In absence of ‘test of cohesiveness, interconnection and interdependence’ for the contracts being met, time spent on each contract executed in India cannot be aggregated for the purpose of determination of Construction PE under Article 5(3) of India-Singapore DTAA. Each contract needs to satisfy time threshold of 183 days in the relevant financial year to constitute a PE under the DTAA.

Each contract needs to satisfy time threshold of 183 days in the relevant financial year to constitute a PE under the DTAA.

Facts

•  Applicant, a company incorporated in Singapore (FCO), executed the following contracts in India in the relevant financial years: 

Financial year  Particulars  Duration
        

•  For the purpose of the contracts, FCO deputed four to five employees from Singapore along with local manpower to India. The scope of work under each of the four contracts was similar and comprised the following: n Erection and installation of heavy equipments at the site of customers. The equipments to be installed are fabricated and provided by the customers at installation sites n Organisation of load movement test on a crane n Holding of equipment after erection and before completion of welding of column section n Setting up, fitting, placing, positioning of the fabricated equipment at the site.

•  FCO contended that the activities carried out were installation projects and determination of PE would fall under the Construction PE rule of the DTAA. The contracts were independent of each other and were secured through independent work orders. Further, a Construction PE under the DTAA would trigger only if each of the four contracts continued for a period of more than 183 days individually, in any financial year.
• Tax Authority contended that the activities carried on by FCO were in the nature of services; the DTAA specifies a shorter time threshold for PE trigger as long as, inter alia, such services are not supervisory services in connection with the Construction PE; and accordingly, service PE of FCO was constituted under Article 5(6) of DTAA. 

Held:

• Activities in the nature of erection, installation 9 of heavy equipments, organisation of crane testing, holding of equipment after erection, etc., undertaken by FCO would constitute installation or assembly project. The activities would not amount to supervisory activities in connection with installation and assembly project.
•  An Indian company had given two orders to FCO in separate financial years. Each order was for carrying out different work. Thus, for both the financial years, it can be said that the parties were different and the projects are independent projects without any interconnection and interdependence amongst them.
•  There was no extension of one contract to another. The duration test of 183 days under the Construction PE rule cannot be construed to be read for all the contracts that do not pass the ‘test of cohesiveness, interconnection and interdependence’. Therefore, an aggregation of time periods for the contracts cannot be made.
•  Since each of the contracts does not cross the threshold of 183 days in the relevant financial year, it would not constitute a PE under the DTAA. In absence of PE of FCO in India, income earned by FCO from Indian contracts would not be liable to tax in India.