Service PE Not Created as Only Unique Solar Days Count Under India-US DTAA

ACIT Vs Degolyer and Macnaughton Corporation (ITAT Delhi)

Summary: In ACIT Vs Degolyer and Macnaughton Corporation, the Delhi ITAT held that for determining the existence of a Service Permanent Establishment (PE) under Article 5(2)(l) of the India-USA DTAA, only “unique solar days” of employee presence in India are to be counted and not cumulative man-days of multiple employees. The assessee, a US-based petroleum consulting company, had earned revenue from ONGC and Oil India Ltd. for consultancy services rendered in India. The Assessing Officer treated the assessee as having a Service PE because the cumulative stay of employees exceeded 90 days and taxed the receipts under Section 44BB. However, the CIT(A) found that although cumulative man-days were 181, the actual unique solar days of presence were only 72. Relying on earlier judicial precedents, including Clifford Chance Pte. Ltd., the Tribunal upheld the CIT(A)’s view and ruled that no Service PE existed in India. Consequently, the assessee’s business income was held not taxable in India under Article 7 of the DTAA.

Solar Days Not Man Days- To Decide Service PE Under India–US DTAA And If no Fixed place PE or any other type of PE of the appellant exists in India during the year under consideration, the Business income of the appellant is not taxable in India.

Brief Facts:

1. The case involved Degolyer and Macnaughton Corporation, a US company providing petroleum consultancy services to ONGC and Oil India Ltd. The Assessing Officer held that since the contracts extended beyond 90 days, the assessee constituted a Service PE in India and accordingly taxed 10% of gross receipts under Section 44BB.

2. However, the assessee argued that although multiple employees visited India, the actual overlapping period of presence in India was less than 90 unique days. The Revenue attempted to aggregate the stay of each employee separately and compute “man-days”, resulting in a figure exceeding 90 days.

Delhi ITAT held as below:

1. Essentially the issue involved in the instant appeal is whether solar days are to be considered for the purposes of Article 5(2)(l) of the DTAA or the cumulative man days.

2. Although cumulative employee presence totalled 181 days, the actual unique solar days during which services continued in India were only 72 days. Therefore, the threshold under Article 5(2)(l) was not crossed.

3. In the instant case it is the unique solar days, and not the cumulative man days, which are relevant to compute the period for which the activities of providing the petroleum consultancy services by the appellant continued in India through the presence of its employees in terms of Article 5(2)(l) of the India-USA DTAA.

4. this issue of solar days vs man days has already been decided by several ITATs, including the jurisdictional Delhi ITAT, in favour of the assessee. The appellant has place liance on the following decisions in this regar

I- Hon’ble Mumbai ITAT in the case of Booz & Company (ME) FZ-LLC /TS-27-ITAT 2018(Mum)]

II- Hon’ble Bangalore ITAT in the case of Electrical material Center Co. Ltd. [TS-451- ITAT-2017(Bang)]

III- Hon’ble Delhi ITAT in the case of Clifford Chance Pte. Ltd. [ITA no. 2681 & 3377 of 2023]

Relevant part of the decision of the Hon’ble Delhi ITAT in the case of Clifford Chance vs ACIT reported as [2024] 160 taxmann.com 424 (Delhi-Trib.) dated 14.03.2024 is extracted below for ready reference:

“8.3 As regards exclusion of common days, the Ld. AR submitted that the number of days spent by a foreign enterprise in India should be measured on the number of days spent by the foreign enterprise in India through employees or other personnel and not based on the man days by aggregating common days spent by more than one individual. In support he placed reliance on the decision of the Mumbai Tribunal in Clifford Chance, United Kindom v. Dy. CIT (2002) 82 ITD 106 Mumbai and Linklaters (supra).

5. Respectfully following the above quoted decision of the jurisdictional ITAT Delhi, it is hereby held that in the instant case it is the unique solar days, and not the cumulative man days, which are relevant to compute the period for which the activities of providing the petroleum consultancy services by the appellant continued in India through the presence of its employees in terms of Article 5(2)(l) of the India-USA DTAA.

From the details tabulated at para 5.4 above, it is evident that the employees of the appellant were present in India for only 72 solar days, thus the activities could not have continued for more than 90 days. It is also corroborated by the certificates furnished by OIL and ONGC giving details of the dates on which the appellant’s employees visited their respective sites in connection with the contracts with them.

6. In view of the above, it is concluded that the appellant did not constitute a service PE in India under Article 5(2)(l) of the DTAA. As there is no dispute on the position that no Fixed place PE or any other type of PE of the appellant exists in India during the year under consideration, the Business income of the appellant is not taxable in India as per Article 7. In view of section 90(2), the treaty provisions being more beneficial to the appellant, holding a valid USA Tax Residency (TRC), shall apply. Hence, in the absence of a valid PE, the AO was not justified in assessing 10% of the receipts as Business Income of the PE of the appellant in India u/s 44BB ignoring the beneficial provisions of Article 5 r.w.s. Article 7 of the DTAA. The impugned addition of Rs. 1,47,62,005 is, accordingly, hereby deleted.

