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The Delhi High Court has held that the existence of a foreign entity’s Permanent Establishment (PE) in India is required to be determined in law for each year separately on the basis of the scope, extent, nature and duration of activities in each year.
A division bench of Justices Yashwant Varma and Ravinder Dudeja made the observation while dealing with a Swiss company’s case, which was aggrieved by various reassessment notices issued for AYs 2013-18 for alleged escapement of income generated by its alleged PE, namely, GE T&D India Ltd.
The AO had relied on a 2019 survey report as per which activities carried out by the Swiss company through the PE in India were core activities of marketing, negotiation, identification of customers and selling of the products.
While allowing the company’s plea against such action, the High Court heavily relied on a coordinate bench decision in Grid Solutions OY (Ltd) v. Assistant Commissioner Of Income Tax International Taxation & Anr. (2025) where also determination of PE based on a survey pertaining to a different Assessment Year was quashed.
It was held therein that while the AO may take cognizance of a “fundamental aspect pervading through different assessment years, the AO cannot proceed on an “assumption” that the fact regarding the existence of PE remained unchanged through all those years.
Similarly in Dwarkadas Kesardeo Morarka v Commissioner of Income Tax, Central (1961) the Supreme Court had held that in the matter of assessment of income tax, each year’s assessment is complete and the decision arrived at in a previous year on materials before the taxing authorities cannot be regarded as binding in the assessment for the subsequent years.
The Top Court had reasoned that the way in which business is carried on evolves over the years and thus, facts and arrangements applicable at one point in time may no longer be relevant after a change.
“Clearly, whether or not a permanent establishment exists in a State during a given period must be determined on the basis of the circumstances applicable during that period and not those applicable during a past or future period,” the Top Court had said.
Coming to the facts at hand, the High Court noted that the AO “woefully failed” to establish that the formation of opinion was based on any independent inquiry or material.
“As is ex facie evident from a reading of the reasons which stood assigned for invoking Section 148, the solitary basis was the survey conducted on 06-07 June 2019. Accordingly, and for all the reasons assigned by us in our judgment rendered on Grid Solutions OY, we find ourselves unable to sustain the impugned action,” the High Court said and quashed the impugned reassessment action.
Appearance: Mr. Ajay Vohra, Sr. Adv. with Mr. Aditya Vohra and Mr. Shashvat Dhamija, Advs for Petitioner; Mr. Ruchir Bhatia, SSC, Mr. Anant Mann, JSC and Ms. Aditi Sabharwa, Adv for Respondent
Case title: GE Grid (Switzerland) GMBH v. Assistant Commissioner Of Income Tax & Anr.
Citation: 2025 LiveLaw (Del) 287
Case no.: W.P.(C) 1294/2022
Click here to read judgment
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