The Supreme Court of India has upheld a decision by the Delhi High Court, which ruled that Siemens Mobile Communication SPA did not have a permanent establishment in India through its Indian subsidiary. The case centered on whether Siemens Mobile had a sufficient presence in India to be considered a permanent establishment, which would subject it to Indian taxation.
The dispute began when the Commissioner of Income Tax appealed a decision by the Income Tax Appellate Tribunal, which had ruled in favor of Siemens Mobile in 2019. The revenue department argued that the company’s Indian subsidiary was carrying out activities on behalf of Siemens Mobile, and that employees of the foreign company had visited India, creating a permanent establishment.
However, Siemens Mobile argued that its role was limited to offshore supply of telecom hardware from Italy, and that all contracts were executed outside of India. The company claimed that its employees had no reason to visit India after the contracts were executed, and that all onshore activities were carried out independently by the Indian subsidiary, which had already been taxed in India.
The Delhi High Court agreed with Siemens Mobile, finding that the company did not have a permanent establishment in India. The court observed that the contracts were entered into during a limited period, and that no employee of Siemens Mobile visited India thereafter. The court also noted that income from onshore services and activities performed in India was already taxed in the hands of the Indian subsidiary.
The revenue department challenged the High Court’s decision before the Supreme Court, but the apex court refused to interfere with the findings. The Supreme Court bench, comprising Justices Pamidighantam Sri Narasimha and Vijay Bishnoi, dismissed the special leave petitions, upholding the High Court’s decision.
The Supreme Court’s decision is significant, as it clarifies the criteria for determining a permanent establishment in India under the India-Italy Double Taxation Avoidance Agreement. The ruling suggests that a foreign company’s presence in India through a subsidiary does not automatically constitute a permanent establishment, and that the company’s activities and intentions must be carefully examined to determine its tax liability in India. The decision is also a victory for Siemens Mobile, which had argued that it did not have a sufficient presence in India to be subject to Indian taxation.