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“permanent establishment”

International TaxSection 9 / DTAA Article 5Section 9 / DTAA Article 51,497 judgments

The decision most relied on for permanent establishment is DIT v. Morgan Stanley & Co. (292 ITR 416), cited in 360 judgments on BharatTax.

Leading authorities on permanent establishment

DIT v. Morgan Stanley & Co.
292 ITR 416 · 2007 · Supreme Court
360
citing judgments

A Permanent Establishment (PE) signifies a foreign enterprise's virtual projection into another country, with a fixed place PE existing where an MNE's business is wholly or partly carried on. A dependent agent PE requires the agent to act as such and/or have the authority to conclude contracts for the foreign enterprise under DTAA provisions.

DIT v. Nokia Networks OY
358 ITR 259 · 2013 · High Court
276
citing judgments

Payments for the supply of software along with telecom equipment are not in the nature of royalty if they are for the use of a copyrighted article, not the copyright itself. Such payments are not taxable in India in the absence of a Permanent Establishment (PE).

DIT v. Infrasoft Ltd.
39 Taxmann.com 88 · 2013 · High Court
269
citing judgments

Payments for the use of copyrighted software, without the transfer of any rights in the underlying copyright itself, do not constitute 'royalty' under the Income-tax Act or tax treaties. Such payments are often treated as business income, taxable only if a permanent establishment exists.

ONGC v. CIT
376 ITR 306 · 2015 · Supreme Court
241
citing judgments

Income derived by a non-resident for services related to mineral oil operations, falling under the presumptive taxation regime of Section 44BB, cannot simultaneously be treated as fees for technical services under Section 9(1)(vii). The specific presumptive provisions override the general FTS definition, particularly when DTAA applies.

Motorola Inc. v. Dy. CIT
95 ITD 269 · 2005 · High Court
213
citing judgments

Revenue must demonstrate the existence of a Permanent Establishment (PE) of a foreign enterprise in India, including establishing that transactions underlying a Dependent Agent PE were not at arm's length. Income from the sale of goods is not taxable in India if title and risk in the goods pass outside India.

(i) Formula One World Championship Ltd. v. CIT
394 ITR 80 · 2017 · Supreme Court
200
citing judgments

This case provides foundational principles that illuminate the contours of the concept of 'Permanent Establishment' (PE) under tax treaties, especially regarding a 'fixed place' PE.

DIT v. Morgan Stanley Co. Inc.
399 ITR 34 · 2017 · Supreme Court
162
citing judgments

Once a transfer pricing analysis has been undertaken for an Indian associated enterprise, no further profits are attributable to it as a Permanent Establishment, thereby extinguishing the need for additional profit attribution.

Sir Kikabhai Premchand v. CIT
24 ITR 506 · 1953 · Supreme Court
156
citing judgments

One cannot make a taxable profit or loss from transactions with oneself, as profit only arises from dealings with external third parties, even when transferring assets between different accounts or divisions of the same entity.

Judgments citing permanent establishment

Everest Global Inc., Gurgaon vs. ACIT Circle 1(2)(2) International Taxation, New Delhi

Appeal is allowed

ITA 1130/DEL/2023[2015-16]Status: DisposedITAT Delhi10 Sept 2025AY 2015-16

Bench: Shri Challa Nagendra Prasad & Shri Naveen Chandra

For Appellant: Ms. Vandana Bhandri, CAFor Respondent: Shri Vikram Singh Sharma, Sr. DR
Section 143(2)

1135/DEL/2023 [A.Y.2015-16,2016-17,2017-18,2018-19,2019-2020,2020-21] M/s Everest Global Inc Vs.The A. C.I.T have a Permanent Establishment in India. It is also pertinent to note that sales and marketing team of assessee has not visited India for rendition of these services. Further, amounts

Rotomag Motors & Controls (P) Ltd., Anand vs. The Dy.CIT, Anand Circle, Anand

Appeal is allowed

ITA 796/AHD/2025[2014-15]Status: DisposedITAT Ahmedabad09 Sept 2025AY 2014-15

Bench: S/Shri T.R. Senthil Kumar & Makarand V.Mahadeokar

For Appellant: Shri Tushar Hemani, Sr.Advocate, &For Respondent: Shri Abhijit, Sr.DR
Section 143(3)Section 14ASection 195Section 271(1)(c)Section 36(1)(va)Section 37(1)Section 40

assessee contended that the commission was paid for services rendered outside India, that the foreign agents had no business connection or permanent establishment in India, and that under the Double Tax Avoidance Agreement, the commission was not taxable in India. The AO rejected the plea. 6.1.2 On appeal ... through or from any property/asset situated in India, nor through transfer of capital assets situated in India. The AR stated that vendor had no permanent establishment in India and the commission was paid outside India and received outside India. It was further submitted that the commission was purely for introducing

