Service permanent establishment under India-UK DTAA requires physical presence in India; remote delivery alone cannot create a virtual PE.

Under the India-UK DTAA, a service permanent establishment requires services to be furnished in India through employees or other personnel physically present in India for the prescribed period. Remote delivery by email, conference calls or virtual meetings does not create a service PE where the treaty contains no express concept of a virtual service PE. The treaty was construed strictly, and no new taxing fiction could be implied. On the stated facts, no employee or personnel of the assessee visited India, so the receipts could not be taxed in India on a service PE basis, and the alternative issue of profit attribution did not survive.

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Issues: Whether the assessee constituted a service permanent establishment or a virtual service permanent establishment in India under the India-UK DTAA, and whether the receipts could be brought to tax in India on that basis.

Analysis: The relevant treaty provision required services to be furnished within India through employees or other personnel, which necessarily postulated physical presence in the source State for the prescribed duration. On the facts, no employee or personnel of the assessee visited India during the relevant period. The reasoning that remote delivery of services through email, conference calls or virtual meetings could create a service PE was rejected, because the treaty did not recognise any concept of a virtual service PE. The treaty was construed strictly, and no new taxing concept could be read into it by judicial fiction. Since the assessee succeeded on the PE question, the alternative argument on profit attribution did not survive.

Conclusion: The assessee did not have a service PE or a virtual service PE in India, and the addition based on such premise could not stand. The issue was decided in favour of the assessee.

Ratio Decidendi: A service permanent establishment under the India-UK DTAA arises only when services are furnished in India through employees or other personnel physically present in India, and a virtual service permanent establishment cannot be inferred where the treaty does not expressly provide for it.

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