Accordingly, in absence of a Service PE, the business income of the US company could not be taxed in India under Article 7, and the addition made under Section 44BB is deleted.

FULL TEXT OF THE ORDER OF ITAT DELHI

The present appeal is filed by the Revenue against the order of Ld. Commissioner of Income Tax (Appeals)-Delhi-42, (‘Ld. CIT(A)’ for short), dated 06/10/2025 for the Assessment Year 2020-21.

2. Brief facts of the case as mentioned in the order of the CIT(A) are as under: –

“2.1 The appellant is a non-resident foreign company incorporated in the USA and is engaged in providing a wide range of petroleum consulting services to clients worldwide in the oil and gas industry. It filed the return of income on 05.02.2021 declaring total income as Nil. The case was taken up for scrutiny.

2.1 During the year under consideration, the appellant has earned revenue from multiple contracts with Oil and Natural Gas Corporation of India (ONGC) and Oil India Limited (OIL) for rendering various petroleum consulting services in India. The receipts totaled to INR 147,620,042 (INR 85,335,612 from ONGC and INR 62,284,430 from OIL)

2.2 The AO issued a show-cause notice that since the contract deliverables are for more than 90 days then why activities performed by the appellant should not be considered as Service PE under India-US DTAA and taxed under 44BB of the Act as the minimum threshold of 90 days for constitution of the PE under Article 5(2)(l) of the DTAA was crossed.

2.3 In response, the appellant contended that since the stay of employees was less than 90 days, the company did not have a service PE in India.

2.4 The AO observed that the duration of the contract entered into by the appellant with ONGC and OIL was more than 90 days, accordingly, the appellant had a Service PE in India. The AO applied the provisions of section 44BB of the Act and computed the total income as Deemed Income @ 10% of the total revenue u/s 44BB of the Act of Rs. 1,47,62,005/-.

2.5 The appellant contended before the CIT(A) that the stay of employees of the appellant in India was less than the threshold of 90 days as provided under the India-US DTAA for creation of Service PE. The CIT(A) did not accept the argument of the appellant and concluded that the appellant formed a service PE in India, the income of which was taxable u/s 44BB of the Act. The assessment order was upheld and the CIT(A) dismissed the appeal of the assessee in the first round of proceedings before the CIT(A). Aggrieved with the order of CIT (A), the assessee preferred an appeal before the Tribunal. The Hon’ble ITAT in its order dated 02.04.2024 in ITA No. 1065/Del/2023 found that the CIT(A) held that the assessee has not substantiated its contentions regarding stay in India by way of the any documentary evidences such as passport etc. of the employees. The assessee has only submitted during appeal an unsigned document specifying the period of stay of various employees. Before the ITAT Before us, assessee argued that given an opportunity, the complete details would be submitted to the ld. CIT(A). The ld. DR opposed to the proposal in principle. Having considered the matter, we hold that no prejudice would be caused to the Revenue by remanding the matter to the file of the ld. CIT (A) to examine and complete the correct period of stay considering the documents specifying the period of stay.”

3. After the order of the Tribunal in ITA No. 1065/Del/2023 dated 02/04/2024, in the second round the Ld. CIT(A) vide order dated 06/10/2025, deleted the addition of Rs. 62,63,816/- holding that the said receipt cannot be treated as business income of the PE of the Appellant in India under Section 44BB of the Act. Aggrieved by the order of the Ld. CIT(A) dated 06/10/2025, the Revenue preferred the captioned Appeal.

4. The Ld. DR vehemently submitted that, the Ld. CIT(A) has erred by not considering the assessee a Service Permanent Establishment (“PE”) in India under the provisions of the Act and India-US Double Taxation Avoidance Agreement (‘DTAA’). Further contended that the Ld. CIT(A) has erred in holding that the threshold period of 90 days under Article 5(2)(1) of the India-USA DTAA is not satisfied by computing only the unique solar days of presence of employees in India, instead of considering the cumulative man-days of each employee. Thus, sought for allowing the Appeal.

5. Per contra, the Ld. AR submitted that the issue involved in the present appeal is no more res-integra, which has been decided in favour of the Assessee and the Ld. CIT(A) has relied on the plethora of judicial precedents and deleted the additions. Thus, relying on the order of the Ld. CIT(A) sought for dismissal of the Appeal.

6. We have heard the parties and perused the material. The Ld. CIT(A) vide order impugned while deleting the addition held as under:-

“5.7 On perusal of the above details, it is noted that the aggregate cumulative period of stay of the employees in India during the FY 2019-20 totalled to 181 days leading the then CIT(A) to hold that the stay was of more than 180 days. However, on comparison of the above details vis-à-vis the details of date wise stay reproduced at para 5.2 above, it is noted that there has been several common days of stay where more than one employee was present in India simultaneously on same days. This has led to a situation where though the unique solar days the employees were present in India is less than 90 days (72 days in Total including 8 days for personal vacation visit of one employee), however the cumulative man days, counting the common days multiple times for each employee, exceed 90 days (181 days). Thus, essentially the issue involved in the instant appeal is whether solar days are to be considered for the purposes of Article 5(2)(l) of the DTAA or the cumulative man days.