Gemological Institute of America, Inc., United States vs. The Assistant Commissioner of Income-Ta (International Taxation) - Circle 2(3)(2), Mumbai

In the result, appeals of the assesse are allowed partly for statistical

ITA 1293/MUM/2025[2022-23]Status: DisposedITAT Mumbai09 Sept 2025AY 2022-23

Bench: Shri Narendra Kumar Billaiya, Hon'Ble & Shri Anikesh Banerjee, Hon'Ble

For Appellant: Shri J.D. Mistry, Sr. Adv. & Shri Niraj Sheth, A/RsFor Respondent: Shri Satya Pal Kumar, CIT D/R a/w Shri Krishna Kumar, Sr. D/R
Section 144C(13)Section 147Section 148

accordance with law and consequently ought to be struck down. Without prejudice to the foregoing: 3: 0 Re.: Holding that the Appellant has a 'Permanent Establishment' ("PE") in India:: 3: 1 The Assessing Officer / the Dispute Resolution Panel have erred in holding that the Appellant has a 'Permanent Establishment

Gemological Institute of America, Inc., United States vs. The Assistant Commissioner of Income-Tax (International Taxation), Circle 2(3)(2) - Mumbai, Mumbai

In the result, appeals of the assesse are allowed partly for statistical

ITA 1292/MUM/2025[2019-20]Status: DisposedITAT Mumbai09 Sept 2025AY 2019-20

Bench: Shri Narendra Kumar Billaiya, Hon'Ble & Shri Anikesh Banerjee, Hon'Ble

For Appellant: Shri J.D. Mistry, Sr. Adv. & Shri Niraj Sheth, A/RsFor Respondent: Shri Satya Pal Kumar, CIT D/R a/w Shri Krishna Kumar, Sr. D/R
Section 147Section 148

accordance with law and consequently ought to be struck down. Without prejudice to the foregoing: 3:0 Re.: Holding that the Appellant has a 'Permanent Establishment' ("PE") in India:: 3:1 The Assessing Officer / the Dispute Resolution Panel have erred in holding that the Appellant has a 'Permanent Establishment

Gemological Research (Thailand) Co. Ltd., Thailand vs. The Assistant Commissioner of Income-Tax (International Taxation) - Circle 2(3)(2), Mumbai

In the result, appeal of the assessee is partly allowed

ITA 1291/MUM/2025[2019-20]Status: DisposedITAT Mumbai09 Sept 2025AY 2019-20

Bench: Shri Narendra Kumar Billaiya, Hon’Ble & Shri Anikesh Banerjee, Hon’Ble

For Appellant: Shri Satya Pal Kumar, CIT D/R a/w Shri Krishna Kumar, Sr. D/R
Section 147Section 148

consequently ought to be struck down. I.T.A. No. 1291/Mum/2025 2 Without prejudice to the foregoing: 2: 0 Re.: Holding that the Appellant has a 'Permanent Establishment' ("PE") in India:: 2:1 The Assessing Officer/the Dispute Resolution Panel has erred in holding that the Appellant has a 'Permanent Establishment

Assistant Commissioner of Income Tax-5, Kanpur vs. M.K.U Pvt. Ltd., Kanpur

In the result, appeal in ITA No

ITA 509/LKW/2018[2011-12]Status: DisposedITAT Lucknow29 Aug 2025AY 2011-12

Bench: SH. KUL BHARAT, VICE PRESIDENT AND SH. NIKHIL CHOUDHARY (Accountant Member)

For Appellant: Sh. P.K. Kapoor, C.AFor Respondent: Sh. R.K. Agarwal, CIT DR
Section 143Section 143(3)Section 147Section 250

section 4 was not maintainable in respect of such payments, section 195 would also become inapplicable. This was because the foreign parties had no permanent establishment in India and the assessment have been made under section 143(3), after examining the books of accounts and records and other parties ... also pointed out that the assessee had neither been able to furnish any evidence to demonstrate that the non-resident did not have a permanent establishment in India or that it was covered under any beneficial clause of the DTAA. Furthermore, he pointed out that the fact of whether

