February 2019

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

 

FACTS


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.

 

Aggrieved, the Taxpayer

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