Permanent Establishment under India-UAE DTAA: absence of PE prevents attribution of contract profits and related income in India

The article examines whether an assessee's project office and contract activities in India created a Permanent Establishment under the India-UAE DTAA, and whether related interest income could be taxed as PE income. It notes that earlier assessment findings relied on by the Assessing Officer had already been set aside by the Delhi High Court in the assessee's own case for prior years, where the absence of a PE meant no attribution of contract profits to India. The same approach was later followed by coordinate benches and the first appellate authority. On that basis, the assessee was treated as having no Permanent Establishment in India and the revenue's challenge to taxing the interest as PE income failed.

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Issues: Whether the assessee had a Permanent Establishment in India under the India-UAE DTAA, and whether the interest income was taxable as income of such Permanent Establishment.

Analysis: The appeal turned on whether the assessee's project office and contract activities in India created a Permanent Establishment under the relevant treaty articles. The Tribunal noted that the Assessing Officer had relied on earlier assessments, but those very findings had been set aside in the assessee's own case by the Delhi High Court for earlier years. The Tribunal also noted that the High Court had held that once the assessee had no Permanent Establishment in India, attribution of contract profits to India did not arise. The same reasoning had been followed in subsequent years by coordinate benches and the first appellate authority.

Conclusion: The assessee did not have a Permanent Establishment in India, and the revenue's challenge to taxability of interest income as PE income failed.

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