Kpmg Assurance and Consulting Services LLP, Mumbai vs. Principal Commissioner of Income Tax -8, Mumbai

ITA 2396/MUM/2025[2018-19]Status: DisposedITAT Mumbai28 Aug 2025AY 2018-19

Bench: Shri Amit Shukla & Shri Girish Agrawal

For Appellant: Shri S.K. Agarwal, Shri Ajit JainFor Respondent: Shri Ritesh Misra, CIT DR
Section 147Section 148Section 263Section 9(1)(vii)

India, either under the provisions of Article 7 (business profits) for Article 14/15 (independent personal services) of the applicable tax treaties in absence of permanent establishment (PE) or a fixed base in India. While dealing with the issue, ld. CIT(A) elaborately referred to the orders of Coordinate Bench ... nature of business profits under Article 7 of the respective Tax treaties and are not taxable in India in the absence of a permanent establishment of the non-residents in India. 11 The issues of company mentioned above at serial no. 1 to 16 is covered in favour of appellant

State Bank of India, Mumbai vs. The Assistant Commissioner of Income-Tax, International Taxation Circle - 4(2)(1), Mumbai

In the result, the appeals are allowed for statistical purpose

ITA 5070/MUM/2024[2013-14]Status: DisposedITAT Mumbai28 Aug 2025AY 2013-14

Bench: Shri Saktijit Dey, Vp & Ms. Padmavathy S., Am

For Respondent: Shri Arun Kanti Datta
Section 133(6)Section 191Section 201Section 201(1)Section 9(1)(vi)

been deducted while remitting the amounts to the concerned entities, as the concerned entities have claimed that in absence of any Permanent Establishment (PE) in India, the remittances received by them, being in the nature of ‘business income’, are not taxable in India. The A.O., however, was not convinced with

State Bank of India, Mumbai vs. The Assistant Commissioner of Income-Tax, International Tax Circle - 4(2)(1), Mumbai

In the result, the appeals are allowed for statistical purpose

ITA 5069/MUM/2024[2014-15]Status: DisposedITAT Mumbai28 Aug 2025AY 2014-15

Bench: Shri Saktijit Dey, Vp & Ms. Padmavathy S., Am

For Respondent: Shri Arun Kanti Datta
Section 133(6)Section 191Section 201Section 201(1)Section 9(1)(vi)

been deducted while remitting the amounts to the concerned entities, as the concerned entities have claimed that in absence of any Permanent Establishment (PE) in India, the remittances received by them, being in the nature of ‘business income’, are not taxable in India. The A.O., however, was not convinced with

State Bank of India, Mumbai vs. The Assistant Commissioner of Income-Tax, International Taxation Circle - 4(2)(1), Mumbai

In the result, the appeals are allowed for statistical purpose

ITA 5068/MUM/2024[2015-16]Status: DisposedITAT Mumbai28 Aug 2025AY 2015-16

Bench: Shri Saktijit Dey, Vp & Ms. Padmavathy S., Am

For Respondent: Shri Arun Kanti Datta
Section 133(6)Section 191Section 201Section 201(1)Section 9(1)(vi)

been deducted while remitting the amounts to the concerned entities, as the concerned entities have claimed that in absence of any Permanent Establishment (PE) in India, the remittances received by them, being in the nature of ‘business income’, are not taxable in India. The A.O., however, was not convinced with

State Bank of India, Mumbai vs. The Assistant Commissioner of Income-Tax, International Taxation Circle - 4(2)(1), Mumbai

In the result, the appeals are allowed for statistical purpose

ITA 5067/MUM/2024[2016-17]Status: DisposedITAT Mumbai28 Aug 2025AY 2016-17

Bench: Shri Saktijit Dey, Vp & Ms. Padmavathy S., Am

For Respondent: Shri Arun Kanti Datta
Section 133(6)Section 191Section 201Section 201(1)Section 9(1)(vi)

been deducted while remitting the amounts to the concerned entities, as the concerned entities have claimed that in absence of any Permanent Establishment (PE) in India, the remittances received by them, being in the nature of ‘business income’, are not taxable in India. The A.O., however, was not convinced with

