Construction project duration under the India-Mauritius DTAA defeated permanent establishment status, excluding business profit taxation in India.
Offshore pipeline-laying and associated installation work were treated as a construction and assembly project under Article 5 of the India-Mauritius DTAA, so the minimum duration test applied to the project as a whole. The preparatory offshore planning and on-site activities were held insufficient to extend the project beyond nine months, and the contract-signing date was rejected as the starting point for the duration test. In the absence of a permanent establishment in India, Article 7 barred taxation of the contract receipts as business profits in India. The ruling left attribution and presumptive taxation issues unanswered.
Issues: Whether the applicant's offshore pipeline-laying and associated installation activities constituted a permanent establishment in India under Article 5 of the India-Mauritius DTAA, so as to make the contract receipts taxable in India.
Analysis: The contract work was held to be a construction and assembly project within the meaning of Article 5. The general definition of permanent establishment in paragraph 1 and the specific construction-project rule in clause (i) of paragraph 2 were read harmoniously, with the minimum duration requirement treated as applicable to such projects. On the facts, the relevant project activities, including preparatory and on-site operations, did not continue for more than nine months. The date of contract signing was rejected as the starting point for the duration test, and the earlier offshore planning and preliminary visits were held insufficient to establish the required permanence. In the absence of a permanent establishment, Article 7 barred taxation of business profits in India.
Conclusion: The applicant did not have a permanent establishment in India and the contract price was not taxable in India as business profits under the treaty.
Final Conclusion: The ruling answers the reference on taxability in the applicant's favour and leaves the remaining questions on attribution and presumptive taxation unanswered.
Ratio Decidendi: For a construction or assembly project under Article 5 of the India-Mauritius DTAA, the duration requirement must be applied to the project as a whole, including relevant preparatory on-site activities, and if the project does not exceed the treaty threshold, no permanent establishment arises and business profits are not taxable in the source State.
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AI Drafter ✕
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