Permanent Establishment under treaty rules depends on actual site operations, not preparatory tender activity, and the 12-month threshold was not crossed.

For a construction or installation project under the India-Cyprus DTAA, the treaty period for a Permanent Establishment is computed from the start of actual site-related contractual operations, while preparatory or tender-stage activity is excluded. On the facts, the project did not cross the 12-month threshold, and the Revenue did not discharge the burden of proving otherwise. No Permanent Establishment was therefore constituted under Article 5(2)(g), and the contract income was not taxable in India under Article 7.

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Issues: Whether the assessee had a Permanent Establishment in India under Article 5(2)(g) of the India-Cyprus DTAA and whether the income from the Indian contract was taxable in India.

Analysis: The contract activity for the project was held to commence from the date on which contractual performance began at the site, and preparatory or tender-related steps undertaken before that stage were not counted for computing the duration of the construction activity. On the facts found, the project activity did not continue beyond the treaty threshold period of 12 months. The burden to establish that the threshold was crossed lay on the Revenue, and the materials on record did not support such a finding.

Conclusion: No Permanent Establishment was constituted under Article 5(2)(g), and the contract income could not be taxed in India under Article 7. The issue was decided in favour of the assessee.

Ratio Decidendi: For a construction or installation project, the treaty period for a Permanent Establishment is computed from the commencement of actual site-related contractual operations, and preparatory or bid-related activity is excluded unless the Revenue proves that the threshold duration was exceeded.

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