The New Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has held that a foreign enterprise does not constitute a fixed place PE in India merely because its products are installed at customer premises or because it is granted access to those premises for limited installation-related purposes; the premises must be at the disposal of the enterprise, with a right to use and control them, and the ordinary tests of place of business, disposal, permanence and business activity must be satisfied.
The ITAT clarified an installation or supervisory PE under Article 5(2)(k) of the India-Canada DTAA arises only where the relevant installation, assembly or supervisory activities continue for more than 120 days in a 12-month period; a short preparatory visit and a later 17-day installation period do not satisfy that threshold. Where no PE exists, no income can be attributed to India on that basis.
Accordingly, the Tribunal held that there was neither a fixed place PE nor an installation/supervisory PE in India in the IMAX Corporation’s case, and consequently, no income could be attributed to the alleged PEs and it declined to examine the individual additions made on that presumption.
The Division Bench comprising Vikas Awasthy (Judicial Member) and Sanjay Awasthi (Accountant Member) observed that accepted the assessee’s submissions on the fixed place PE issue and held that none of the recognised tests for existence of a fixed place PE were satisfied, namely the place of business test, disposal test, permanence test, and business activity test.
The Tribunal recorded that the assessee did not own or lease any place of business in India, the customer premises were not at the assessee’s disposal, the assessee had only a short five-day employee visit during the relevant year, and the theatre system, once installed, was used and operated by the Indian customers for their own business and not by the assessee. The Tribunal therefore held that there was no fixed place PE under Article 5(1) of the Indo-Canadian DTAA.
On the installation/supervisory PE issue, the Tribunal observed that during the relevant assessment year the only activity attributable to India was the five-day visit of Jim Krimbalis between 28.02.2022 and 04.03.2022 for inspection of the client’s premises. It further noted that the subsequent installation process in the next financial year lasted only 17 days.
On either basis, the Tribunal found that the 120-day threshold under the India-Canada DTAA was not met, and therefore no installation or supervisory PE arose in India. The Tribunal also observed that once the allegation of PE failed, there could be no occasion to attribute income to the alleged PE.
Briefly, the assessee, IMAX Corporation, Canada, is a Canadian tax resident engaged in developing, selling and leasing large format theatre systems globally, along with installation and related support services. In India, it entered into agreements for sale of theatre systems, installation and training services, and grant of licence to use the “IMAX” trademark. For AY 2022-23, the Assessing Officer alleged the existence of a fixed place PE and an installation PE in India, and proposed additions on account of sale of theatre systems, sale of glasses and others, installation services, and theatre design services.
After DRP directions, the final assessment order retained additions in respect of sale of glasses and others, installation services, and theatre design services, though the order itself noted that the DRP had specifically directed that only installation and theatre design services should be considered. The assessee challenged the findings on fixed place PE, installation/supervisory PE, attribution of profits, incorrect computation of income, levy of interest under section 234B, and initiation of penalty proceedings under section 270A.
