Liaison Office of the assessee did not create a permanent establishment (PE) in India: Delhi High Court

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The Delhi High Court held in DIRECTOR OF INCOME TAX INTN’L vs. WESTERN UNION FINANCIAL SERVICES INC that the Liaison Office of the assessee did not create a permanent establishment (PE) in India, nor did it have a dependent agent permanent establishment (DAPE), and the software used did not lead to the formation of a permanent establishment.

(i) After considering various rulings from both this Court and the Supreme Court about Fixed Place PE and DAPE, along with the wording of Article 5, it was confidently concluded that the Liaison Office did not fulfill the necessary criteria to be considered a PE.

(ii) To summarize, it was firmly held that the Liaison Office did not satisfy the standards outlined in sub-paragraphs 1 and 2 of Article 5 to qualify as a ‘fixed place’ of business. It also failed the tests for virtual presence, control, and significant use of premises needed for a Fixed Place PE. The activities carried out by the Liaison Office were clearly supportive and fall under Article 5(3)(e) of the DTAA. Additionally, it did not meet the requirements for a DAPE according to clauses (a), (b), and (c) of paragraph 4 of Article 5. Moreover, the software used to connect Indian agents to the main system, being an intangible asset, does not count towards a PE. The notion that the premises of the Indian agents could create a PE is incorrect since these agents were independent businesses. Their locations would not fulfill the criteria for virtual presence either.