Permanent establishment in oil-field services includes active rig preparation, not only drilling days, for treaty day-count purposes.

Article 5(5) of the India-Singapore DTAA deems a permanent establishment to exist where services or facilities connected with mineral oil exploration are provided for more than 183 days in a fiscal year. The text explains that, on the stated facts, a rig's arrival was followed immediately by fabrication, upgradation, positioning and other enabling work for the contracted drilling operations, and that this preparatory phase formed part of the deployment for the oil-field service. It rejects a narrow approach that counts only actual drilling days, treating the active preparation of the rig as included in the service period for PE computation and related Indian taxability under section 44BB.

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Issues: Whether the assessee had a permanent establishment in India under Article 5(5) of the India-Singapore DTAA by counting the period during which the rig was undergoing fabrication, upgradation and positioning for the contract, and whether the income was taxable under section 44BB.

Analysis: Article 5(5) deems an enterprise to have a permanent establishment in a contracting State if it provides services or facilities in connection with the exploration, exploitation or extraction of mineral oils for more than 183 days in a fiscal year. The rig entered India on 26.04.2010 and, on the facts found from the meeting record and contract circumstances, was immediately subjected to fabrication, upgradation, positioning and other enabling operations to make it fit for the contracted drilling work. These activities were treated as part of the deployment in connection with the oil exploration services and were not separated from the subsequent drilling operations. The earlier view that only the actual drilling days could be counted was rejected because the rig was not merely ready for use but was being actively prepared and enabled for the contract from the date of arrival.

Conclusion: The assessee had a permanent establishment in India from 26.04.2010, the deployment exceeded 183 days, and the income was chargeable in India; the Revenue succeeded and the Assessing Officer's view was restored.

Final Conclusion: The appeal was allowed and the assessment was sustained on the basis that the preparatory period formed part of the service deployment for determining permanent establishment.

Ratio Decidendi: For the purpose of a treaty provision deeming a permanent establishment in oil-field services, the period of active fabrication, upgradation, positioning and enabling of a rig for the contracted operations is part of the service deployment and cannot be excluded as merely preparatory or as time when the rig was only ready for use.

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