Whether stewardship services by overseas company constitute a PE in India?
Issue:
- ABC company is engaged in providing financial advisory, corporate lending and securities underwriting services. It has a subsidiary in India, which provides services such as information technology, account reconciliation, etc to the group companies.
- ABC also sends some personnel to its Indian subsidiary to undertake stewardship activities to ensure quality control standards.
- Will ABC deemed to have a Permanent Establishment (PE) in India on account of provision of these stewardship services to Indian subsidiary?
Reply:
This issue is similar to the Hon Supreme Court judgement in the case of Morgan Stanley & Co (DIT (International Taxation) v. Morgan Stanley & Co. [2007] 162 Taxman 165/292 ITR 416 (SC)
The Hon SC held as below:
- Under Article 5(1) of the Double Taxation Avoidance Agreement (DTAA) between India and US, PE would come into existence only if there is a fixed place of business through which business of the multinational enterprise is fully or partially carried on.
- Morgan Stanley, which is a global company is entitled to insist on quality control and confidentiality from its Indian subsidiary. These stewardship services are merely provided to protect its interest in the competitive world. So stewards were not engaged in day to day management.
- So stewardship services do not constitute a service PE.
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