Whether Entity Is 'Permanent Establishment' Is A Fact-Specific Issue, Must Be Examined Separately For Different Tax Periods: Delhi High Court

The Delhi High Court has held that whether an entity is a Permanent Establishment of a foreign company or not is a “fact-specific” issue which must be examined separately for different tax periods. A division bench of Justices Yashwant Varma and Harish Vaidyanathan Shankar observed, “The position of a PE being a facts-specific issue and thus liable to be examined against the backdrop of what obtained in a particular tax period…” Reliance was placed on a Commentary of the Organization for Economic Cooperation and Development which states that the way in which business is carried on evolves over the years. In doing so, the Department had relied on GE Energy Parts Inc. vs. CIT, Delhi -1 where the Delhi High Court had upheld the reassessment action against various constituents of the GE Group for AYs 2001-02 to 2008-09, based on a survey conducted under Section 133A of the Income Tax Act, 1961 in the year 2007. “The said precept could have been legitimately invoked provided the AO were satisfied or had come to record its prima facie opinion that the facts which prevailed and obtained in AY 2013-14 upto AY 2017-18 were identical to those which had been found in the course of the two surveys which had been undertaken in 2007 and 2019,” Court said and quashed the impugned notices.