TaxTMI 
TaxTMI 
2026 (3) TMI 1699
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....e present in India. Ground 2.2: That on the facts and in the circumstances of the case and in law, the Ld. AO/ DRP has erred in holding that the Appellant constituted 'Virtual Service PE', which is against the settled law, that a PE cannot be constituted when there is no physical presence in the source country. Ground 2.3: Without prejudice to the above, on the facts and in the circumstances of the case and in law, even assuming, without conceding, that the Appellant constitutes a Virtual Service PE in India, the Ld. AO/ DRP failed to appreciate the settled provisions of Article 7 of the India-UK tax treaty, which clearly mandate that only such part of income that is attributable to the operations carried out in India, can be taxed in India. Ground 2.4: That on the facts and in the circumstances of the case and in law, the Ld. AO/ DRP has erred in not adhering to the principle of judicial discipline and disregarding the fact that the issue in Appellant's case is squarely covered by the ruling of the Hon'ble ITAT in the case of Clifford Chance Pte. Ltd. [TS-186-ITAT2024(DEL)]. Ground 2.5: Without prejudice to above, that on the fac....
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....and examined by the AAR. 4.2. During the year under consideration none of the employees of the assessee visited India for rendering services. The services were rendered through emails, conference calls, Microsoft team session, internal weblinks, etc. 4.3. The ld. Counsel for the assessee assailing the impugned order submits that the Assessing Officer (AO) has erred in taxing the receipts of assessee from Indian Member firms without establishing that the assessee has PE in India. Further, the AO has erred in holding that the assessee has provided services to Indian Associated Enterprises (AE). The Member firms in India are not AEs of the assessee as defined under section 92A of the Income Tax Act, 1961(referred to as 'the Act'). The ld. Counsel vehemently submits that the assessee may have rendered services to Indian entities, mere presence of customers in India does not mean that the assessee has PE/Service PE in India. The onus is on the AO to establish that the assessee was having PE/Service PE in accordance with the provisions of Article 12 of India-UK DTAA. 4.4. The ld. Counsel further submits that the AO has introduced the concept of Virtual Service Permanent Establis....
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.... ld. DR submits that the binding nature of ARR Ruling is strictly governed by section 245(S) of the Act. He contended that it is a settled law that AAR Rulings do not create a judicial precedent binding on other parties. To support his argument, he placed reliance on the decision in the case of Addl. CIT vs. Raytheon Company in ITA no. 3831/Del/2019 AY 2012-13 decided on 26.08.2022. 6. We have heard the submissions made by rival sides and have examined the orders of authorities below. The assessee is a tax resident of UK, there is no dispute on this fact. A perusal of the impugned order reveals that the AO has taxed receipts of the assessee from India, holding that the assessee has Service PE/VSPE in India. Before proceeding further, here it would be imperative to refer to the provisions of Article 5(2)(k) of the India -UK that defines Service PE. "(2) The term "permanent establishment" shall include especially: xxxx xxxx (k) the furnishing of services including managerial services, other than those taxable under Article 13 (Royalties and fees for technical services), within a Contracting State by an enterprise through employees or other perso....
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....ontend that where the role of UK enterprises is not only confined to high level of decision making but extends to substantive control and implementation, therefore, it constitute PE in India. We find that reliance by the ld. DR on the decision rendered in the case of Hyatt International Southwest Asia Ltd. (supra) is misplaced. In the said case, the Hon'ble Apex Court after examining Strategic Oversight Service Agreements (SOSA) held that the SOSA executed between the assessee and Indian Comapny demonstrates that the assessee exercised pervasive and enforceable control over the hotel's strategic, operational, and financial dimensions. Thus, the condition sine qua non to constitute fixed place PE i.e., the place through which the business is carried on in India must be 'at the disposal' of the enterprise was satisfied in that case. Hence, in facts of the case it was held that the assessee was having PE in India. Whereas, here the case of AO is that the assessee has Service PE/VSPE. It is an admitted position that the conditions necessary for constituting Service PE are not satisfied in the present case. It is not the case of AO that the assessee has fixed place PE in India. ....
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....s "An enterprise shall be deemed to have a permanent establishment in a Contracting State if it furnishes services... within a Contracting State through employees or other personnel...". The words "within a Contracting State" and "through employees or other personnel" contemplates rendition of services in India by the employees of the non-resident enterprise, while mandating a fixed nexus; a physical footprint within India. The term „within‟ has a certain territorial connotation and in the absence of personnel physically performing services in India, there can be no furnishing of services „within‟ India. A plain reading of the whole provision would thus reveal that, it such rendition of services by employees present within the country which would constitute a service permanent establishment. 43. Mr. Rai has vehemently contended that receipts on account of virtual services rendered by the assessee must be held to be amenable to taxation in India, since a "virtual service permanent establishment" has been established. We find that no such eventuality is contemplated by the DTAA. The concept of a virtual service permanent establishment does not find me....