State Bank of India, Mumbai vs. The Assistant Commissioner of Income-Tax, International Taxation Circle - 4(2)(1), Mumbai

In the result, the appeals are allowed for statistical purpose

ITA 5066/MUM/2024[2017-18]Status: DisposedITAT Mumbai28 Aug 2025AY 2017-18

Bench: Shri Saktijit Dey, Vp & Ms. Padmavathy S., Am

For Respondent: Shri Arun Kanti Datta
Section 133(6)Section 191Section 201Section 201(1)Section 9(1)(vi)

been deducted while remitting the amounts to the concerned entities, as the concerned entities have claimed that in absence of any Permanent Establishment (PE) in India, the remittances received by them, being in the nature of ‘business income’, are not taxable in India. The A.O., however, was not convinced with

State Bank of India, Mumbai vs. The Assistant Commissioner of Income-Tax, International Taxation Circle - 4(2)(1), Mumbai

In the result, the appeals are allowed for statistical purpose

ITA 5065/MUM/2024[2018-19]Status: DisposedITAT Mumbai28 Aug 2025AY 2018-19

Bench: Shri Saktijit Dey, Vp & Ms. Padmavathy S., Am

For Respondent: Shri Arun Kanti Datta
Section 133(6)Section 191Section 201Section 201(1)Section 9(1)(vi)

been deducted while remitting the amounts to the concerned entities, as the concerned entities have claimed that in absence of any Permanent Establishment (PE) in India, the remittances received by them, being in the nature of ‘business income’, are not taxable in India. The A.O., however, was not convinced with

Natwest Markets Plc - India Branch, Kolkata vs. CIT (It & Tp), Cir- 1(2), Kolkata

In the result the appeal of the assessee is allowed

ITA 997/KOL/2024[2018-2019]Status: DisposedITAT Kolkata26 Aug 2025AY 2018-2019

Bench: Shri Rajesh Kumar, Am & Shri Pradip Kumar Choubey, Jm Commissioner Of Income Tax Natwest Markets Plc-India (International Taxation & Branch Transfer Pricing) 907, Regus, 9Th Floor, Ps Aaykar Bhavan Poorva, Vs. Arcadia, 4A, Abanindra Nath 2Nd Floor, 110, Shanti Pally, Thakur Sarani, Kolkata-700016 Kolkata-700107, West Bengal (Appellant) (Respondent) Pan No. Aacct8020E Assessee By : Shri Percy Pardiwala, Ar Revenue By : Shri Sandeep Lakra, Dr Date Of Hearing: 31.07.2025 Date Of Pronouncement: 26.08.2025

For Appellant: Shri Percy Pardiwala, ARFor Respondent: Shri Sandeep Lakra, DR
Section 142(1)Section 143(2)Section 143(3)Section 263

said foreign entity used to file its return of income in India qua the income that are attributable to the activities of the permanent establishment in India as well as in respect of its income which accrued or rose in India. While giving appeal effect

Metso Oyj, Finland vs. Assistant Commissioner of Income Tax, (International Taxation), Circle-1(2), Kolkata

In the result, the appeal filed by the assessee is dismissed and the order of the Ld

ITA 616/KOL/2025[2022-23]Status: DisposedITAT Kolkata25 Aug 2025AY 2022-23

Bench: Shri Pradip Kumar Choubey & Shri Rakesh Mishra

Section 143(3)Section 144C(13)Section 144C(5)Section 234BSection 270ASection 56Section 9

erred in not appreciating that guarantee fee being business income of the Appellant is not taxable in India in the absence of permanent establishment of the Appellant in India under Article 5 read with Article 7 of the DTAA. 4. Levy of interest u/s 234B of the Act 4.1 That ... issue of income of bank guarantee fees being business income and not taxable in India due to the absence of a permanent establishment (PE), the Ld. Panel examined the submissions along with the Articles of Association and additional evidence provided by the assessee and referred to earlier observations

