Clifford Chance Wins ITAT Case, Income Tax Department Moves to High Court
Clifford Chance Wins ITAT Case, Income Tax Department Moves to High Court
Introduction
The Income Tax Department has moved the Delhi High Court against a March 2024 order of the Income Tax Appellate Tribunal (ITAT) which held that UK-headquartered law firm Clifford Chance's Singapore entity did not have a permanent establishment (PE) in India for Assessment Years (AY) 2020-21 and 2021-22.
Factual Background
Clifford Chance, a Singapore-registered entity, had filed nil returns for AY 2020-21 and AY 2021-22, despite having receipts from Indian clients. The Assessing Officer (AO) held that the firm had a PE in India under the India-Singapore Double Taxation Avoidance Agreement (DTAA) and attributed the entire revenue from Indian clients to the alleged PE.
Procedural Background
The ITAT allowed Clifford Chance's appeals against the final assessment orders, holding that the firm did not have a service PE in India. The ITAT noted that the physical presence of employees in India for more than 90 days is a prerequisite to create a service PE under the India-Singapore DTAA.
Contentions of Parties
Income Tax Department: The department contended that Clifford Chance had a PE in India and attributed the entire revenue from Indian clients to the alleged PE.
Clifford Chance: The firm argued that it had no fixed base in India and that its employees were physically present in India for only 44 days in AY 2020-21, well below the 90-day threshold under Article 5(6)(a) of the India-Singapore DTAA.
Reasoning and Analysis
The ITAT held that the physical presence of employees in India for more than 90 days is a prerequisite to create a service PE under the India-Singapore DTAA. Since this condition was not met, the Tribunal concluded that no service PE existed. The ITAT also rejected the AO's reliance on the "virtual service PE" concept, noting that the DTAA does not recognize such a provision.
Implications
The Delhi High Court's decision will have implications for the taxation of foreign entities in India. If the High Court upholds the ITAT's order, it would provide clarity on the concept of PE and the attribution of income to a PE in India. The matter has been listed for hearing before the Division Bench of Justices V Kameswar Rao and Vinod Kumar.
