Treaty permanent establishment tests cannot club separate contracts; conceded section 44BB receipts remain taxable
Receipts from services rendered under the Arcadia Shipping contract were treated as taxable under section 44BB because the assessee conceded liability, so the earlier relief on that income could not stand. For the other two contracts, separate and unconnected projects with durations of less than nine months could not be aggregated to meet the India-UAE DTAA permanent establishment threshold under Article 5(2)(h). The assumption of earlier personnel presence was rejected as unsupported, and the Revenue's attempt to rely on a different treaty article was not accepted. The result was that the Revenue succeeded only on the Arcadia Shipping receipts, while the deletion of addition for the other contracts was sustained.
Issues: (i) Whether the receipts from services rendered to Arcadia Shipping Limited were taxable under section 44BB of the Income-tax Act, 1961. (ii) Whether the other two contracts could be aggregated for determining a permanent establishment under Article 5(2)(h) of the India-UAE DTAA and taxed in India.
Issue (i): Whether the receipts from services rendered to Arcadia Shipping Limited were taxable under section 44BB of the Income-tax Act, 1961.
Analysis: The assessee conceded that the receipts from the Arcadia Shipping contract were liable to be taxed under section 44BB. In view of that concession, the earlier relief granted by the first appellate authority could not be sustained for this part of the income.
Conclusion: The issue is decided against the assessee and in favour of the Revenue.
Issue (ii): Whether the other two contracts could be aggregated for determining a permanent establishment under Article 5(2)(h) of the India-UAE DTAA and taxed in India.
Analysis: The duration of each of the other two projects was less than nine months. The contracts were held to be unconnected, so their periods could not be combined for applying the treaty test of a construction or project permanent establishment. The assumption that personnel might have been present earlier was rejected as unsupported, and the Revenue's plea to invoke a different treaty article was not accepted.
Conclusion: The issue is decided in favour of the assessee and against the Revenue.
Final Conclusion: The Revenue's appeal succeeded only in relation to the Arcadia Shipping receipts, while the deletion of addition for the other two contracts was sustained.
Ratio Decidendi: For treaty purposes, separate and unconnected contracts cannot be clubbed to satisfy the nine-month permanent establishment threshold, but a conceded liability under section 44BB remains taxable accordingly.
TaxTMI 
AI Drafter ✕
TaxTMI 
