Overriding effect of Article 5(3) of DTAA: Supreme Court Adjourns Hearing in Hyundai Heavy Industries Taxation Appeals [Read Judgement]

The Supreme Court of India adjourned the hearing of appeals filed by Hyundai Heavy Industries against the Director of Income Tax (International Taxation) regarding the overriding effect of Article 5(3) of the Double Taxation Avoidance Agreement (DTAA) to December 3, 2025.

During the proceedings, counsel for both sides presented their arguments. At the request of the respondent's counsel, the case was adjourned and the two-judge bench of Justices B.V. Nagarathna and R. Mahadevan scheduled hearing on December 3, 2025. The order was recorded by the Court's officials, and the matter was temporarily postponed to the specified date.

The Income Tax Department filed an appeal before the High Court of Uttarakhand. The key issues involved whether Article 5(3) of the Double Taxation Avoidance Agreement (DTAA) has overriding effect over Articles 5(1) and 5(2), making the Mumbai office of Hyundai a Permanent Establishment (PE) and thus subject to tax on income outside India.

The Court upheld the Tribunal’s view that Article 5(3), being specific, overrides the general provisions, and the Mumbai office was merely an auxiliary or preparatory office, not a PE.

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The Revenue could raise new legal arguments for the first time during appellate proceedings, particularly regarding the calculation of income within India under Section 44BB, and whether the assessment order was final and unreviewed. The Court held such new grounds, raised belatedly and not in the grounds of appeal, could not be considered.

The Court stated that factual findings by the Assessing Officer and CIT (Appeals), such as the character of the Mumbai office, were not challenged or examined by the Tribunal, and such findings are binding unless perversity is shown—something not established here. Consequently, the Tribunal’s conclusion that the Mumbai office was not a PE under the DTAA was upheld.

Additionally, the Court clarified that questions not raised before the Tribunal or on the grounds of appeal cannot be raised for the first time at the appellate stage under Section 260A, and that the appeal was rightly dismissed as having no substantial question of law.

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