Article 5(2)(h) of India-UAE DTAA Grouting activity undertaken in India by UAE Company for a period of 9 months does not result in construction PE under India-UAE DTAA
Geeta Jani | Dhishat B. Mehta Chartered Accountants
19.TS-741-ITAT-2018 (Del) ULO Systems LLC vs. ADIT Date of Order: 29th December,
2018 A.Y.: 2007-08
Article 5(2)(h) of India-UAE DTAA
Grouting activity undertaken in India by UAE Company for a period of 9 months
does not result in construction PE under India-UAE DTAA
Taxpayer, a UAE company, was engaged in
providing grouting and precast solutions to support and protect subsea
pipelines, cables and structures. As part of grouting activity, a neat mixture
of cement and water (grout) is mixed and pumped into water in certain shapes
and forms, which acts as a support and stabilises the subsea pipelines and
cables. It also helps in preventing the corrosion of the pipelines.
During the year
under consideration, Taxpayer undertook several projects in India for which it
was present in India for an aggregate period of 264 days. Further, presence for
any single project did not exceed the threshold specified in India-UAE DTAA.
Also, the projects were unconnected and were performed for unrelated
third-party customers in India.
Taxpayer believed that the grouting activity
carried out in India was in the nature of construction activity as contemplated
in Article 5(2)(h) of India-UAE DTAA, and as the presence in India did not
exceed 9 months, it did not create its Permanent Establishment (PE) in India.
Further, since the contracts were not inter-connected, time spent on such
projects could not be aggregated for calculating the 9-month threshold.
The AO, however, held that that the grouting
activity would create a fixed place PE under Article 5(1) of the DTAA. AO also
alleged that Taxpayer circumvented the 9-month threshold by manipulating the
number of days of presence in India.