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Informist, Friday, Dec. 5, 2025

 

NEW DELHI – The Delhi High Court has ruled that receipts on account of virtual services rendered by Singapore companies in India cannot be taxed by income tax authorities as there is no concept of 'virtual permanent establishment' in the double tax avoidance agreement between these countries. The high court dismissed appeals by the income tax department to add INR 155.55 million and INR 79.76 million to the income of Singapore company Clifford Chance Pte. Ltd. for assessment years 2020-21 and 2021-22, respectively. The high court said that Clifford Chance did not have a permanent establishment in India and, therefore, couldn't be taxed by the department.  

 

The high court said that Article 5(6) of the India-Singapore Double Taxation Avoidance Agreement only contemplates rendering of services by employees present within the country. If that is so, it is not for the court to analyse the status or merits of a virtual service permanent establishment which does not find mention either in the agreement or in the domestic law of Income Tax Act, 1961, said a bench of V. Kameswar Rao and Justice Vinod Kumar. As such, the contention of the income tax department that a virtual service permanent establishment of the assessee Clifford Chance Pte. Ltd. has been established for assessment years 2020-21 and 2021-22 cannot be accepted, the bench added.

 

Clifford Chance was engaged in the business of legal advisory services and declared its return as 'nil' for assessment years 2020-21 and 2021-22. However, the income tax department made additions to the income of the company. After various litigation, the income tax appellate tribunal deleted the additions of income made by the income tax department. Challenging this, the department moved the high court.

 

The income tax department said the company's employees Rahul Gupta and Shashwat Tewary were present in India for 120 days during financial year 2019-20 (Apr-Mar). However, the income tax appellate tribunal erred in excluding 36 days from the total of 120 days by treating the same as vacation days, said the department. There is a threshold limit of 90 days of working for the constitution of permanent establishment in India for a company, as stipulated under Article 5(6)(a) of the India-Singapore Double Taxation Avoidance Agreement. It is only logical that only the days on which actual services were rendered by the employees of the assessee need to be considered while computing the threshold limit of 90 days, said the court.

 

The department argued that even when the employees were not physically present in India, services continued to be rendered virtually, for more than 90 days. In assessment year 2021-22, though Clifford Chance did not have physical presence of any employees in India, services were still provided virtually by the assessee to its clients in India and, as such, it constituted a virtual service permanent establishment in India, the department said.

 

The agreement contemplates rendition of services in India by the employees of the non-resident enterprise, while mandating a fixed nexus; a physical footprint within India, said the high court. "The concept of a virtual service permanent establishment does not find mention anywhere in the DTAA (Double Taxation Avoidance Agreement)," said the court. If something is conspicuous by its absence, the presumption is that it has deliberately been done so, said the court. It is not for courts to read in concepts which are not expressly provided for by the treaty, the bench added.  End

 

Reported by Surya Tripathi

Edited by Avishek Dutta

 

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