India: Permanent establishment losses deductible against fee for technical services income under Korea treaty (tribunal decision)
Set-off provisions under the domestic law must be considered prior to computing the total income under the treaty.
The Delhi Bench of the Tribunal held that business losses attributable to a Korean taxpayer’s permanent establishment (PE) in India are deductible against the taxpayer’s fee for technical services (FTS) income under the India-Korea income tax treaty, even when the FTS was not attributable to the PE and was taxable on a gross basis.
The case is: Hyosung Corporation v. ACIT
The Department of Revenue contended that PE-related income/loss and FTS were separate income streams, and that the Korea treaty did not have any provision to permit such a set-off.
However, the tribunal held that treaty provisions did not override beneficial computation mechanisms available under the Income-tax Act, 1961, and set-off provisions under the domestic law must be considered prior to computing the total income under the treaty.
Read an April 2025 report prepared by the KPMG member firm in India