract of the same are reproduced as under:
“Re: alleged Fixed place PE Paragraph 1 of Ar�cle 5 of the DTAA, which defines the term PE to mean a “fixed place of business through which the business of an enterprise is wholly or partly carried on”, is similarly worded as paragraph 1 of Ar�cle 5 of the OECD Model Conven�on. The OECD Commentary on Ar�cle 5 of the OECD Model Conven�on, states that the following condi�ons should exist in order to cons�tute “fixed place of business” for the purpose of paragraph 1 of that Ar�cle: the existence of a “place of business”, i.e. a facility such as premises or, in certain instances, machinery or equipment. this place of business must be “fixed”, i.e., it must be established at a distinct place with a certain degree of permanence. the carrying on of the business of the enterprise through this fixed place of business. This usually means that persons who, in one way or another, are dependent on the enterprise (personnel) conduct the business of the enterprise in the State in which the fixed place is situated. The term “fixed place of business” is not defined. However, reference may be made to the OECD Commentary on the OECD Model Convention which explains “fixed place” as a link between the place of business and a specific geographical point. It is emphasized that to constitute “fixed place of business”, the foreign enterprise must have at its disposal certain premises or a part thereof, from which its business is carried on. Phillip Baker in his Commentary on Double Taxation Conventions and International Tax Law (3rd edition) has also stated that the nature of the fixed place of business is very much that of a physical location, i.e., one must be able to point to a physical location at the disposal of the enterprise through which the business is carried on. It is also opined therein that the fixed place of business need not be owned or leased by the foreign enterprise provided it is at the disposal of the enterprise in the sense of having some right to use the premises for the purposes of its business and not solely for the purposes of the project undertaken on behalf of the owner of the premises. 41
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Further, Prof. Klaus Vogel in his treatise “Klaus Vogel on Double Tax Conventions” has explained that a “fixed place of business” should satisfy, amongst others, the “power of disposition” test to qualify as PE under Article 5(1).
It is further submi�ed that the DTAAs characterize a fixed place of business as a PE only if the enterprise undertakes a business ac�vity through the place of business. This is referred to as the ‘business ac�vity’ test. However, an excep�on is carved out in Ar�cle 5(4)(e) in order to exclude the preparatory and auxiliary ac�vi�es. The ‘core business’ of the foreign enterprise should be conducted through the place of business. Thus, there should be a nexus between the place of business and carrying on of business.
In order that the foreign enterprise resident of a Contrac�ng State can be said to have a fixed place PE in the other Contrac�ng State, it is essen�al to demonstrate that the foreign enterprise has a fixed place available at its disposal in the other Contrac�ng State, which is used for purposes of undertaking core business ac�vi�es of that foreign enterprise in that other contrac�ng State.
Re: Mere existence of a step-down subsidiary in India does not cons�tute a PE in India
It is respectfully submitted that the AO in para 5.3 of the draft assessment order alleged that MGMIPL is a mere representation or extension of the appellant in India, which has been upheld by the DRP in its directions dated 13.12.2024. In this regard, at the outset, it is respectfully submitted that mere existence of a subsidiary/step-down subsidiary in a country cannot be treated as basis for alleging the constitution of a PE in such country. The principle emanates from the language of DTAA and OECD commentary that merely the existence of any subsidiary of any business activity carried out between the parent and subsidiary company does not constitute PE of the foreign entity in India. For existence of a PE, it is essential to substantiate that any fixed place or premises of the Indian subsidiary is at the disposal of the foreign entity. The Courts have in the undernoted cases emphasized the importance of disposal test, i.e., the fixed place must be available to the foreign enterprise for its use without any hindrance and further that such fixed place must be used for carrying on the core business of the foreign enterprise in the other contracting State:
Supreme Court in the case of Formula One World Championship Ltd. vs. CIT: 394 ITR 80 (SC) after referring to the OECD Model Tax Convention, 42
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Commentaries by Professor Philip Baker and Professor Klaus Vogel, international tax jurisprudence observed that in terms of Article 5(1) of the India-UK Tax Treaty, a fixed place PE is constituted in India, if the following twin conditions are satisfied viz, (i) Existence of a fixed place of business at the disposal of the foreign enterprise in India; (ii) through which the business of the foreign enterprise is wholly or partly carried on.
