PCIT (International Taxation) v. Samsung Electronics Co. Ltd.

Case snapshot

Sections / provisions: DTAA Article 5; Permanent Establishment

Questions before the Court / Tribunal

• See the source-driven case record below.

Material facts and background

Judgment reserved on: 09 January 2025 Judgment pronounced on: 15 January, 2025 ITA 1029/2018 THE PR. COMMISSIONER OF INCOME TAX INTERNATIONAL TAXATION -3 .....Appellant Through: Mr. Sanjay Kumar, SSC with Ms. Monica Benjamin and Ms. Easha Kadian, JSCs. versus SAMSUNG ELECTRONICS CO. LTD. .....Respondent Through: Mr. Himanshu S. Sinha, Mr. Prashant Meharchandani, Mr. Jainender Singh Kataria & Ms. Kanika Jain, Advs.

ITA 1058/2018 THE COMMISSIONER OF INCOME TAX INTERNATIONAL TAXATION -3 .....Appellant Through: Mr. Sanjay Kumar, SSC with Ms. Monica Benjamin and Ms. Easha Kadian, JSCs. versus SAMSUNG ELECTRONICS CO. LTD. .....Respondent Through: Mr. Himanshu S. Sinha, Mr. Prashant Meharchandani, Mr. Jainender Singh Kataria & Ms. Kanika Jain, Advs.

ITA 1060/2018 THE COMMISSIONER OF INCOME TAX INTERNATIONAL TAXATION -3 .....Appellant Through: Mr. Sanjay Kumar, SSC with

ITA 1029/2018 & Connected Matters Signature Not Verified Digitally Signed By:KAMLESH KUMAR Signing Date:15.01.2025 18:15:40

Ms. Monica Benjamin and Ms. Easha Kadian, JSCs. versus SAMSUNG ELECTRONICS CO. LTD .....Respondent Through: Mr. Himanshu S. Sinha, Mr. Prashant Meharchandani, Mr. Jainender Singh Kataria & Ms. Kanika Jain, Advs. +

ITA 1065/2018 THE PR. COMMISSIONER OF INCOME TAX INTERNATIONAL TAXATION -3 .....Appellant Through: Mr. Sanjay Kumar, SSC with Ms. Monica Benjamin and Ms. Easha Kadian, JSCs. versus SAMSUNG ELECTRONICS CO. LTD .....Respondent Through: Mr. Himanshu S. Sinha, Mr. Prashant Meharchandani, Mr. Jainender Singh Kataria & Ms. Kanika Jain, Advs.

ITA 1066/2018 THE COMMISSIONER OF INCOME TAX INTERNATIONAL TAXATION -3 .....Appellant Through: Mr. Sanjay Kumar, SSC with Ms. Monica Benjamin and Ms. Easha Kadian, JSCs. versus SAMSUNG ELECTRONICS CO. LTD. .....Respondent Through: Mr. Himanshu S. Sinha, Mr. Prashant Meharchandani, Mr. Jainender Singh Kataria & Ms. Kanika Jain, Advs.

Appellant / assessee submissions

are of the considered opinion that the statements show that such information exchange relates to the models/designs to the liking of the Indian consumers, plans and strategies relating to the sale of the products, detailed stock/logistical status, the market strategies both the mid and long terms etc. 33. As rightly argued by the Ld. AR that none of the statement would go to show that the any activity of the global business management (GBM) has ever been conducted in India or that the market survey is conducted in India, as spoken by the expatriate employees has nothing to do with the business of the Indian subsidiary and it is solely for the benefit of the assessee. All the activities that are spoken by the expatriate employees related to the specificity of the products, stock verification, they designs according to the preferences of the Indian consumers, the market strategies to be adopted etc are clearly within the ambit of the business of the Indian subsidiary. Such a communication would primarily benefit the Indian subsidiary and would help the assessee in its GBM to sustain its supply chain management and to place optimized purchase orders at a right timing or to acquire...

