Permanent establishment under the India-Australia treaty was not established for offshore installation work, leaving profits outside Indian tax net.

Article 5 of the India-Australia DTAA distinguishes an oil or gas well or place of extraction from an installation or assembly project, and a permanent establishment arises only if the treaty conditions are met. In a turnkey engineering and installation contract for offshore platforms and pipelines, the assessee was neither the owner nor operator of the oil or gas well, and its work was confined to installation and commissioning activities. The contract did not establish a building site or installation project in India for more than six months, and the relevant operations during the year were limited to preparatory and offshore work outside India. On that basis, no permanent establishment came into existence in India during the assessment year, so the business profits were not taxable in India on that footing.

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Issues: Whether the assessee had a permanent establishment in India under Article 5 of the India-Australia DTAA, so as to make its business profits taxable in India.

Analysis: The assessee was engaged in a turnkey engineering and installation contract for offshore platforms and pipelines. The relevant treaty provisions distinguished between an oil or gas well or place of extraction under Article 5(2)(f) and an installation or assembly project under Article 5(2)(k). The assessee was not the owner or operator of the oil or gas well and its work related to installation and commissioning of platforms. The contract did not show that the assessee had a building site or installation project in India for more than six months during the year. The operations during the relevant year were confined to preparatory and offshore work outside India, and the installation presence necessary for a permanent establishment had not come into existence within the year.

Conclusion: The assessee did not have a permanent establishment in India during the assessment year under consideration and its business profits were not taxable in India on that basis.

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