Reliance is placed on the decision of the Supreme Court in the case of CIT vs. eFunds IT Solu�on and Ors: 399 ITR 34 wherein the assessees namely e-Fund Corp. and e-fund IT Solu�ons Inc. were incorporated in USA. They entered into interna�onal transac�ons with their Indian subsidiary company, i.e. e-Fund India. In terms of agreement, e-Fund India performed back office opera�ons in respect of ATM management, electronic payments, decision support and risk management services rendered by assessees. The AO held that the assessees cons�tuted a fixed place PE in terms of Ar�cle 5 of the India US Tax Treaty since they had a fixed place in Delhi from where they carried on their own business. Consequently, the assessees were liable to pay tax in respect of what they earned from the aforesaid fixed place PE in India.
On the issues of fixed place PE, the Supreme Court relied on the decision of Formula One World Championship Ltd. vs. CIT (supra) and held that in order to ascertain as to whether an establishment has a fixed place of business or not is that such physically located premises have to be 'at the disposal' of the enterprise. However, merely giving access to such a place to the enterprise for the purposes of the project would not suffice. The place would be treated as 'at the disposal' of the enterprise when the enterprise has right to use the said place and has control thereupon. The AO has adopted a fundamentally erroneous approach in saying that the US companies were contrac�ng with a 100 per cent subsidiary and were outsourcing business to such subsidiary, which resulted in the crea�on of a PE. E-Funds India was a separate en�ty and was/is en�tled to provide services to the assessees who were/are independent separate taxpayers. Indian en�ty i.e. subsidiary company will not become loca�on PE merely because there is interac�on or cross transac�ons between the Indian subsidiary and the foreign company. On the issue of cons�tu�on of service PE, the Supreme Court held that the requirement of Ar�cle 5(2)(l) of the India US Tax Treaty is that an enterprise must furnish services 'within India' through employees or other personnel. Since none of the customers of the assessees are located in India or have received any services in India, therefore, the ques�on of cons�tu�on of service PE does not arise since the foreign company is not rendering any services to any customer in India.
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Reference is further made to the decision of the Supreme Court in the case of DIT vs. Morgan Stanley & Co. Inc: 292 ITR 416, wherein the Court observed that the activities performed by the subsidiary of the assessee in India were only back office operations. Consequently, the second part of Article 5(1) (i.e. business activities of an enterprise are carried out wholly or in part through the fixed place) of the treaty was not satisfied and there was no fixed place PE in India. Further, in respect of attribution of income to the PE, the Court held that if the transactions between the PE and the foreign Associated Enterprise are found to have taken place at arms’ length prices, then there is no question of attributing any income to the PE. Specific reliance is placed on the decision of Delhi High Court in case of Progress Rail Locomo�ve Inc. vs. DCIT: 466 ITR 76, where on facts the assessee had a wholly owned subsidiary in India which owned a manufacturing unit/factory at Noida and an office at Varanasi. The AO alleged that the Noida factory of the assessee’s subsidiary is a fixed place PE of the assessee in India. The High Court in the said ruling extensively dealt with the Apex court rulings in the case of Formula One World Championship and Morgan Stanley and the manual on OECD model tax conven�on and held that the essen�al factor for determining fixed place PE is the exclusive or significant ‘control’ or ‘disposal’ of the assessee over such fixed place. Unless the AO proves that the place is under significant control or at disposal of the assessee, the fixed place PE test shall not be sa�sfied. The Delhi High Court in the case of CIT vs. Nokia Network OY: 171 taxmann.com 757 relying upon the decision in case of Progress Rail Locomo�ve (supra) observed that where on facts Nokia Finland had only entered into contract of offshore supply of equipment to Nokia India, in such case, mere existence of a holding-subsidiary rela�onship between both the en��es would not suffice for the existence of a fixed place PE of Nokia Finland in India. The Court further observed that the concept of PE is about the presence of a func�onal unit or carrying of entrepreneurial ac�vity in a fiscal jurisdic�on which gives rise to income or profits, unless the AO is able to prove that an economic center of a foreign en�ty is fic�onally created in a contrac�ng state, it would be erroneous to allege that a PE is cons�tuted in such contrac�ng state. From the aforesaid discussions, it would emerge that in order to cons�tute a fixed place of business, there has to be right to use the premises for carrying out its own business by the enterprise and not for the purpose of business of the owner of the premises. Further, the premises or part thereof should be available at the constant disposal of the enterprise notwithstanding that the same is situated in the business facili�es of another enterprise. In the factual posi�on of the instant case, the manufacturing unit/premises of MGMIPL, it is submi�ed is owned and operated solely by MGMIPL in its own capacity and no control whatsoever is exercised by the appellant on such premises. It is respec�ully submi�ed that the premises of the MGMIPL is not at the disposal 44
