Physical presence in India is essential to constitute service PE, virtually providing services do not constitute a service PE: ITAT
Clifford Chance PTE Ltd. (ITA Nos. 2681 & 3377/Del/2023)
Facts:
1. During the relevant AYs, the assessee entered into legal advisory contracts with the Indian clients. In AY 2020-21, part of the advisory services were rendered remotely outside India and while there were situations where employees of the assessee travelled to India for rendering services. In AY 2021-22, the services were rendered remotely from outside India and no employees had visited India for provision of services.
2. Ld. AO passed final assessment order holding that the assessee constituted service PE based on physical presence of employees in India and also virtual service PE on the ground that in terms of para 6 of Article 5 of the India-Singapore DTAA what is important is the aggregate duration of provision of services by the non-resident within India and Singapore and duration of physical presence of the employees in India is not material. He further attributed 100% of the gross receipts amounting to Rs. 7,76,53,507/- to such alleged virtual service PE.
Delhi ITAT held as below:
1. Applying the provisions of Article 5(6)(a) to the present case, in our considered view to constitute a service PE actual performance of service in India is essential.
2. Accordingly only when the services are rendered by the employees within India with their physical presence during the financial year relevant to the AYs under consideration shall be taken into account for computing threshold limit for creation of a service PE of the assessee in India.
3. The Hon’ble Supreme Court in the case of E-funds IT Solutions Inc. (CA NO. 6082 OF 2015) observed that requirement of service PE is that services must be furnished “within India”.
4. The services have been furnished by the assessee only for 44 days in India after excluding vacation period, Business Development days and common days and accordingly the assessee does not constitute service PE in India as per India-Singapore DTAA during the AY 2020-21.
5. So far as AY 2021-22 is concerned, as discussed above physical rendition of services in India beyond the threshold period is a prerequisite for creation of service PE and as none of the employees of the assessee were physically present in India during the AY 2021-22, in our view, the assessee does not constitute service PE even in AY 2021-22.
The copy of the order is as under:
1710394018-ITA Nos. 2681 3377 del 2023 SA 437 Del 2023 Clifford Chance PTE Ltd vs ACIT
