India: Income from offshore supplies of equipment and designs not taxable in India without fixed place PE or nexus with supervisory PE (tribunal decision)
Taxpayer did not have fixed place PE because its employees did not have any control over Indian premises or customers.
The Delhi Bench of the Income-tax Appellate Tribunal held that the taxpayer, an Italian tax resident, did not have a fixed place permanent establishment (PE) in India because the taxpayer’s employees did not have any control over the premises of the Indian group entity or the Indian customers. Accordingly, the taxpayer’s profits from offshore supply of equipment and designs, when title and risk passed outside India, were not taxable in India.
In addition, although the taxpayer conceded it had a supervisory PE in India under the India-Italy income tax treaty, its income from offshore supply could not be taxed in India by applying the force of attraction rule without any nexus between the offshore supply business and the supervisory PE. However, receipts of the taxpayer that were effectively connected with the supervisory PE were taxable in India as business profits and could not be recharacterized as fees for technical services (FTS).
The tribunal also held that the consideration received for supply of designs relating to indigenous equipment and civil works was neither royalty nor FTS because the designs were inextricably linked to the offshore supply of the equipment and did not grant any right to the Indian customers to commercially exploit the underlying intellectual property right.
The case is: DCIT v. Paul Wurth Italia SPA (ITA No. 5254/Del/2017 & ITA No. 5164/Del/2017)
Read an August 2026 report prepared by the KPMG member firm in India