ITA No.- 1191/Del/2025 SAIC Motor Corpora�on Ltd. of the appellant. The appellant, it is respec�ully reiterated does not have any place of business in India. Further, an essen�al and indispensable ingredient of a fixed place PE which is totally missing in the present case, viz, that the assessee should carry on its core revenue yielding business through the so-called PE. In the instant case, the appellant does not have any involvement in the manufacturing business of MGMIPL. The appellant sells KD parts to MGMIPL on principal-to-principal basis outside India in as much as all the risks and rewards a�ached with the KD parts are transferred to MGMIPL outside India. The same is also evident from the insurance policy for the KD parts sold by the appellant wherein MGMIPL is named as insured. In support of its conten�on, the appellant had also submi�ed the details of KD parts sold by its along with the photographs on sample basis before the DRP vide submissions dated 28.11.2024. The allega�ons of AO in the dra� assessment order are rebu�ed below: Re: Inspec�on of the goods received in India is done by the employees of the appellant; At the outset, it is respec�ully submi�ed that the inspec�on of goods received by MGMIPL in India was not done in presence of or by the employees of the appellant. The same is also evident from the affidavit of Deputy MD of MGMIPL which has been duly accepted by the DRP. Even otherwise, the clause in agreement regarding the inspec�on of goods by the appellant in India to ensure quality control of the products delivered to MGMIPL does not imply that there is any place earmarked for the appellant at MGMIPL’s premises nor provides any mandate / authority to the appellant to avail for itself a fixed place of business at its constant disposal. No evidence has been brought on record by the AO to establish that a fixed place of business was made available to any employees at the premises of MGMIPL in India. Therefore, the appellant cannot be said to have a fixed place PE as envisaged under Ar�cle 5(1) read with Ar�cle 5(2) of the DTAA, in as much as the appellant does not have a fixed place of business in India through which its business is wholly or partly carried on.”
The Ld. CIT(DR) submitted that under Article 5 of the India-China DTAA provides for “PE by way of assembly project” and in the case of the assessee, where the assessee opens the wrappers of the KD products and manufactures the cars through screw-driver technology at its assembly unit which was supervised 45
ITA No.- 1191/Del/2025 SAIC Motor Corpora�on Ltd. by the six seconded employees through which the assessee was controlling the key functioning of the MGMIPL, and, therefore, the Fixed Place PE was established in this case. The Ld. CIT(DR) also submitted that in this case, Fixed Price PE is linked to Supervisory PE through its personnel and the Assessee Company through its six seconded employees got access to the office premises of MGMIPL. In this regard, the Ld. CIT(DR) relied upon the order of a co- ordinate Bench of the Tribunal in the case of M/s Voith Paper GmbH vs DDIT, Circle-2(2) in for A.Y. 2010-11.
In rejoinder, the Assessee submitted in its written submissions that the facts in the case of the assessee was distinguishable from the above cited case and submitted as under:
“Re: Reliance placed by AO on decision of the Delhi ITAT in the case of Voith Paper Gmbh Furthermore, reliance is placed by the AO on the decision of the Hon’ble Delhi Tribunal in the case of Voith Paper Gmbh wherein it has been held that wherever the supply contracts contain an inspection or a certification clause, the title in the goods does not pass till the inspection and certification are successful and the buyer /owner has indicated his approval. As noted above, in the purchase contracts entered into by MGMIPL, there is no provision for MGMIPL to return the defective equipment and claim repayment of the consideration and the contract only provides that in case of defect in the component, MGMIPL has a recourse to get the goods repaired at the cost of the appellant as opposed to the case of Voith Paper GMBH (supra), wherein acceptance and satisfactory performance of the equipment was held to be a material event for passing of the title an risk in the equipment supplied and is the very foundation of the agreement for supply of equipment. The ITAT further held that �tle in the goods does not pass �ll the inspec�on and cer�fica�on are successful and the buyer /owner has indicated his approval. It is also impera�ve to note that the Tribunal has dis�nguished the decision the apex court in the case Ishikawajma Harima Industries merely on the basis that in that 46
ITA No.- 1191/Del/2025 SAIC Motor Corpora�on Ltd. case, the par�es responsible for supply and erec�on of machinery were different.
In the appellant’s case the property in goods supplied by the appellant passed outside India in favor of MGMIPL and thus the sale was concluded outside India. Accordingly, no income accrues or arises to the appellant in India and similarly, no income is received or can be deemed to be received by it in India. The fact that the goods have been transferred to MGMIPL outside India has been accepted by the DRP and thus forms part of the assessment order. The appellant’s case is squarely covered by the decision of the Supreme Court in the case of Ishikawajma Harima Industries (supra) and the decision in Voith’s case is not applicable since the appellant is only engaged in supply/ sale of parts from outside India and it is not responsible for installa�on and erec�on of the said parts.”