Revenue / respondent submissions

“31. Having rejected all the grounds pleaded by the AO, Ld. DRP reached a conclusion that SIEL be treated as a deemed fixed place PE of the assessee, and the relevant observation is to the effect that“Although they derive their remuneration from SIEL, their formal contract of employment is with the Parent company. The statements of some of these employees report frequently to. SEC. Sh B. D Park, Director (Mobile and 1.T business), who is at number two position in SIEL has acknowledged that he communicates with SEC almost daily. Sh J. H Kyung, Chief Financial Officer has stated that he is in touch with SEC two to three times a week. Sh H. K Sea) President Marketing and Sales also. Stated that. he communicates with SEC once a week in general. Sh. Yang Hee who, who is. The charge of sales has stated that he communicates with SEC once week. Statements of some of these officers who. are of the rank of Division Heads, also. Show that they continue to. be under the same can, the SEC for certain activities like research and development of products for the Indian market and development of marketing strategy, decisions relating to pricing of product exploration and development of new...

aspects as to who pays the salary, whom the senior employees reported to, frequency of communication with headquarters in Korea etc, ld. DRP dealt with almost all the aspects argues by the ld. DR before us. They found that the assessee is not exercising that kind of absolute control over posting of employees to the Indian subsidiary, but the assessee has been posting the employees only pursuant to the Triparte agreements between the assessee, Indian subsidiary and the concerned employee. Ld. DRP further held that the Indian subsidiary is a company incorporated under the laws governing the companies in India and is confirming to all the rules and regulations that govern the operations of a corporate body in the country, by filing its returns and paying the taxes under the income tax at and other statutes. It was further observed by the library DRP that the international transactions have been reported under the transfer pricing regulations and examined by the TPO. 28. Ld. DRP vide paragraph No. 5.4.4.2 recorded that the observations of the Ld. AO in respect of the assertion as to the subsidiary as PE, the conclusions made by the AO are based on the statement of the various...

Court / Tribunal analysis and reasoning

from this Article as far as the issue at hand is concerned. However this Article or the Agreement do not contain any provision which can prove the above assertion of the AO. Therefore, considering the serious nature of assertion made by the AO and the kind of evidence (or in this case total lack of any evidence) it are based on, this Panel tends to agree that it is based on surmises and conjectures. A perusal of the data reproduced earlier in the tabular form shows that the conclusion drawn by the AO that SEC controls each and every aspect of functioning of SIEL is not borne out of the evidence on record. Further it has to be kept in mind that SIEL is a company incorporated under the law governing the Companies in India and is conforming to all the rules and regulations that govern the operations of a corporate body in the country. It is filing its return and paying the taxes under the Income tax Act and other Statutes. Its International transactions have been reported under the Transfer Pricing regulations and examined by the TPO. In view of all these facts there can be no case for lifting of corporate veil and ignoring totally that the existence of the corporate entity (SIEL)...

portfolio. The assessee has further stated that all its transaction with SEC, whether it is import of finished goods, stores or service parts, exports, import of technology etc are in a principal to principal capacity and it has no authority to act on behalf of SEC or to conclude contracts on behalf of SEC. and this relationship can in no manner be treated as an 'agency' relationship. The assessee has given some more arguments to rebut the AO. However they need not be reproduced here. This Panel is of the view that in absence of any material on record except of the statements of employees and technology Agreements, which have been considered by us it cannot be held that SIEL's relation with SEC is that of an 'Agent'. In view of this the suggestion that SIEL may be treated as a dependent Agent for the purpose of Art 5 is rejected. 5.4.4.5. SIEL as a place of management for South East Operations. The assessee has stated in its rebuttal that during the period under consideration it did not have any set-up for Southwest Asia Regional operations and the business of its sales into Bangladesh, Sri Lanka, Nepal, Bhutan and Maldives was handled from Korea itself without any involvement of...

