DELHI HIGH COURT: Commissioner of Income Tax, International Taxation-1, New Delhi v. Clifford Chance Pte Ltd (ITA 353/2025)
Background: The assessee, a Singapore-based non-resident law firm, filed NIL income returns for AYs 2020-21 and 2021-22. The AO alleged that the assessee had a service Permanent Establishment (“PE”) and a virtual service PE in India under Article 5(6) of the India Singapore Double Taxation Avoidance Agreement (“DTAA”), based on the presence of its employees in India and virtual rendering of services and made additions, respectively. The Dispute Resolution Panel (“DRP”) upheld the additions. The ITAT deleted them, holding that only days of actual service rendered in India through physically present employees are relevant, and that after excluding vacation days, business development days, and common days, the threshold of 90 days was not met. Further, no PE existed as no employees were present in India. As a result, Revenue filed an appeal.
Decision: The Hon’ble High Court dismissed the appeals, holding that a service PE requires actual performance of services within India through employees physically present in the country. It upheld exclusion of vacation, business development, and common days. The Court further held that the DTAA does not recognise a “virtual service PE” and that courts cannot read such a concept into the treaty in the absence of express provision. Accordingly, the appeals were dismissed.
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