Adp Private Limited, Hyderabad vs. DCIT., Circle 1(1), Hyderabad

In the result, appeal of the Assessee is partly allowed

ITA 975/HYD/2024[2020-21]Status: DisposedITAT Hyderabad22 Aug 2025AY 2020-21

Bench: Shri Manjunatha G & Shri Ravish Sood

For Appellant: CA, Sriram SeshadriFor Respondent: MS. U Mini Chandran, CIT-DR
Section 143(3)Section 144C(1)Section 144C(5)Section 153Section 195Section 234ASection 40Section 92C

which means, said payment is taxable in India only in a case where the non-resident provides services having Permanent Establishment [in short “PE”] in India. Therefore, it is necessary for us to examine the payment 16 ITA.No.975/Hyd./2024 made by the appellant-company to ADP-Australia for receiving

Lahmeyer International Gmbh, Gurgaon vs. DDIT, New Delhi

In the result, appeals of assessee in ITA Nos

ITA 784/DEL/2014[2010-11]Status: DisposedITAT Delhi22 Aug 2025AY 2010-11

Bench: Shri Vijay Pal Rao & Shri Naveen Chandra

For Appellant: Shri Satyam Sethi, AdvFor Respondent: Shri Vedanshu Tripathi, CIT- DR
Section 143(3)Section 144C(13)Section 234ASection 234BSection 234CSection 271(1)(c)

International Taxation, New Delhi (hereinafter referred to as 'the learned Assessing Officer') has erred in: 1. Alleging that the appellant constitutes a Permanent Establishment ('PE') in India in respect of its contract with Jaypee Ventures Private Limited ('JVL'), Satluj Jal Vidyut Nigam Limited ('SJVNL'), Uttrakhand Jal Vidyut Nigam Limited ('UJVNL ... contract with JAKPDC has been executed by Lahmeyer in August 17, 1999. The assessee accepts that Lahmeyer constitutes a Permanent Establishment ('PE') in India of Article 5 of the India-Germany Double Taxation Avoidance Agreement ('Tax Treaty') and therefore gross revenue of Rs. 13,35,47,420/- from JKAPDC project

M/S. Lahmeyer International Gmbh, Germany vs. DDIT, New Delhi

In the result, appeals of assessee in ITA Nos

ITA 5634/DEL/2012[2009-10]Status: DisposedITAT Delhi22 Aug 2025AY 2009-10

Bench: Shri Vijay Pal Rao & Shri Naveen Chandra

For Appellant: Shri Satyam Sethi, AdvFor Respondent: Shri Vedanshu Tripathi, CIT- DR
Section 143(3)Section 144C(13)Section 234ASection 234BSection 234CSection 271(1)(c)

International Taxation, New Delhi (hereinafter referred to as 'the learned Assessing Officer') has erred in: 1. Alleging that the appellant constitutes a Permanent Establishment ('PE') in India in respect of its contract with Jaypee Ventures Private Limited ('JVL'), Satluj Jal Vidyut Nigam Limited ('SJVNL'), Uttrakhand Jal Vidyut Nigam Limited ('UJVNL ... contract with JAKPDC has been executed by Lahmeyer in August 17, 1999. The assessee accepts that Lahmeyer constitutes a Permanent Establishment ('PE') in India of Article 5 of the India-Germany Double Taxation Avoidance Agreement ('Tax Treaty') and therefore gross revenue of Rs. 13,35,47,420/- from JKAPDC project

The Dy. Commr. of Income Tax, Cir.-3(1), Rajkot-Gujarat vs. M/S. Sonpal Exports Pvt. Ltd., Rajkot-Gujarat

