Installation project PE test under the India-Singapore treaty requires separate project counting; services article cannot override the specific rule.
A specific treaty rule for construction or installation projects governs subsea installation contracts under the India-Singapore DTAA, so Article 5(6) for services cannot override Article 5(3). The projects had to be tested separately on their own facts, and separate contracts could not be aggregated for the 183-day threshold unless they formed a coherent commercial and geographic whole. On the facts noted, each project remained below the threshold, so no permanent establishment arose in India on that basis. The commentary also notes that interest under section 234B was not leviable on the admitted facts, following binding jurisdictional precedent.
Issues: (i) Whether the assessee's subsea installation contracts constituted a permanent establishment in India under Article 5(3) of the India-Singapore DTAA or under Article 5(6); (ii) Whether the days spent on separate projects could be aggregated for testing the treaty threshold; (iii) Whether interest under section 234B of the Income-tax Act, 1961 was leviable.
Issue (i): Whether the assessee's subsea installation contracts constituted a permanent establishment in India under Article 5(3) of the India-Singapore DTAA or under Article 5(6).
Analysis: The contracts were found to be purely installation and construction contracts. Article 5(3) specifically governs building sites and construction, installation or assembly projects and applies where such project continues for more than 183 days in a fiscal year. Article 5(6), by contrast, deals with furnishing of services through employees or other personnel and cannot be used to override the specific regime for installation projects covered by Article 5(3). The activities were therefore required to be tested under Article 5(3) alone.
Conclusion: The contracts did not constitute a permanent establishment under Article 5(6), and the relevant test remained Article 5(3).
Issue (ii): Whether the days spent on separate projects could be aggregated for testing the treaty threshold.
Analysis: Each project had to be examined independently on its own facts. The threshold under Article 5(3) applies to each site or project separately unless the projects form a coherent whole in a commercial and geographic sense. The projects here were independent and could not be clubbed together. On the facts found, each project remained below the 183-day threshold, and the date of signing of the contract could not be treated as the starting point for counting days.
Conclusion: The projects were required to be tested separately, and none crossed the 183-day threshold.
Issue (iii): Whether interest under section 234B of the Income-tax Act, 1961 was leviable.
Analysis: The issue was covered by the binding jurisdictional precedent relied upon by the Tribunal, and on the admitted facts no interest under section 234B was payable.
Conclusion: Interest under section 234B was not leviable.
Final Conclusion: The assessee had no permanent establishment in India on the basis of the individual installation projects, the treaty income was not taxable in India on that footing, and the levy of interest under section 234B was also deleted.
Ratio Decidendi: A specific treaty provision governing construction or installation projects must be applied to such activities, and separate projects cannot be aggregated for the PE duration test unless they form a coherent commercial and geographic whole.
TaxTMI 
AI Drafter ✕
TaxTMI 
