In Brief
Samsung Heavy Industries Co. Ltd., a South Korean company, entered into a turnkey contract with ONGC for the Vasai East Development Project. It established a project office in Mumbai with two unqualified employees to coordinate with ONGC. The tax authorities attributed 25% of offshore revenues to this office as income taxable in India. The Supreme Court held that the Mumbai office constituted only an auxiliary/liaison office, not a permanent establishment under Article 5(1)/(2) of the India-Korea DTAA. Since it was not engaged in core business activities and fell within Article 5(4)(e) (preparatory/auxiliary exclusion), no PE existed. The arbitrary attribution of 25% of revenue without evidence linking it to the office's activities was impermissible. The appeal by the Department was dismissed.
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