GE is incorporated in and is a tax resident of the USA. It is engaged in the business of manufacture and offshore sale of highly sophisticated equipments such as gas turbine parts and subassemblies. GE sells its products offshore on a principal to principal basis to customers all over the world, including to customers located in India, whereby the title to the goods sold to Indian customers passes from it outside India. A liaison office was set up in 1991 in New Delhi to act as a communication channel and not carry on any business activity.
GE has been in India since 1902. Its global businesses had a presence in India and the group had become a significant participant in a wide range of key services, technology and manufacturing industries. Employment across India exceeds 12,000.
Over 1 billion dollar of exports from India support GE’s global business operations around the world. It has sourced products, services and intellectual talent from India for its global businesses. It pioneered the concept of software sourcing from India and was one of the largest customers for the IT service industry of India.
Following an extensive audit the tax authorities issued an income assessment to what they had determined to be a permanent establishment of GE in India.
GE held they were not subjected to income tax laws of India as they had no permanent establishment.
The High Court dismissed GE’s appeal and upheld the assessment.
The High Court concluded that core sales activity was conducted from GE premises in India and that the activities in India were not of a preparatory and auxiliary character.
The High Court rejected GE’s contention that since the expatriate employees and employees of the Indian entity did not have the authority to conclude contracts, the activities could not be anything other than preparatory and auxiliary.
Determining whether a practice is preparatory or auxiliary requires asking whether the activity undertaken at the fixed place of business is an essential and significant part of the activity of the enterprise as a whole – it must be the case that the activities must per se be responsible for the realization of profits.”
“… the process of sales and marketing of GE‟s product through its various group companies, in several segments of the economy (gas and energy, railways, power, etc.) was not simple.”
“…. the facts of the present case clearly point to the fact that the assessee‟s employees were not merely liaisoning with clients and the headquarters office.”
“GE India comprising of expats and other employees of GEIIPL etc., were not working for a particular enterprise, but, for multiple enterprises dealing in one of the three major businesses of GE group. Activities of an agent must be “devoted wholly, or almost wholly on behalf of that enterprise.”
“GE India‟s activities clearly constitute activities that would establish agency PE in India”
“…the analysis carried out by the Revenue – not merely by the ITAT but also by the AO in the assessment order, was after considering the relevant decisions – including Rolls Royce PLC – where 35% profits were attributable to marketing activities in India.”
“Having regard to the conspectus of facts in this case and the findings of the lower Revenue authorities – including the AO and the CIT(A), both of whom have upheld the attributability of income to the extent of 10% and apportionment of 3.5% of the total values of supplies made to the customers in India as income, the Court finds no infirmity with the findings or the approach of the Tribunal in this regard.”
“…since all questions of law have been answered against the assessees, these appeals have to fail and are consequently dismissed but without orders as to costs.”
India vs GE ITA621-2017 21122018