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Pointing out more than one perversity in the findings of fact by the AO/DRP/Tribunal the Supreme Court in DIT (International Tax ) and another v. Samsung Heavy Industries Co. Ltd. (2020) 426ITR1 held that:

‘The assessee’s board resolution would show that the project office was established to coordinate and execute “delivery documents in connection with the construction of offshore platform modification of existing facilities for ONGC”. The finding, therefore, that the Mumbai office was not a mere liaison office, but was involved in the core activity of execution of the project itself was clearly perverse. Equally, the Tribunal rejected the argument that the accounts of the Mumbai office showed that no expenditure relating to the execution of the contract was incurred, stating that the mere mode of maintaining accounts alone could not determine the character of permanent establishment. This was another perverse finding. The finding that the onus was on the assessee and not on the authorities to first show that the project office at Mumbai was a permanent establishment was again in the teeth of settled law. The Tribunal ignored the argument that there were only two persons working in the Mumbai office, neither of whom was qualified to perform any core activity of the assessee. This being the case, it was clear, therefore, that no permanent establishment had been set up within the meaning of Article 5(1) of the DTAA, as the Mumbai project office could not be said to be a fixed place of business through which the core business of the assessee was wholly or partly carried on. Also, the Mumbai project office, on the facts, would fall within article 5(4)(e) of the DTAA, inasmuch as the office was solely an auxiliary office, meant to act as a liaison office between the assessee and ONGC.”

The Income-tax Appellate Tribunal relied upon only the first paragraph of the Board Resolution and then jumped to the conclusion that the Mumbai office was for coordination and execution of the project itself. The finding, therefore, that the Mumbai office was not a mere liaison office, but was involved in the core activity of execution of the project itself is held clearly perverse by the SC.

In this case therefore the AO/ DRP and the Tribunal converted the liaison office into a project office driven permanent establishment and taxed 25% of the gross revenue of the assessee outside India as attributable profit to the project office without appreciating the fact that it was merely a communication channel between the assessee and the ONGC.

On the subject of onus in determining the PE in India the SC held that it falls within their teeth by 399ITR34 whereby the burden of proving the fact that a foreign assessee has a permanent establishment in India and must, therefore, suffer tax from the business generated from such permanent establishment is initially on the Department.

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