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Issues: Whether, for the purpose of Article 5(2)(l) of the India-USA DTAA, the period of furnishing services in India is to be computed on the basis of unique solar days or cumulative man days, and consequently whether the assessee constituted a service permanent establishment in India.
Analysis: The period relevant under Article 5(2)(l) is the continuation of the activity of furnishing services within India for more than 90 days. The Tribunal accepted that the focus is on the duration of the services rendered in India and not on counting the same calendar day multiple times because more than one employee was present simultaneously. Following the jurisdictional Tribunal precedent that had already taken the same view and noting that no contrary authority or distinguishing facts were shown, the Tribunal held that the correct measure is unique solar days. On the facts, the employees were present in India for only 72 solar days, which did not cross the treaty threshold. In the absence of a service PE or any other PE, the business income could not be taxed in India under Article 7, and the beneficial treaty protection prevailed under section 90(2) of the Income-tax Act, 1961.
Conclusion: The issue was decided in favour of the assessee. The assessee did not constitute a service permanent establishment in India on the basis of cumulative man days, and the addition made under section 44BB of the Income-tax Act, 1961 was not sustainable.
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