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In an interesting situation IBM India obtained a contract to undertake payroll and data management function for P&G India in case reference ( 2023) 458ITR86 (Kar). It outsourced such work to its NR Philippines associate IBM Philippines. IBM Philippines therefore managed to get is receipts without deduction of taxes in India in the absence of any article on fees for technical services. 

The High Court also upheld in its favour and exempted IBM India from withholding of tax by stating that the services rendered are business nature of activities and not technical services referring to article 23.

Now if we look into the facts in this case it is stated that IBM Philippines rendered services to P&G India while it received payments from IBM India. It is further stated that IBM india pays to IBM Philippines from out of amounts it receives from P&G India. 

This two way transaction connects the dots for establishing PE in India as much as Article 5(1) of the India Philippines DTAA states that PE meaning fixed place of business through which business of the enterprise is wholly or ‘partly carried on’. The fact that IBM India collects and remits money is enough a pointer to establish conduct of business of Philippines entity partly in India. 

The revenue may have a good lead to plug loss of taxes by such nature of transaction planning. 

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