Service permanent establishment under the India-Singapore DTAA requires actual services in India; virtual PE cannot be read into the treaty.

Under Article 5(6) of the India-Singapore DTAA, a service permanent establishment arises only where services are actually furnished in India through employees or other personnel for more than 90 days in the relevant fiscal year. Mere physical presence is insufficient, and days on which no client services were rendered were excluded, leaving the threshold unmet; no service permanent establishment existed. The DTAA also contains no concept of a virtual service permanent establishment, and treaty terms cannot be expanded by reference to digitalisation, OECD developments, or domestic policy such as significant economic presence. Accordingly, no permanent establishment arose under the treaty.

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Issues: (i) Whether the assessee constituted a service permanent establishment in India for the assessment years in question, including the correct computation of days under Article 5(6)(a) of the India-Singapore DTAA; (ii) Whether the assessee constituted a virtual service permanent establishment in India.

Issue (i): Whether the assessee constituted a service permanent establishment in India for the assessment years in question, including the correct computation of days under Article 5(6)(a) of the India-Singapore DTAA.

Analysis: Article 5(6) of the DTAA requires furnishing of services within India through employees or other personnel, and the threshold is met only if the activities continue within India for more than 90 days in the relevant fiscal year. The Court held that actual rendition of services in India, and not mere physical stay by employees, is the relevant test. On the facts, vacation days, business development days and common days were excluded from the total stay because no client services were rendered on those days, leaving service days below the treaty threshold for the year in which employees were present in India. For the year in which no employee was present in India, the threshold was not met at all.

Conclusion: No service permanent establishment existed in India, and the issue was answered in favour of the assessee.

Issue (ii): Whether the assessee constituted a virtual service permanent establishment in India.

Analysis: The Court held that the India-Singapore DTAA does not contain any concept of a virtual service permanent establishment. Treaty language must be given strict effect, and concepts not expressed in the DTAA cannot be read into it merely because of digitalisation or OECD policy developments. Domestic policy changes such as significant economic presence cannot override the treaty in the absence of amendment to the DTAA.

Conclusion: No virtual service permanent establishment could be inferred under the DTAA, and the issue was answered in favour of the assessee.

Final Conclusion: The revenue's questions of law were rejected, the Tribunal's view was upheld, and the assessee's receipts were held not taxable in India in the absence of a permanent establishment under the treaty.

Ratio Decidendi: For a service permanent establishment under Article 5(6) of the India-Singapore DTAA, services must actually be furnished within India through employees or other personnel, and a virtual service permanent establishment cannot be inferred unless the treaty expressly provides for it.

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