India: Delhi’s High Court maintains that overseas GE entities have a PE in India

International Tax Review is part of Legal Benchmarking Limited, 1-2 Paris Garden, London, SE1 8ND

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

India: Delhi’s High Court maintains that overseas GE entities have a PE in India

Sponsored by

logo.png
tax-court-case-320x215

Delhi High Court (HC) has confirmed the Income Tax Appellate Tribunal's decision that various overseas entities of the GE Group had a fixed place, permanent establishment (PE), and a dependent agent PE in India.

The entities in question had sold their products to customers in India on a principal-to-principal basis, and the title to such products passed to customers outside India. However, expatriate employees and employees of an Indian entity participated in the negotiation of contracts (including in areas relating to warranty, pricing, delivery, etc.). As a result, an issue arose regarding whether this could trigger a taxable presence for the overseas entities.

There are several important aspects that are considered in this decision, specifically with regards to the scope of the preparatory and auxiliary exclusion, as well as the situations in which a dependent agency PE can be constituted.

Fixed place permanent establishment

The High Court upheld the factual findings of the Tribunal, noting that the office space of the overseas entities liaison office in India was at the disposal of the overseas entities. This was based on the finding that specific chambers/rooms and secretarial staff were allotted to GE staff, and were used by them for their work.

The High Court also concluded that the core sales activity was conducted from these premises and, therefore, the business of the overseas entities could be said to have been carried out from such premises.

More importantly, the High Court rejected the contention of GE that the activities in India were of a preparatory and auxiliary character. It noted that considering the highly specialised and technically customised equipment manufactured by the GE entities, the activities of identifying and approaching the customer, communicating available options to the customer, discussing technical and financial terms, and price negotiations were core activities. It went on to conclude that the discharge of vital responsibilities relating to the finalisation of commercial terms, as well as having a prominent involvement in the contract finalisation process, would lead to the overseas entities continuing business in India through its fixed place of business.

The High Court also rejected GE's contention that since the expatriate employees and employees of the Indian entity did not have the authority to conclude contracts, the activities could not be anything other than preparatory and auxiliary in nature. It held that the existence of such authority was not relevant in determining whether the activities were preparatory or auxiliary in nature.

Agency permanent establishment

The High Court also upheld the finding of the Tribunal that the activities in India constituted a dependent agent PE for the overseas entities. In this regard, the court relied on the Italian decision in Ministry of Finance (Tax Office) v. Philip Morris (GmbH), Core Suprema di Cassazione (No. 7682/02 of May 25 2002). The case concluded that the participation of representatives (or employees) of a resident company that is in a phase of concluding a contract between a foreign enterprise and a customer, can fall within the concept of 'authority to conclude contracts', even in the absence of a formal power of representation.

Attribution of profits

The High Court also upheld the attribution of profits to the PE at 3.5% of the total value of supplies made to the customers in India.

more across site & shared bottom lb ros

More from across our site

Reckitt Benckiser is to divest its Essential Home business, which includes more than 70 brands, to private equity firm Advent International
In the first of a new series of weekly opinion pieces, ITR Editor Tom Baker reflects on the OECD’s attempts to sanitise the US’s brazen pillar two negotiations
The threat of 50% tariffs on Brazilian goods coincides with new Brazilian legal powers to adopt retaliatory economic measures, local experts tell ITR
The country’s chancellor appears to have backtracked from previous pillar two scepticism; in other news, Donald Trump threatened Russia with 100% tariffs
In its latest G20 update, the OECD also revealed tense discussions with the US where the ‘significant threat’ of Section 899 was highlighted
The tax agency has increased compliance yield from wealthy individuals but cannot identify how much tax is paid by UK billionaires, the committee also claimed
Saffery cautioned that documentation requirements in new government proposals must be limited if medium-sized companies are not exempted from TP
The global minimum tax deal is not viable without US participation, Friedrich Merz has argued
Section 899 of the ‘one big beautiful’ bill would have spelled disaster for many international investors into the US, but following its shelving, attention turns to the fate of the OECD’s pillars
DLA Piper’s co-head of tax for the US and Latin America tells ITR about her fervent belief in equal access to the law, loving yoga, and paternal inspirations
Gift this article