38.6c New Delhi, India, Wednesday, June 19, 2024

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

By Shreedhara Purohit      27 July, 2020 09:03 PM      0 Comments
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 notice to Samsung. The case subsequently dragged on for nearly 15 years before being ruled in favor of Samsung in the Supreme Court.

The SC ruling in favor of Samsung is significant as it provides clarity on the definition of a project office (PO) and permanent establishment (PE) under the India-South Korea DTAA. This will provide MNCs with a clear understanding of where they stand when it comes to these issues and improve the ease of doing business in India.

The SC went so far ahead to call the Income Tax Appellate Tribunal’s ruling against Samsung as ‘perverse’.

“Principle of substance over form has been applied to arrive at this decision in favor of the taxpayer,” Nangia Andersen further added, noting the significance of the ruling

The Indian Supreme Court’s ruling in the Samsung Heavy Industries case could help other MNCs in understanding how to declare their income while undertaking certain projects in the country. The Supreme Court also had some harsh words for the Income Tax Appellate Tribunal, terming its ruling against Samsung as ‘perverse’.Experts suggest that the SC has gone beyond nomenclatures to understand the facts of the matter and rule based on substance over form.

Share this article:

Leave a feedback about this

Trending News Updates
Jain Community dresses up as Muslims to buy 124 Goats , saves them from Bakrid slaughter

Jain community in Delhi raises Rs 15 lakh, dresses as Muslims to buy and rescue 124 goats from Bakrid slaughter, garnering praise and attention.

18 June, 2024 01:19 PM
Trending International
Thailand passes Bill to legalise same-sex marriage

Thailand’s lawmakers approve a marriage equality bill, setting the stage for the country to become Southeast Asia’s first to legalize same-sex marriage.

18 June, 2024 04:51 PM


Trending CelebStreet
Karan Johar moves Bombay High Court against film ‘Shaadi Ke Director Karan Aur Johar’

Karan Johar files a lawsuit in Bombay High Court against the film “Shaadi Ke Director Karan Aur Johar,” seeking to prevent the use of his name in the title.

13 June, 2024 12:01 AM
Trending Judiciary
Conspired to transform India into an Islamic country by 2047: Bombay HC denies bail to 3 Islamists PFI members [Read Order]

Bombay High Court denies bail to three PFI members accused of plotting to turn India into an Islamic state by 2047, citing strong evidence and risk of tampering.

13 June, 2024 12:37 AM
Trending Judiciary
Delhi HC refuses to stay NEET-UG admissions counselling, over paper leak allegations

Delhi High Court refuses to stay NEET-UG 2024 counselling amidst allegations of irregularities.

13 June, 2024 12:48 PM
Trending Judiciary
Centre to hold re-test for 1563 candidates awarded grace marks in NEET UG, 2024 [Read Order]

Centre to hold re-test for 1563 candidates awarded grace marks in NEET UG 2024. Date for re-test to be notified on June 13, results by June 30.

13 June, 2024 01:39 PM


Join Group

Signup for Our Newsletter

Get Exclusive access to members only content by email