5.4.4.6. SIEL as a service P.E: The AO has suggested that SIEL can be considered inter-alia as a Service P.E of SEC. In this connection the assessee has made the following rebuttal: “....even if the seconded expatriate employees are said to have performed stewardship functions, as alleged by the Ld. AO, no PE of SEC can said to result from such activities in India in view of the Apex Court's decision. Further, it is reiterated that the India-Korea Tax Treaty does not have a service PE clause and therefore such PE cannot in any case be alleged to have been formed by such expatriate employees seconded to SIEL by SEC. Secondly, the Ld. AO has placed reliance on the advance ruling in the case of Verizon Data Services India Private Limited to draw guidance with regard to existence of PE of SEC in India. Without going into facts of Verizon's case, it would be relevant to note that the Hon‟ble Madras High Court has set aside the Advance Ruling in the case of Verizon and therefore any reliance by the Ld. AO on said ruling is legally misplaced.” The suggestion of AO and the rebuttal of assessee have been considered. A service P.E comes into existence when an enterprise of a contracting...

aspects as to who pays the salary, whom the senior employees reported to, frequency of communication with headquarters in Korea etc, ld. DRP dealt with almost all the aspects argues by the ld. DR before us. They found that the assessee is not exercising that kind of absolute control over posting of employees to the Indian subsidiary, but the assessee has been posting the employees only pursuant to the Triparte agreements between the assessee, Indian subsidiary and the concerned employee. Ld. DRP further held that the Indian subsidiary is a company incorporated under the laws governing the companies in India and is confirming to all the rules and regulations that govern the operations of a corporate body in the country, by filing its returns and paying the taxes under the income tax at and other statutes. It was further observed by the library DRP that the international transactions have been reported under the transfer pricing regulations and examined by the TPO. 28. Ld. DRP vide paragraph No. 5.4.4.2 recorded that the observations of the Ld. AO in respect of the assertion as to the subsidiary as PE, the conclusions made by the AO are based on the statement of the various...

Operative decision and relief

this regard. In our considered opinion, the Tribunal was justified in interfering with the opinion formed by the DRP and which had spoken of a deemed PE having come into being merely on account of the secondment of 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 in India, the decision of the Tribunal cannot be faulted. 31.

and against the appellant. We accordingly and for reasons assigned hereinabove, uphold the judgment of the Tribunal dated 22 March 2018, 14 December 2018 and 22 March 2021 and dismiss these appeals.

ITA 1029/2018 & Connected Matters Signature Not Verified Digitally Signed By:KAMLESH KUMAR Signing Date:15.01.2025 18:15:40

Authorities and precedents appearing in the judgment

• JSCs. versus SAMSUNG ELECTRONICS CO. LTD
• JSC. versus SAMSUNG ELECTRONICS CO. LTD
• SEC and SIEL v. Agreement dated 26.2.2006
• Hyatt International Southwest Asia Ltd. v. CIT11 had an occasion to
• Progress Rail Locomotive Inc. v. Deputy Commissioner
• Andhra Pradesh High Court in CIT v. Visakhapatnam
• Formula One World Championship Ltd. v. CIT (International Taxation)
• Pradesh High Court in CIT v. Visakhapatnam Port Trust
• DIT (International Taxation) v. Morgan Stanley and Co. Inc
• Taxation) v. Samsung Heavy Industries Co. Ltd
• International Taxation) v. Morgan Stanley and Co. Inc
• Asst. DIT v. EFunds IT Solution Inc

This list is machine-assisted from the judgment text and is not a substitute for checking the full citation chain in the PDF.

Ratio and legal principle

The decision turns on the statutory and factual issues recorded above. The operative result is classified as Operative order controls. Read the rule only with the statutory version, factual findings and precedent chain recorded in the full judgment.

Why this judgment matters

The case is relevant to taxpayers, advisers and litigators dealing with International Tax. Its practical value lies in the interaction between the statutory text, the evidentiary record and the procedural route followed in this case.

Practitioner action points

• Map domestic-law provisions against the applicable treaty article separately; PE, FTS/royalty and withholding conclusions depend on functions, control, contract terms and treaty language.
• For litigation, attach the full judgment/order to the working paper and cite the paragraph/page supporting the proposition rather than relying on a headnote alone.

Full judgment and source trail

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