Secondment of Employee does not constitute Permanent Establishment in India if there is no Income Generation in India.

The Delhi High Court, in the case of Samsung Electronics Co. Ltd, Korea (Samsung Korea) ([TS-21-HC-2025(DEL)] has recently ruled that the secondment of an employee to India does not constitute Permanent Establishment in India.

Case Snapshot:

·?Seconded employees were assisting the Indian subsidiary - Samsung India Electronics Ltd (Samsung India) and were not performing activities for Samsung Korea.

· Seconded employees were performing the following activities like market analysis, data collation, and trend studies for the Samsung India not for Samsung Korea’s business.

Key Observations:

The reliance was placed on the Rulings of: Hyatt International Southwest Asia Ltd. v. CIT (2024 SCC OnLine Del 6546) and Progress Rail Locomotive Inc. v. Deputy Commissioner of Income-tax (International Taxation) and Others (2024 SCC OnLine Del 4065).

These decisions clarified that the mere presence of employees does not create a PE unless they are engaged in income-generating activities for the foreign entity.

Secondment of employees is explained in the?UN and OECD Model Commentaries

?HC notes that?".... What however needs to be considered is whether the deployment of such employees is in furtherance of the business of their formal employer or intended to be utilized for the business of the enterprise with whom they are placed.?

Outcome

The Delhi high Court decision in favor of the taxpayer reaffirming that employee secondment arrangements do not automatically lead to the creation of PE under DTAA provisions. This decision underscores a critical principle: Income generation activity and decision making for Parent entity benefit.

A noteworthy judgment offering businesses must carefully evaluate whether seconded employees are engaged in activities that directly benefit the global operations of the parent company.

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