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| DATE: | November 3, 2011 (Date of publication) |
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| Click here to download the judgement (BKI_HAM_Project_Office_PE.pdf) |
Fact of “Office PE” under Article 5(2) irrelevant if there is no “Construction Site PE” under Article 5(3)
The assessee, a Netherlands company, obtained a contract for dredging a trench for which it opened an office at Mumbai. The dredging activity was completed in two months. The assessee claimed that whether it had a ‘permanent establishment‘ (PE) in India or not had to be decided as per Article 5(3) of the DTAA which provided that a “building site” or “construction project” would be a PE only if continued for more than 6 months. However, the AO held that as the assessee had an office in Mumbai, it had an “office” or a “place of management” which constituted a PE under Article 5(2) of the DTAA. This was reversed by the CIT(A) & Tribunal. On appeal by the department, HELD dismissing the appeal:
The assessee had a “site” or “project” in India. Under Article 5 (3) of the treaty, such a “site” or “project” is a PE only if it continues for a period of more than six months. As the assessee’s contract was completed in two months, there was no PE under Article 5(3). The argument that the Mumbai office was a PE under Article 5(2) is not acceptable because while Article 5(2) is a general provision, Article 5 (3) is a specific provision which prevails over Article 5(2).
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