Permanent establishment determined by contracts

The Income Tax Appellate Tribunal (ITAT) recently decided that the starting date of the six-month threshold limit to establish the existence of a permanent establishment (PE) in India would vary from case to case.

In a judgment passed by the ITAT in Jt DIT (IT) v Krupp Uhde GmbH, the tribunal said the date of the commencement of the threshold limit of six months under article 5(2)(i) of the double tax avoidance agreement (DTAA) between India and Germany to determine the existence of a PE would depend upon the facts of each case, and the terms of each contract.

Krupp Uhde, a German company, entered into various contracts with different parties to pursue a number of independent projects in India. The key issues deliberated in this case were, (a) whether the various sites could be considered together while computing the minimum period of six months as prescribed in article 5(2)(i) of the DTAA; and (b) whether the minimum six-month period could begin from the date when the project commenced.

Sumes Dewan is a partner and Shradha Puri is a senior associate at KR Chawla & Co Advocates & Legal Consultants. The firm is headquartered in New Delhi and has offices in Chennai, Bangalore and San Francisco as well as a representative office in Singapore.