Mere outsourcing of services to Indian subsidiary would not give rise to PE in India: ITAT Delhi

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Mere outsourcing of services to Indian subsidiary would not give rise to PE in India: ITAT Delhi

M/s EXL Service. Com INC (ITA No. 4989/DEL/2014)

Facts:

1. Exl India has entered into a service agreement with Exl Inc (assessee) under which, Exl India provides internet and voice-based customer care services and backroom operation services to the customers of Exl Inc and in consideration of these services, Exl India invoices Exl Inc at determined hourly rates and Exl Inc, in turn, raises invoices on the end customers.
2. The bone of contention is the assessment order dated 30.03.2006 framed u/s 143(3) of the Income-tax Act, wherein the Assessing Officer (AO) held that the assessee had established a Permanent Establishment [PE] in India under Article 5 of the DTAA between India and the United States of America u/s 9(1)(ii) of the Income Tax Act.
3. The AO was of the view that the assessee and Exl India were nothing but one and the same, as the primary activity of the assessee is carried out by the Indian company and facilities of Exl India was a fixed place of business for the assessee. Also marketing work, technical work was all performed by Exl India, however profit was retained by the assessee.

ITAT Delhi held as below:

1. None of the customers of the assessees are located in India or have received any services in India. This being the case, it is clear that the very first ingredient contained in Article 5(2)(l) is not satisfied. On account of this, Exl India does not have authority to conclude contracts with customers of the assessee too.
2. No part of the main business and revenue earning activity of the two American companies is carried on through a fixed business place in India which has been put at their disposal. It is clear from the above that the Indian company only renders support services which enable the assessees in turn to render services to their clients abroad. This outsourcing of work to India would not give rise to a fixed place PE.
3. It is not the case of the Revenue that the employees of foreign enterprises furnished services in India. Nothing has been brought on record by the Revenue to show that there was secondment of employees by Exl US to Exl India.
4. Merely because the assessee owns 100% of share capital of EXl India does not have effect or consequence of EXL India becoming the PE of the assessee in India.
5. We are of the considered view that the assessee does not have a fixed place PE in India, Service PE in India and dependent Agent PE in India. Therefore, no profit is attributable as no business connection has been established under Article 5 of the DTAA between India and the US.

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