Samsung India Electronics Not A 'Permanent Establishment' Of Samsung Korea, Cannot Be Taxed In India: Delhi High Court

The Delhi High Court has held that Samsung India Electronics Pvt. Ltd (SIEL), a wholly owned subsidiary of South Korea-based Samsung Electronics Co. is not its 'Permanent Establishment' (PE) in India, hence not exigible to tax here.A division bench of Justices Yashwant Varma and Harish Vaidyanathan Shankar agreed with ITAT's findings that the secondment of employees by Samsung Korea was merely with the objective of facilitating the activities of SIEL, not its own.It observed,“the secondment of employees which may consist of technically trained personnel or persons with experience is an arrangement not uncommon in today's world of business. What however needs to be considered is whether the deployment of such employees is in furtherance of the business of their former employer or intended to be utilized for the business of the enterprise with whom they are placed.”In the case at hand, the Income Tax Department had challenged the ITAT order holding that Samsung Korea had no PE in India within the meaning of Article 5 of the Double Tax Avoidance Treaty (DTAA) between India and Korea.Court said that a foreign entity's PE in India would be exigible to tax. Some examples of fixed places are given in Articles 5(2) and 5(3) of DTAA, by way of an inclusion. Article 5(4), on the other hand, excludes certain places which would not be treated as PE.The Department had issued reassessment notices under Section 148 to SEIL, deeming it to be a PE. The Dispute Resolution Panel concluded that the secondment of employees by Samsung Korea would result in SIEL being treated as a deemed Fixed Place PE.ITAT however held the Department failed to establish that the seconded employees were engaged for carrying on any activity pertaining to the business of Samsung Korea. It also found that the seconded employees were engaged in assisting SIEL in its business in India.Agreeing with the ITAT's findings, the High Court held,“...the secondment of employees has not been found to be for the furtherance of the business or enterprise of the respondent (Samsung Korea). Those seconded employees were not discharging functions or performing activities connected with the global enterprise of the respondent. Their placement in India was with the objective of facilitating the activities of SIEL. Collection of market information, collation of data for development of products, market trend studies or exchange of information would not meet the qualifying benchmarks of a PE.”It relied on Hyatt International Southwest Asia Ltd. v. CIT (2024) where a full bench of the High Court, in context of the DTAA between India and UAE, had held that if an enterprise (here Samsung Korea) is carrying on business through a PE situated in the other Contracting State (here India), then its profits is liable to be taxed in the other State, subject to the extent of profits attributable to that PE.However, in the case at hand, the High Court noted that it was not even the case of the Department that Samsung Korea was rendering services to SIEL through the seconded employees.“Absent any material that would have even tended to indicate that the functioning of the seconded employees was concerned with the business or the generation of income of the respondent (Samsung Korea) in India, the decision of the Tribunal cannot be faulted,” it held.The High Court also relied on Progress Rail Locomotive Inc. v. Deputy Commissioner of Income-tax (International Taxation) and Others where a coordinate bench held that a PE would be deemed to have come into existence if one were to find a Fixed Place (here India) through which the business of the enterprise seated in the other Contracting State (here Korea) was being carried out. It was also found that those premises (PE) must be found to be at the disposal of that enterprise (here Samsung Korea) and under its control. However, in the case at hand, the High Court noted that the seconded employees stood solely at the disposal of SIEL.It was also held in Progress Rail (supra) that market research or analysis, data processing support or for that matter, account reconciliation are essentially back office functions and support services and which would not be sufficient to acknowledge a fixed place permanent establishment existing.Accordingly, the High Court dismissed the Department's appeals.Also read: [Double Tax Avoidance Treaty] Mumbai Project Office Of Samsung Heavy Industries Not A 'Permanent Establishment': Supreme CourtAppearance: Mr. Sanjay Kumar, SSC with Ms. Monica Benjamin and Ms. Easha Kadian, JSCs for Appellant; Mr. Himanshu S. Sinha, Mr. Prashant Meharchandani, Mr. Jainender Singh Kataria & Ms. Kanika Jain, Advs for RespondentCase title: The Pr. Commissioner Of Income Tax - International Taxation -3 v. Samsung Electronics Co. Ltd.Citation: 2025 LiveLaw (Del) 49Case no.: ITA 1029/2018Click Here To Read/Download Order

Samsung India Electronics Not A 'Permanent Establishment' Of Samsung Korea, Cannot Be Taxed In India: Delhi High Court

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