CIT Vs Clifford Chance Pte. Ltd. (Delhi High Court)
Physical Presence is Essential: Virtual Services Can’t Create PE under India-Singapore DTAA-DTAA Cannot Be Rewritten: Delhi HC Says No to ‘Virtual PE’ Without Treaty Amendment
Delhi High Court upheld Tribunal’s ruling that Clifford Chance, a Singapore-based legal advisory firm, does not constitute a service PE or virtual service PE in India u/s Article 5(6)(a) of the India-Singapore DTAA. For AY 2020-21, two employees of the Assessee were present in India for 120 days, but 36 vacation days, 35 business development days & 5 common days (overlap) were excluded based on time-sheets & HR leave records, leaving only 44 days of actual service rendered within India, which is below the 90-day threshold required to trigger service PE. The Court held that actual furnishing of services within India through employees physically present is a mandatory requirement under Article 5(6)(a). Mere physical presence without rendering client services, or business development activity, cannot be counted.
For AY 2021-22, no employee of the Assessee was present in India; hence, service PE could not arise. Revenue’s argument that virtual services rendered from outside India create a “virtual service PE” was rejected. The Court held that the DTAA contains no concept of a virtual or digital service PE, and courts cannot read such concepts into the treaty in absence of renegotiation or amendment. OECD’s Interim Report (2018), SEP proposals under domestic law, and foreign jurisdictions’ approaches cannot override explicit treaty language. Article 5(6) requires services to be furnished “within” India “through employees or other personnel” physically present, and until the treaty is amended, virtual service PE is legally untenable.
