No Virtual Service PE Under India–Singapore DTAA

Case Details: Commissioner of Income-tax, International Taxation vs. Clifford Chance Pte Ltd [2025] 181 taxmann.com 254 (Delhi)

Judiciary and Counsel Details

V. Kameswar Rao & Vinod Kumar, JJ.
Puneet Rai, SSC, Ashvini Kr., Rishabh Nangia & Gibran, JSC for the Appellant.
Ajay Vohra, Sr. Adv., Kunal Pandey, Tanmay & Adityya Vohra, Advs. for the Respondent.

Facts of the Case

The assessee was a non-resident company incorporated in Singapore. It engaged in legal advisory services. It provided legal advisory to Indian clients, partly rendered remotely from outside India and partly by two of its employees who visited India to render such services.

The Assessing Officer (AO) passed draft assessment orders proposing additions, as the assessee constituted a permanent service establishment in India due to the physical presence of its employees in India for 120 days. AO also contended that the assessee constituted a virtual service permanent establishment in India. The Dispute Resolution Panel (DRP) dismissed the assessee’s objections. AO passed final assessment orders under section 143(3) read with section 144C(13), and the assessee filed an appeal to the Delhi Tribunal.

The Tribunal deleted the additions made by the AO, holding that a service PE requires actual performance of services in India by employees physically present there. Since the assessee rendered services for only 44 days after excluding vacation, business development, and standard days the 90-day threshold for a service PE in AY 2020-21 was not satisfied.

High Court Held

The matter reached the Delhi High Court. The High Court held that Article 5(6) of the DTAA contemplates that an enterprise shall be deemed to have a permanent establishment in the contracting state through its employees or other personnel only if the activities within the contracting state continue for a period aggregating to 90 days in any fiscal year. The words “within a Contracting State” and “through employees or other personnel” contemplate 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 specific territorial connotation, and in the absence of personnel physically performing services in India, there can be no furnishing of services ‘within’ India. It is such a rendition of services by employees present within the country that would constitute a service permanent establishment. AO’s view that, as a result of rapid digitalisation, services, including consultancy services, can be provided virtually without the physical presence of employees in the contracting state, cannot be accepted. It is found that the DTAA contemplates no such eventuality. The concept of a virtual service permanent establishment is not mentioned anywhere in the DTAA.

In the absence of any such provision, the revenue’s argument would be at variance with the express provisions of the DTAA, as interpreted above. It is not for courts to read in concepts which are not expressly provided for by the treaty. The guiding principle here is that language which is not explicitly included in treaty provisions cannot be artificially read into such provisions by way of judicial fiction.

Accordingly, the AO’s contention that a virtual service permanent establishment existed for the relevant assessment years was rejected.

List of Cases Reviewed

Clifford Chance PTE Ltd. v. ACIT [2024] 160 taxmann.com 424 (Delhi – Trib.) [Para 1] Affirmed
ABB FZ-LLC v. Dy. CIT [2017] 83 taxmann.com 86 (Bengaluru – Trib.)/[2017] 166 ITD 329 (Bengaluru – Trib) [Para 53]
Verizon Communications Singapore Pte Ltd. v. ITO [2013] 39 taxmann.com 70 (Madras)/[2014] 224 Taxman 237/[2013] 361 ITR 575 (Madras) (para 55)
Hyatt International Southwest Asia Ltd. v. Additional Director of Income-tax [2025] 176 taxmann.com 783/478 ITR 238/306 Taxman 241 (SC)/2025 SCC OnLine SC 1506 (para 57)
AB LLC and BD Holdings LLC v. The Commissioner of the South African Revenue Services Tax Court Johannesburg, Case No. 13276, decided on 15.05.2015 (para 58)
Spain v. Dell Tribunal Supremo, STS 2861/2016; Case No. 1475/2016, dated 20-06-2016 (para 59) distinguished

List of Cases Referred to

Hyatt International Southwest Asia Ltd. v. ADIT [2025] 176 taxmann.com 783/478 ITR 238/306 Taxman 241 (SC) (para 9)
Verizon Communications Singapore Pte Ltd. v. ITO [2013] 39 taxmann.com 70 (Madras)/[2014] 224 Taxman 237 (Madras)/[2013] 361 ITR 575 (Madras) (para 11)
ABB FZ-LLC v. Dy. CIT [2017] 83 taxmann.com 86 (Bengaluru – Trib.)/[2017] 166 ITD 329 (Bengaluru – Trib.) (para 12)
DIT v. E-Funds IT Solution [2014] 42 taxmann.com 50 (Delhi)/[2014] 226 Taxman 44 (Delhi)/[2014] 364 ITR 256 (Delhi) (para 18)
Asstt. DIT v. E-Funds IT Solution Inc. [2017] 86 taxmann.com 240 (SC)/[2017] 251 Taxman 280 (SC)/[2017] 399 ITR 34 (SC) (para 19)
DIT (International Taxation) v. Morgan Stanley & Co. [2007] 162 Taxman 165 (SC)/[2007] 292 ITR 416 (SC) (para 19)
Engineering Analysis Centre of Excellence (P.) Ltd. v. CIT [2021] 125 taxmann.com 42 (SC)/[2021] 281 Taxman 19 (SC)/[2021] 432 ITR 471 (SC) (para 25)
DIT v. New Skies Satellite BV [2016] 68 taxmann.com 8 (Delhi)/[2016] 238 Taxman 577 (Delhi)/[2016] 382 ITR 114 (Delhi) (para 25)
CIT v. Telstra Singapore Pte. Ltd., [2024] 467 ITR 302 (Del)/[2024] 467 ITR 302 (Del) (para 25)
Union of India v. Azadi Bachao Andolan [2003] 132 Taxman 373/[2003] 263 ITR 706 (SC) (para 25)
AB LLC and BD Holdings LLC and The Commissioner of the South African Revenue Services [Case No. 13276, dated 15-05-2015] (para 58)
Spain v. Dell, Tribunal Supremo, [Case No. 1475/2016, dated 20-06-2016] (para 59).