Adit (It) 2(2), Mumbai vs Ups Supply Chain Solutions Inc. Usa, ... on 3 March, 2021
―52. The assessing officer, Commissioner (Appeals) and the
Tribunal have primarily relied upon the close association between e-
Fund India and the two assessee and applied functions performed,
assets used and risk assumed, criteria to determine whether or not the
assessee has fixed place of business. This is not a proper and
appropriate test to determine location PE. The fixed place of
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2014 SCC Online Del 555
W.P.(C) 12405/2019 & Connected Matters
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Digitally Signed
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Signing Date:28.05.2024
19:25:45
business PE test is different. Therefore, the fact that e-Fund India
provides various services to the assessee and was dependent for its
earning upon the two assessees is not the relevant test to determine
and decide location PE. The allegation that e-Fund India did not bear
sufficient risk is irrelevant when deciding whether location PE
exists. The fact that e-Fund India was reimbursed the cost of the call
centre operations plus 16% basis or the basis of margin fixation was
not known, is not relevant for determining location or fixed place
PE. Similarly what were the direct or indirect costs and corporate
allocations in software development centre or BPO does not help or
determine location PE. Assignment or sub-contract to e-Fund India
is not a factor or rule which is to be applied to determine
applicability of Article 5(1). Further whether or not any provisions
for intangible software was made or had been supplied free of cost is
not the relevant criteria/test. e-Fund India was/is a separate entity
and was/is entitled to provide services to the assessees who were/are
independent separate taxpayer. Indian entity i.e. subsidiary company
will not become location PE under Article 5(1) merely because there
is interaction or cross transactions between the Indian subsidiary and
the foreign Principal under Article 5(1). Even if the foreign entities
have saved and reduced their expenditure by transferring business or
back office operations to the Indian subsidiary, it would not by itself
create a fixed place or location PE. The manner and mode of the
payment of royalty or associated transactions is not a test which can
be applied to determine, whether fixed place PE exists.‖
The decision of this Court in E-Funds IT Solutions Inc., was
subsequently affirmed by the Supreme Court in ADIT v. E-Funds IT
Solutions Inc., which has been noticed hereinabove.