3 Article 5 and 7 of India-UAE DTAA – AAR’s decision indicating that a group concern has a PE in India, cannot be a basis for concluding that the Taxpayer has a PE in India. In absence of FTS article in the DTAA, income from provision of technical personnel is taxable as business income, provided that Taxpayer has a PE in India as per the relevant DTAA.

Facts

Taxpayer, a company incorporated in UAE, was engaged in the business of
providing management and technical consultancy services. During the year, the
Taxpayer provided technical/professional personnel to its Indian associated
enterprise (ICo). The personnel were physically present in India for a period
of 156 days.

The Taxpayer contended that since DTAA does not have any specific
article on fees for technical services (FTS), the consideration received from
ICo is taxable as business income. However, in the absence of a PE in India,
the income received from ICo was not offered to tax by the Taxpayer.

AO observed that in respect of certain group companies including the
parent of the Taxpayer, AAR had given a common ruling that the said companies
had a PE in India. By placing reliance on AAR’s ruling, AO held that ICo
created a PE for the Taxpayer in India.

Aggrieved by the order of AO, Taxpayer appealed before the CIT(A) who
upheld the order of AO. Subsequently, Taxpayer appealed before the Tribunal.

Held

–   The
ruling of the AAR in the case of group entities of the Taxpayer cannot be the
basis for determining the existence or otherwise of PE of the Taxpayer in
India, especially when AAR gave a common ruling without making any specific
reference to the provisions of the respective DTAA.

–  ICo
did not earmark any specific or dedicated place for the personnel of the
Taxpayer, hence it cannot be said that the premises of ICo was under the
control or disposal of the Taxpayer. Thus ICo premises did not create a fixed
place PE for the Taxpayer in India.

–   FCo
provided services to ICo and it is not a case where FCo was receiving any
services from ICo. Thus the question of dependent agent PE in India does not
arise.

–  Since
the employees worked in India for an aggregate period of 156 solar days on all
projects taken together, the threshold for triggering Service PE clause is not
met.

–  Thus
the income of the Taxpayer from provision of personnel is not taxable in India