We have heard both the parties and perused the material on record. In this case, the assessee company supplied the goods in KD condition which is assembled/manufactured in India and sold to the Indian customers. This is an arrangement which generally speaking is followed by all the multinationals who set up their shop/subsidiary companies to sell their products in India. Again, generally speaking, these multinationals start manufacturing their products in India by procuring materials locally. Thus, it is an arrangement which is followed by a multinational to set-up its base in a country where it sells its products in India and / or export it to other countries. Such an arrangement cannot be termed as ‘Fixed Place PE’ unless it is established by the Revenue that the assessee has a fixed place of business in India which is at disposal where the assessee has the right to use the said place and has control thereupon. No such evidence has been ITA No.- 1191/Del/2025 SAIC Motor Corpora�on Ltd.
brought on record either by the Assessing Officer or in the Ld. DRP proceedings that the assessee satisfied the said conditions as held by the Hon’ble Supreme Court in the case of One World Championship Ltd [Formula One World Championship Ltd vs CIT(International Taxation), (2017) 394 ITR 80(SC) :
(a) existence of fixed place of business and ; (b) through that place business of an enterprise is wholly or partly carried out 15.1 As already held by us that the assessee has no Supervisory PE in India through the six seconded employees. Therefore, the submissions of the Ld. CIT(DR), that Fixed Place PE of the case of the assessee is linked to Supervisory PE through its personnel and the Assessee Company through its six seconded employees got access to the office premises of MGMIPL is not acceptable. In view of these facts, the decision relied by the Ld. CIT(DR) does not support the case of the assessee.
15.2 Further, as discussed above that merely the fact that the manufacturing activity of KD products by its subsidiary cannot amount to Fixed Place PE without satisfying the above two conditions. No evidence was brought on record by the Revenue that the Assessee had an access to it i.e., business premises of MGMIPL from where the business of the assessee company was carried out. Further, as noted above that the Ld. DRP in its order had taken note that an affidavit was also submitted by the Deputy Managing Director of MGMIPL on a ITA No.- 1191/Del/2025 SAIC Motor Corpora�on Ltd.
Non-Judicial Stamp Paper that even though, the agreement provided for the procedure of inspection of the KD Parts there were no employees or other personnel of the SMCL present in India for the FY 2021-22 and hence no inspection was conducted by any employee/personnel of the SMCL during the subject year. Therefore, this fact does not support the case of the Assessing Officer that designated personnel of the assessee company will have a permanent place in the office of MGMIPL, #MG Motor, Halol, GIDC, Kanjari Part, Chandrapura, Gujarat & 10th Floor, 32nd Avenue, Saini Khera, Sector-15, Gurgaon to fulfil his duties in India as described above because without which the contracts could not get competed because no such inspection by the assessee company was carried out during the year.
15.3 Further, we are afraid that if the view of the revenue that the assessee company earns income, when the car is assembled in India to establish a Fixed Place PE is acceptable, then, it will create huge disruptions in the taxability of the incomes of the parent/subsidiary set-up in a multinational set-up driven economies in the entire world wherein such an arrangement like in the case of the assessee is the norm.
15.4 In view of the above discussions, we hold that the assessee company does not have a Fixed Place PE in India as held by the Assessing Officer and confirmed by the Ld. DRP. Ground No. 7 to 7.4 of the appeal are allowed.
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16 In view of the fact in Ground No. 6.2 to 6.5 and 7 to 7.4 of the appeal being allowed, we hold that there is no permanent establishment of the assessee in India either by way of Supervisory PE or Fixed Place PE. Hence, Ground No. 5 of the Appeal is also allowed. Similarly for the said reasons, the ground No. 4 to 4.1 are also fully allowed. We, therefore, delete the addition of Rs. 17,33,86,700/- made in FAO dated 29.01.2025 u/s 143(3) r.w.s 144C (13) of the Act.
Ground No. 8 to 8.4 of the appeal are regarding attribution of profits to the alleged PE in India. In view of Ground Nos. 4 to 4.1, 6.2 to 6.5 and 7 to 7.4 of the appeal being allowed, these grounds become academic and are kept open in this case.
Ground No. 9 of the Appeal is against the initiation of penalty proceedings u/s 270A of the Act. This ground of the appeal is pre-mature and hence, dismissed.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open court on 07th January, 2026.
Sd/- Sd/-
[VIMAL KUMAR] [BRAJESH KUMAR SINGH] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated 07.01.2026 Pooja/ PM Copy forwarded to: 1. Assessee 2. Respondent 3. PCIT 50
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CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi,