Non Resident liable to tax in all AYs wherein its project exceeding threshold limit for creation of PE falls: AAR
Tiong Woon Project & Contracting (P.) Ltd., In re – [2021] 124 taxmann.com 549 (AAR – Mumbai)
Short Overview of the Case:
Applicant-Tiong Woon Project & Contracting (P.) Ltd is a company formed in Singapore.
It is engaged in the business of heavy lifting, erection and installation of heavy equipment for large projects.
The applicant has secured a work order from Punj Llyod Limited for providing heaving lifting cranes with the necessary crew comprising of erection Engineer, operator etc. for installation of heavy equipment at the customer’s site.
This project has been executed between 06-01-2011 to 30-01-2012 comprising nearly 13 months.
The project was continued for a period of 85 days in the previous year 2010-11 and for a period of 306 days in the previous year 2011-12.
Before the Authority for Advance Ruling (AAR), the applicant took a view that no taxable income accrues or arises in India from its activities of execution of ‘installation project’ in the previous year 2010-11 since the duration of the project was only 85 days.
The taxable income arises in the previous year 2011-12 where the duration of the project was 306 days resulting in the creation of permanent establishment (PE) in India in terms of Article 5 of DTAA between India and Singapore.
The revenue argued that Article 5 clearly states that an installation project constitutes a PE if it continues for a period of 183 days in any fiscal year.
That Article refers to any fiscal year and not every or relevant fiscal year.
Attention is also invited to Article 15 of the DTAA which deals with dependent personal services.
The article mandates that the recipient should be present in the other state for a period or periods not exceeding in aggregate 183 days in the relevant fiscal year to escape taxation.
Thus, it is emphasized that the phrase ‘any fiscal year’ in article 5 indicates that a PE is constituted if the whole duration of the project which may be spread over more than one fiscal year includes the duration of 183 days or above in any fiscal year.
Thus, it was held that the applicant’s income is taxable in India as business profit in both the previous year’s 2010-11 and 2011-12.
