IMAX Corporation Lacks Fixed Place or Installation PE in India: ITAT Deletes Additions Noting Employee Presence Was Merely 5 Days During Year [Read Order]

The Income Tax Appellate Tribunal (ITAT), Delhi Bench, has ruled in favor of IMAX Corporation, a Canadian tax resident, holding that the company did not constitute a Fixed Place Permanent Establishment (PE) or an Installation/Supervisory PE in India for the Assessment Year 2022-23. The Tribunal consequently deleted the additions made by the Assessing Officer (AO) regarding income attributed to the alleged PE.

The dispute arose from the AO's order, passed under section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961, which had proposed additions amounting to Rs. 182.34 lakhs. The Revenue Department contended that IMAX Corporation had a PE in India based on the installation of theatre systems, the sale of glasses, and theatre design services provided to Indian clients.

The Department argued that the contracts for sale, installation, and maintenance were composite in nature and artificially split, and that the premises of the Indian multiplex customers were at the disposal of the assessee, thereby constituting a fixed place PE. It was further alleged that an Installation PE existed under Article 5(2)(k) of the India-Canada DTAA, claiming that installation activities commenced in February 2022 and continued until September 2022, ostensibly breaching the 120-day threshold.

Before the Tribunal, the assessee, represented by S.K. Aggarwal and Himanshu, argued that the conditions for a fixed place PE were not satisfied. It was submitted that the assessee did not own or lease any premises in India and that the customer sites were never at their disposal; the customers merely provided access for installation.

The assessee highlighted that during the relevant Assessment Year (2022-23), only one employee visited India for a mere five days (February 28 to March 4, 2022) for a preparatory site inspection. The actual installation of the theatre system occurred in the subsequent Financial Year (September 2022) and lasted only 17 days. Thus, the assessee contended that the 120-day threshold required to constitute an Installation/Supervisory PE under the DTAA was never breached.

The Bench, comprising Vikas Awasthy, Judicial Member, and Sanjay Awasthi, Accountant Member, carefully examined the facts and the India-Canada DTAA provisions. The Tribunal observed that the four essential tests for determining a fixed place PE place of business, disposal, permanence, and business activity were not fulfilled.

Relying on the Supreme Court’s ruling in Formula One World Championship Ltd., the Bench noted that the premises must be at the disposal of the enterprise to constitute a PE, a condition missing in this case as the Indian customers operated the theatres for their own business activities.

Regarding the allegation of an Installation PE, the Tribunal noted the factual chronology: during the assessment year in question, the only activity was the five-day visit by an employee for inspection. Even including the installation activities in the subsequent year (17 days), the total duration did not exceed the 120-day threshold prescribed under Article 5(2)(k) of the Indo-Canadian DTAA.

Concluding that the fundamental allegation of a PE was invalid, the Tribunal held that there could be no attribution of income to a non-existent PE. The Tribunal declined to adjudicate on individual additions regarding theatre design services and the sale of glasses, as they were predicated on the existence of a PE. Accordingly, the Tribunal allowed the assessee's appeal and set aside the additions.

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