No Service PE as Days Spent on Business Development Activities are Excluded From Threshold Limit | ITAT

Case Details: Clifford Chance PTE Ltd. vs. ACIT - [2024] 160 taxmann.com 424 (Delhi-Trib.)

Judiciary and Counsel Details

• • Ms Astha Chandra, Judicial Member & Dr BRR Kumar, Accountant Member
  • Ajay Vohra, Sr. Adv. Neeraj Jain, Ms Shaily Gupta, Kunal Pandey & Archit Kabra, CA for the Appellant.
  • Vizay B. Vasanta for the Respondent.

Facts of the Case

The assessee provided legal advisory services to several international clients, including those in India. Assessee was a tax resident of Singapore and opted to be governed by the provisions of the India-Singapore DTAA. The assessee filed its return of income declaring nil income and claimed credit of taxes deducted at source.

During the relevant assessment year, the assessee entered legal advisory contracts with the Indian clients. Part of the advisory services was rendered remotely outside India, and there were situations where employees of the assessee travelled to India to render services. During the assessment proceedings, the Assessing Officer (AO) treated it as a constitution of service Permanent Establishment (PE) of the assessee in India and made additions to the assessee’s income.

On appeal, the Dispute Resolution Panel (DRP) confirmed additions made by AO. Aggrieved by the order, the assessee filed an appeal before the Delhi Tribunal.

ITAT Held

The Tribunal held that as per Article 7 of India-Singapore DTAA, the profits of a foreign enterprise (not falling within the purview of any other Article dealing with specific items of income, i.e. FTS) can be taxed in India only if the business is carried on through a PE situated in India. It is an undisputed fact that part of the advisory services were rendered remotely outside India, and part of the services were rendered in India through the employees of the assessee who travelled to India to render such services. It is also undisputed that the assessee had no office/fixed base in India during the relevant AYs and is governed by the beneficial provisions of the India-Singapore DTAA.

Out of the total 120 days, the vacation period amounted to 36 days, which the assessee substantiated by furnishing the relevant evidence thereof. The vacation days (36 days) were excluded from the total days for which the employee of the assessee was present in India (i.e. 120 days). The same would come to 84 days, which is less than the threshold of 90 days provided under Article 5(6)(a) of the India-Singapore DTAA for the constitution of service PE of the assessee in India. Further, to arrive at the threshold, the business development days comprising 35 days and common days comprising 5 days should be excluded while computing the threshold of service PE as no services were provided to customers in India.

In effect, the assessee has furnished the services only for 44 days in India after excluding vacation period, Business Development days and common days. Accordingly, the assessee does not constitute service PE in India as per India-Singapore DTAA.