IN THE ABSENCE OF ANY PE IN INDIA, PROFITS OF WESTERN UNION (IF ANY, ATTRIBUTABLE TO THE BUSINESS OPERATIONS) COULD NOT BE TAXED IN INDIA
DDIT v. Western Union Financial Services Inc. Date of Decision: December 10, 2015
Facts of the Case
Western Union Financial Services Inc. (‘Western Union’), incorporated in USA, was engaged in the business of rendering money transfer services. In order to provide said services to citizens of the USA desirous of remitting money to India, Western Union had set-up a liaison office (LO) in India. It appointed agents in India and provided them software (Voyager) to access its mainframes in the USA. The agents were paid commission on completion of money transfer transactions. Western Union filed its return declaring ‘nil’ income by contending that it was not liable to pay any tax in India on income arising from money transfer services as it didn’t have any permanent establishment (PE) in India.
Decision of the Tribunal
The Appellate Tribunal held that albeit Western Union had business connection in India in terms of section 9 of the Income-tax Act 1961, yet it did not have a PE in India under India-USA DTAA. Western Union could not be said to have fixed place PE in India as it did not have its own outlet in India and it was carrying on its business through agents appointed in India.
Moreover, the LO could not be considered as Western Union’s PE in India as it carried out activities which were of a preparatory or auxiliary arachcter. It had not carried on any trading activity for the assessee in India.
The Tribunal also observed that the software was the property of the Western Union and it had not parted with its copyright therein in favour of the agents.
Mere use of the software by the agents in order to gain access to the mainframe computers in the USA from the premises of the agents could not lead to the decision that the premises-cum-software would be the PE of the assessee in India.
It was further held that the agents appointed by Western Union were acting in the ordinary course of their business and their activities were not devoted wholly or almost wholly to the Western Union.
Further, commissions were paid to them at arm’s length price. Therefore, the agents were independent agents under Article 5.5 of the India-USA DTAA. Hence, in the absence of any PE in India, the profits of the Western Union, if any, attributable to the business operations could not be taxed in India.
For query or help, contact: email@example.com or call at 9555555480