From NHAI negligence to 'PE' clarified again, here're the key court orders

‘Permanent establishment’ clarified again

A “permanent establishment (PE)” in a double taxation avoidance treaty is one through which the business of an enterprise is wholly or partly carried on. Also, profits of the foreign enterprise are taxable only where it carries on its core business through a PE. The maintenance of a fixed place of business, which is of a preparatory or auxiliary character, will not be considered to be a PE. It is only so much of the profits of the enterprise that may be taxed in the other state as is attributable to that PE. The Supreme Court summarised the law last week in its judgment, Director of IT vs Samsung Heavy Industries, in a 2007-08 assessment.  The South Korean firm had set up a project office in Mumbai to undertake an ONGC contract with L&T as collaborator. The appellate tribunal upheld the tax demand on Samsung, but the Bombay High Court allowed its appeal. The Supreme Court dismissed the appeal of the tax authorities observing the two-men unit in Mumbai was only auxiliary office doing no core business. Holding otherwise as the authorities below did was “perverse”, the court stated after going into facts of the case.

‘Absolute liability’ for NHAI negligence

The National Highway Authority of India (NHAI), which constructs, owns and controls its roads, owes a duty of care to users. If it neglects this duty and any user suffers death or injury, it is liable to pay compensation to the victim. The Supreme Court declared so in its judgment, NHAI vs AA Lokmanch. In this case, a woman and her daughter were driving on the Pune-Satara highway. A miner had flattened a hill along the road causing flooding of the highway. When the women alighted from the car, they were washed away and drowned. Lokmanch, a public-spirited organisation, took up the case before the Pune Bench of the National Green Tribunal. It directed the NHAI and the miner to pay compensation. They appealed to the Supreme Court. It affirmed the liability of both. The long judgment applied the principle of “absolute liability” in such cases and emphasised that “a statutory corporation or local authority can be held liable in tort for injury occasioned on account of omission to oversee or defective supervision of its activities contracted out to another agency”. The court ordered Rs 15 lakh shall be utilised by the Maharashtra government to restore the environment.

I-T notice to dead assessee, kin invalid

The income tax authorities cannot reopen assessment if service of a notice cannot be served on a dead person. Issuing notice to the correct person is “not only a procedural requirement but also a condition precedent for a valid notice,” the Delhi High Court emphasised in its judgment, Savita vs CIT. In this case, a notice was served on Mohinder Kapila on March 31 last year over undeclared income, though he had died four months earlier. After repeated notices to the dead person, the authorities turned to one of his daughters. Against her protests, she faced a penal sum. She moved a writ petition before the high court. It quashed all the notices observing when there is no proper notice, legal heirs do not automatically step into the shoes of the assessee. There is no rule either that legal heirs should inform the authorities about the death of an assessee.