Delhi ITAT Denies Profit Attribution Without Existence of Permanent Establishment

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) on 13 May 2026 held that remote access provided for maintenance and troubleshooting of IMAX theatre systems cannot by itself constitute a Fixed Place Permanent Establishment (PE) or a virtual Service PE in India under the India-Canada DTAA. A Bench comprising Judicial Member Vikas Awasthy and Accountant Member Sanjay Awasthi allowed the appeal filed by IMAX Theatre Services Ltd. and deleted the addition made towards alleged PE-based income attribution.

The dispute arose after the Assessing Officer passed an order under Sections 143(3) read with 144C(13) for AY 2022-23 alleging that the Canadian company had a Fixed Place PE as well as a Service PE in India. The assessee was engaged in providing maintenance services for IMAX theatre systems globally, including India, through an Australian vendor. The AO attributed revenues from maintenance services and sale of glasses amounting to Rs. 6.10 crore to the alleged PE and applied a profit rate of 25% under Rule 10, resulting in an addition of Rs. 1.52 crore. The DRP upheld the existence of PE but reduced the profit attribution rate to 12.5%, sustaining an addition of Rs. 76.25 lakh.

Before the Tribunal, the assessee contended that remote access to the theatre systems was provided only for limited maintenance purposes such as troubleshooting, software updates and bug fixing, and that the systems always remained under the control and supervision of the customers. It argued that none of the established tests for Fixed Place PE, including the “place of business,” “disposal,” “permanence,” and “business activity” tests, were satisfied. The Tribunal pointed out that

“There is considerable force in the arguments of the Ld. AR that none of the tests provided for indicating the existence of a fixed place PE namely; place of business test, disposal test, permanence test and business activity test are found to be fulfilled in this case.”

The Revenue relied heavily on the Linkedin profile of one Shri Sunil Kumar to argue that he was working full-time for IMAX and was carrying out activities in India on behalf of the assessee. However, the assessee submitted that Sunil Kumar was an employee of the Australian vendor, M/s ESPM, and filed an affidavit confirming the same. It was also pointed out that his visits to India for maintenance activities lasted only 67 days during the relevant financial year, which was below the 90-day threshold prescribed under the India-Canada DTAA for constituting a Service PE.

The Tribunal accepted the assessee’s submissions and observed that mere remote access for maintenance support could not establish a Fixed Place PE in India. The Bench also relied on the decision in Ernst & Young (EMEIA) Services Limited vs. ACIT and the Delhi High Court ruling in Clifford Chance Pte. Ltd. to hold that the concept of “virtual service PE” cannot be imported into a treaty unless specifically provided for in the DTAA.

“The concept of virtual PE on the basis of services provided remotely cannot be a valid construct for the purposes of determining a service PE in this case.”

The Tribunal further held that the 90-day threshold for Service PE was not crossed since the physical presence of personnel in India was limited to 67 days. It also rejected the Revenue’s reliance on the Linkedin profile as conclusive evidence of employment status in light of the affidavit furnished by the Australian vendor.

Since both the Fixed Place PE and Service PE allegations failed, the ITAT held that the question of attribution of profits did not survive for consideration. Accordingly, the appeal of the assessee was allowed.

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