In the complex arena of international taxation, the determination of a Permanent Establishment (PE) remains one of the most litigated subjects, particularly concerning multinational enterprises operating through Indian subsidiaries. The recent decision by the Income Tax Appellate Tribunal (ITAT) Delhi Bench in SAIC Motor Corporation Ltd. vs. Assistant Commissioner of Income Tax (ITA No.1191/Del/2025) offers a profound analysis of the threshold required to establish both a Supervisory and a Fixed Place PE. The case centered on the tax residency of SAIC Motor Corporation, a Chinese entity, and its relationship with its Indian subsidiary, MG Motor India Private Limited (MGMIPL). The Revenue sought to attribute profits to a deemed PE in India, primarily based on the secondment of employees and the nature of offshore supply agreements. The Tribunal’s eventual reversal of these additions underscores the necessity of demonstrating actual “disposal” and “control” over a fixed place, rather than relying on the mere existence of a parent-subsidiary relationship or administrative secondment.
Deconstructing the Supervisory PE Threshold and the Doctrine of Secondment
The Revenue’s primary contention for a Supervisory PE under Article 5(3)(a) of the India-China Double Taxation Avoidance Agreement (DTAA) rested on the presence of six seconded Chinese expatriates holding key positions within MGMIPL. It was argued that these individuals exercised indirect supervision and control over the Indian entity’s manufacturing processes on behalf of the Chinese parent. The Assessing Officer (AO) further relied on emails discovered during search operations to suggest that these employees were working in furtherance of the parent company’s global business interests. However, the ITAT distinguished between “stewardship” or “reporting” activities and the actual conduct of the parent’s business in India.
The Tribunal emphasized that for a Supervisory PE to manifest, the activities must be in connection with a specific building site, construction, or assembly project lasting more than 183 days. In this instance, the expatriates were legally and economically employed by MGMIPL, which bore their salary costs and withheld taxes under Section 192. Relying on the Delhi High Court’s precedent in PCIT vs Samsung Electronics CO. Ltd. 170 taxmann.com 417, the Tribunal held that secondment for the benefit of the subsidiary’s own business—such as managing local supply chains or financial planning—does not constitute a PE for the foreign enterprise. The absence of any direct evidence showing the parent company issuing instructions on how to conduct business was fatal to the Revenue’s claim. Consequently, the ITAT affirmed that providing skilled manpower to a subsidiary to ensure its success is a legitimate shareholder activity rather than a supervisory business operation by the parent.
The Disposition Test and the Fallacy of Subsidiary as a Fixed Place PE
The Revenue’s secondary attempt to establish a Fixed Place PE under Article 5(1) posited that MGMIPL was a mere “extension” of SAIC Motor, and that its manufacturing unit in Gujarat was at the disposal of the parent company. This argument was largely built upon a clause in the “Knocked Down” (KD) Parts Supply Agreement, which allowed the parent to inspect goods upon delivery in India. The AO theorized that this created a permanent workspace for the parent’s personnel. The ITAT rejected this interpretation, noting that the “disposal test” requires the foreign enterprise to have a right to use the premises for its own core business activities.
The Tribunal observed that MGMIPL is a separate legal entity carrying out manufacturing and sales on its own account, sourcing only a fraction of its total purchases from the parent. Furthermore, an affidavit from MGMIPL confirmed that no such inspections by the parent’s personnel actually occurred during the relevant period. Referencing the Supreme Court’s ruling in Formula One World Championship Ltd vs CIT(International Taxation), (2017) 394 ITR 80(SC) the ITAT held that the mere supply of raw materials and technology, even with a royalty-linked profit model, does not place the subsidiary’s factory at the disposal of the parent. To hold otherwise would effectively treat every manufacturing subsidiary as a PE of its parent, disrupting the established norms of global corporate structures. The decision clarifies that “control” in a PE context must be operational and physical, not merely a result of majority shareholding or technical collaboration.
Implications and Conclusion
The judgment in SAIC Motor Corporation serves as a critical checkpoint against the “PE-exposure” theories often advanced by the Revenue in cases involving foreign investment. By deleting the addition of approximately Rs. 17.34 crores, the ITAT reinforced the principle that the burden of proof lies heavily on the Revenue to establish a factual “fixed place” or “supervisory activity”. The implications are significant: it provides much-needed certainty to multinational corporations regarding secondment arrangements, provided that the seconded employees are integrated into the subsidiary’s management and work exclusively for the subsidiary’s benefit.
Furthermore, the ruling limits the scope of “inspection clauses” in supply agreements from being used as a tool to create deemed PEs, provided they do not translate into a permanent physical presence. This also protects the “arm’s length” principle and ensures that Indian tax law remains aligned with international standards. Ultimately, the order clarifies that while the Indian economy welcomes global brands, the tax administration cannot fictionally bridge the legal gap between a parent and its subsidiary without concrete evidence of a functional business unit operating within the jurisdiction.
