Diff. projects said to be inter-connected if there was unified agreement & consolidated billing pattern; PE exists: ITAT

Case details: Telenor ASA v. DCIT - [2021] 129 taxmann.com 198 (Delhi - Trib.)

Judiciary and Counsel Details

• • Kul Bharat, Judicial Member and DR. BR.R Kumar, Accountant Member. 
  • Ajay Vohra, Sr. Adv. for the Appellant. 
  • Dr. Prabha Kant for the Respondent.

Facts of the Case

Assessee was a tax resident of Norway. It had entered into Business Service Agreement with Unitech Wireless (Tamil Nadu) India P. Ltd. As per the BSA, the assessee provided services under independent Service Order Forms (SOFs) to Unitech Wireless. Assessee treated its income as “fee for technical services” (FTS) and offered tax @10% on gross basis, relying on Article 13 of the DTAA between India and Norway.

However, the Assessing Officer (AO) held that assessee had a PE in India in terms of Article 5(2)(1) of the Treaty. Time spent by employees of the assessee in India, while rendering services to Unitech Wireless, exceeded the threshold provided in that Article 5. Thus, such income would be taxable as per Article 7 of the Treaty. DRP also upheld the order of AO.
Aggrieved-assessee filed the instant appeal before the Tribunal. It was contended that the various SOFs constitute separate projects & activities and cannot be treated as single consolidated activities. The duration of stay of its employees, with respect to the various projects undertaken by it, does not exceed six months per project. Thus, Article 5 of the treaty wasn’t attracted in its case.

ITAT Held

The Delhi Tribunal held that assessee raised bills on quarterly basis. Consolidated invoices were raised irrespective of the SOFs under which the services were rendered. The common billing and the common payments give rise to the conclusion that there was a single contract.

Further, on going through the sequence of activities, it can be concluded that the activities consist of the same and enter-connected projects. The activities of the assessee cannot be said that were unrelated to each other as none of the activities could stand in isolation from the other activity. No single activity can give rise to performance and achieving the purpose of the recipient.

The activities start with preparation, execution, and negotiation of the Global System for Mobile Communication (GSM) to devising the strategy development, preparation of IT solutions architect, benchmarking the same, recruiting the manpower for the purpose of implementation, and training them for various activities in relation to GSM role out to customers.

It was a clear commercial coherence between the activities as no single activity mentioned above doesn’t serve any purpose individually, when segregated. All these activities were different facet of one seamless function. The project as defined in the Article 5(2)(1) consists of bundle of inter-connected and interrelated services with the underlying theme of completion of projects. In the instant case, the implementation of one SOF leads to the other and it can be observed that they were well integrated, the outcome of one SOF becomes the inputs for the other SOF.

Thus, based on the unified agreement, consolidated billing pattern, the activities were found to be interrelated. Accordingly, the existence of the PE of the assessee was undeniable.