In the result, appeal filed by the revenue is dismissed

ITA 29/RJT/2018[2012-13]Status: DisposedITAT Rajkot21 Aug 2025AY 2012-13

Bench: Dr. Arjun Lal Saini & Shri Dinesh Mohan Sinhaआयकरअपीलसं./Ita No. 29/Rjt/2018 "नधा"रणवष" / Assessment Year: (2012-13) (Hybrid Hearing) The Dcit, Circle – 3(1), Vs. M/S. Sonpal Exports Pvt. Ltd. Rajkot Aayakar Bhavan, Room Dhari Bagsara Road, Nr. Ice No. 114, 1St Floor, Race Course Factory, Amreli Ring Road, Rajkot Pan No.: Aajcs0177N (Assessee) (Respondent) Assessee By : Shri Kalpesh Doshi, Ld. Ar Respondent By : Shri Praveen Verma, Ld. Cit(Dr) Date Of Hearing : 24/06/2025 Date Of Pronouncement : 21/08/2025 आदेश / O R D E R Per, Dr. Arjun Lal Saini, Am; By Way Of This Appeal, The Revenue, Has Challenged Correctness Of The Order Dated 16.11.2017, Passed By The Learned Cit(A), In The Matter Of Assessment Under Section 143(3) Of The Income Tax Act 1961, For The Assessment Year 2012-13. Grievances Raised By The Revenue, Which Are Interconnected & Will Be Taken Up Together, Are As Follows: “1. On The Facts & Circumstances Of The Case & In Law, The Ld. Cit(A) Has Erred In Deleting The Addition Of Rs. 13,96,33,023/- Holding That Provision Of Section 195 Will Not Be Applicable. 2. On The Facts Of The Case & In Law, The Ld. C.I.T. (A) Erred In Ignoring The Facts That The Assessee Has Failed To Prove The Genuineness Of Foreign Commission Expenses Before The A.O. 3. It Is, Therefore, Prayed That The Order Of The C.I.T. (A) May Be Set Aside & That Of The A.O. Be Restored To The Above Extent. Dcit Vs. M/S. Sonpal Export Pvt. Ltd.

For Appellant: Shri Kalpesh Doshi, Ld. ARFor Respondent: Shri Praveen Verma, Ld. CIT(DR)
Section 142(1)Section 143(1)Section 143(2)Section 143(3)Section 195

been rendered by them in India and hence no income arose in India. Moreover, the agent did not have any business connection or Permanent Establishment in India. Hence, assessee submitted before the assessing officer that the foreign commission paid by the assessee to the non-resident does not fall within ... export orders or facilitating sales. Such foreign agents usually operate outside India, and they do not have: (i) any office in India, (ii) any Permanent Establishment (PE) in India, or (iii)any business connection in India. In such cases, the commission income of the foreign agent is earned and arises

Venugoopal Subramanyam Raja, Kumbakonam vs. DCIT Cirle 2(1), Trichy

In the result, all the appeals filed by the assessee are dismissed

ITA 2857/CHNY/2024[2010-11]Status: DisposedITAT Chennai21 Aug 2025AY 2010-11

Bench: Shri S.S. Viswanethra Ravi & Shri S.R. Raghunathaआयकर अपील सं./I.T.A. Nos.2855, 2856 & 2857/Chny/2024 िनधा"रण वष"/Assessment Years: 2007-08, 2009-10 & 2010-11 Venugoopal Subramaniyam Raja, Vs. The Deputy Commissioner Of 40/41, Town High School Road, Income Tax, Kumbakonam 612 001, Tamil Nadu. Circle 2(1), Trichy. [Pan:Aafpr5570F] (अपीलाथ"/Appellant) (""थ"/Respondent) अपीलाथ" की ओर से / Appellant By : Shri R. Sivaraman, Advocate ""थ" की ओर से/Respondent By : Shri C. Sivakumar, Addl. Cit सुनवाई की तारीख/ Date Of Hearing : 20.08.2025 घोषणा की तारीख /Date Of Pronouncement : 21.08.2025 आदेश /O R D E R Per S.S. Viswanethra Ravi: These Three Appeals Filed By The Assessee Are Directed Against Separate Orders All Dated 09.09.2024 Passed By The Ld. Commissioner Of Income Tax (Appeals), National Faceless Appeal Centre (Nfac), Delhi For The Assessment Years 2007-08, 2009-10 & 2010-11. 2. Since Issues Raised In These Appeals Are Similar Based On The Same Identical Facts, With The Consent Of The Both The Parties, We Proceed To Hear The Appeals Together & Pass Consolidated Order For The Sake Of Convenience.

For Appellant: Shri R. Sivaraman, AdvocateFor Respondent: Shri C. Sivakumar, Addl. CIT
Section 195Section 40Section 9Section 9(1)(v)

loan was obtained from foreign bank and repayment also made thereon. He argued that since interest paid to foreign bank having no permanent establishment in India, the provisions under section 195 of the Act does not apply. He submits that the ITAT 5 I.T.A. No.2855-2857/Chny/24 decided the issue under section ... deducted only if the payment (in this case, interest) has an element of income embedded on it. When the payee has no permanent establishment in India, it has no liability for income-tax. If the sum paid or credited by the payer is not chargeable to tax, then the obligation