Lawstreet Journal

Supreme Court turns down the Income Tax Department’s appeal in Samsung Heavy Industries case, calls it ‘perverse’

Lawstreet Journal 28 Jul 2020 2:33am

Image courtesy: Lawstreet Journal Judiciary Supreme Court turns down the Income Tax Department’s appeal in Samsung Heavy Industries case, calls it ‘perverse’

In yet another landmark judgment, the Supreme Court in the case of Samsung Heavy Industries Co. Ltd. has held that it's Mumbai Project Office did not constitute a Fixed Place Permanent Establishment (PE) in India as per Article 5(1) of the India-Korea DTAA as ‘core business’ of the assessee was not carried out through the Project Office.

The Supreme Court has made plain that profits of the foreign enterprise are taxable only when the enterprise carries on its core business through the alleged PE. After examining the documents related to setting up of Project Office, number & qualification of employees, and financial statements of the PO, the SC held that the PO was merely an auxiliary office meant to act as a liaison between the assessee and ONGC. 

While delivering the judgment the Supreme Court noted that the fact that the approval received from the RBI was for carrying on auxiliary activities, as well as the actual conduct of the employees at the PO, did not demonstrate high-end activity. The principle of substance over form has been applied to arrive at this decision in favor of the taxpayer.

Samsung Heavy Industries entered into a turnkey contract with L&T for carrying out surveys, fabrication, and more under the Vasai East Development Project.

To coordinate better, Samsung set up a project office in Mumbai and subsequently filed a nil income tax return in accordance with the India-South Korea Double Taxation Avoidance Agreement (DTAA).

The Income Tax department, however, was dissatisfied with the return and issued a show-cause… Continue Reading...


Tagged: Samsung  
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