India-US DTAA | Outsourcing Customer Care Services To Indian Subsidiary Doesn't Create PE: Delhi High Court
The Delhi High Court has held that outsourcing customer care and back-office services to an Indian subsidiary does not, by itself, result in the creation of a Permanent Establishment (PE) in India under the India–US Double Taxation Avoidance Agreement (DTAA).A Division Bench of Justices V. Kameswar Rao and Vinod Kumar thus dismissed a batch of appeals filed by the Income Tax Department...
The Delhi High Court has held that outsourcing customer care and back-office services to an Indian subsidiary does not, by itself, result in the creation of a Permanent Establishment (PE) in India under the India–US Double Taxation Avoidance Agreement (DTAA).
A Division Bench of Justices V. Kameswar Rao and Vinod Kumar thus dismissed a batch of appeals filed by the Income Tax Department against EXL Service.com Inc., upholding the findings of the Income Tax Appellate Tribunal (ITAT) that the US-based entity did not have a fixed place PE, service PE, or agency PE in India.
As per DTAA, the business profits arising to a US enterprise shall be taxable in India, only if the US enterprise has a PE in India.
The assessee-company performs sales and marketing function, contract negotiations and conclusion of contracts and customer relationship management.
It entered into a service agreement with Exl India for internet and voice-based customer care services and backroom operation services to its customers.
The Assessing Officer held that the Assessee had established a Permanent Establishment (PE) in India under Article 5 of the India-USA DTAA and under Section 9(1)(ii) of the Act, respectively, holding that its income was taxable in India
The ITAT had however found that a significant part of the activities were provided by the Assessee from the USA and Exl India's only function was delivery of the agreed outsourced services from India.
The High Court noted it is not the case of Revenue that the employees of foreign enterprises furnished services in India.
“At least nothing has been brought on record by the Revenue to show that there was secondment of employees by Assesssee to Exl India.”
It further noted that Exl India has no authority to conclude any contract on behalf the US enterprise and all customers are based out of US and none of them is present in India.
The Tribunal had also held that even if the foreign entities have saved and reduced their expenditure by transferring business or back office operations to the Indian subsidiary, it would not by itself create a fixed place PE.
In this regard, the High Court noted that the Transfer Pricing Officer had already deleted the transfer pricing adjustments made against the Assessee, which would have a bearing on the Assessee's case.
As such, the Court dismissed Revenue's appeal.
Appearance: Mr. Puneet Rai, SSC, Mr. Ashvini Kumar, Mr. Gibran, JSCs, and Mr. Rishabh Nangia, Adv. for Appellant; Mr. Ajay Vohra, Sr. Advocate with Mr. Neeraj Jain and Mr. Tavish Verma, Advs. Mr. Vipul Agrawal (Sr. SC) with Ms. Sakshi Shairwal, Mr. Akshat Singh (Jr. SCs) and Ms. Harshita Kotru (Advs.) for Respondent
Case title: Commissioner Of Income Tax (International Tax-1), New Delhi v. Exl Service.Com Inc (Presently Known As Exl Service Com Llc)
Citation: 2025 LiveLaw (Del) 1803
Case no.: ITA 748/2025