Burden of proving Foreign Assessee has a PE in India to levy Income Tax is on the Dept: ITAT grants relief to KFC Franchise [Read Order]

The Income Tax Appellate Tribunal (ITAT), while dismissing the appeal by the revenue held that Burden of proving foreign assessee has a Permanent Establishment (PE) in India, so to be taxed on the business generated by such PE is on the Revenue Department.

The assessee, M/s. Yum! Restaurants (Asia) Pte. Ltd. is a company incorporated in Singapore, which is engaged in the business of franchising KFC, Pizza Hut, and Taco Bell brands for a number of territories in the Asia Pacific region (including India).

For the operation of restaurant outlets, the assessee entered into Technology License Agreement (TLA) for the license of “Technology” and “System” with Yum! Restaurants (India) Private Limited (YRIPL).

YRIPL in turn had appointed various franchisees for operating restaurants in India under the brand name KFC and Pizza Hut. YRIPL also operated the company-owned KFC restaurants in India.

The Assessing Officer was of the view that the person employed by the assessee, working under the Indian entity, was seconded to India; the salary of the said person was reimbursed by the Indian entity and hence taxable in the hands of the assessee.

The CIT(A) after going through the clauses of the Deputation Agreement concluded that he was not the employee of the assessee and hence there was no right/lien over his employment and hence, there was no service PE.

The revenue department contended that there is a Technical License Agreement between the assessee and the YRIPL and also there is deputation of an employee of the assessee company. He further stated that the person was in India, was seconded to India and the question was whether there was a PE or not.

The tribunal headed by the Vice-President, Shushma Chowla held that the evidence needed to be seen in their entirety as the burden of proving that the foreign assessee has a PE in India and consequently it has to be taxed on the business generated by such PE is initially on the Revenue. In the absence of the same, it cannot be said that the assessee had service PE in India.