5.8 To decide this issue, it is necessary to refer to the relevant provisions of Article 5(2)(l) of the India-USA DTAA as quoted below:

“ARTICLE 5
PERMANENT ESTABLISHMENT

(l): the furnishing of services, other than included services as defined in Article 12 (Royalties and Fees for Included Services), within a Contracting State by an enterprise through employees or other personnel, but only if:

1. activities of that nature continue within that State for a period or periods aggregating more than 90 days within any twelve‐month period; or

2. the services are performed within that State for a related enterprise [within the meaning of paragraph 1 of Article 9(Associated Enterprises)].

From the above, it is noted that the DTAA requires that for the purpose of constitution of PE in a state, the relevant activities must continue within that state for a period exceeding 90 days. Thus, the emphasis is on continuation of the activity of providing the services in question, Whether those activities are performed through a single employee or multiple employees at the same time is immaterial. The Article rather uses plural form while referring to the presence of the employees in that state.

5.9 Further, it is noted that this issue of solar days vs. man days has already been decided by several ITATs, including the jurisdictional Delhi ITAT, in favour of the assessee. The appellant has placed reliance on the following decisions in this regard:

i. Hon’ble Mumbai ITAT in the case of Booz & Company (ME) FZ-LLC [TS-27-ITAT2018 (Mum)]

ii. Hon’ble Bangalore ITAT in the case of Electrical material Center Co. Ltd. [TS-451- ITAT-2017 (Bang)]

iii. Hon’ble Delhi ITAT in the case of Clifford Chance Pte. Ltd. [ITA no. 2681 & 3377 of 2023]

Relevant part of the decision of the Hon’ble Delhi ITAT in the case of Clifford Chance Pte. Ltd. vs. ACIT reported as [2024] 160 taxmann.com 424 (Delhi-Trib.) dated 14.03.2024 is extracted below for ready reference:

“8.3 As regards exclusion of common days, the Ld. AR submitted that the number of days spent by a foreign enterprise in India should be measured on the number of days spent by the foreign enterprise in India through employees or other personnel and not based on the man days by aggregating common days spent by more than one individual. In support he placed reliance on the decision of the Mumbai Tribunal in Clifford Chance, United Kindom v. Dy. CIT [2002] 82 ITD 106 Mumbai and Linklaters (supra).

…….  12.4 It is an undisputed fact that the employees of the assessee were present in India for total number of 120days in AY 2020-21 and none of the employees were present in India in AY 2021-22. Out of the total 120days the vacation period amounted to 36 days which has been substantiated by the assessee by furnishing the relevant evidence thereof. In the case of Linklaters (supra) the Mumbai Tribunal has held that period of holidays has to be excluded while computing the threshold limit for constitution of service PE. Therefore, if the vacation days (36 days) are excluded from the total days for which the employee of the assessee were present in India (i.e. 120 days) the same would come to 84 days which is less than the threshold of 90 days provided under Article 5(6)(a) of the India-Singapore DTAA for constitution of service PE of the assessee in India. Further, to arrive at the threshold, the Ld. AO has considered business development days comprising of 35 days as well as common days comprising of 5 days which in our considered view should be excluded while computing the threshold of service PE as no services were provided to customers in India on the days spent on business development activities and the computation of threshold should not be based on man days by aggregating common days spent by more than one individual. In effect, the services have been furnished by the assessee only for 44 days in India after excluding vacation period, Business Development days and common days and accordingly the assessee does not constitute service PE in India as per India-Singapore DTAA during the AY 2020-21.”

5.10 Respectfully following the above quoted decision of the jurisdictional ITAT Delhi, it is hereby held that in the instant case it is the unique solar days, and not the cumulative man days, which are relevant to compute the period for which the activities of providing the petroleum consultancy services by the appellant continued in India through the presence of its employees in terms of Article 5(2)(l) of the India-USA DTAA. From the details tabulated at para 5.4 above, it is evident that the employees of the appellant were present in India for only 72 solar days, thus the activities could not have continued for more than 90 days. It is also corroborated by the certificates furnished by OIL and ONGC giving details of the dates on which the appellant’s employees visited their respective sites in connection with the contracts with them.

5.11 In view of the above, it is concluded that the appellant did not constitute a service PE in India under Article 5(2)(l) of the DTAA. As there is no dispute on the position that no Fixed place PE or any other type of PE of the appellant exists in India during the year under consideration, the Business income of the appellant is not taxable in India as per Article 7. In view of section 90(2), the treaty provisions being more beneficial to the appellant, holding a valid USA Tax Residency (TRC), shall apply. Hence, in the absence of a valid PE, the AO was not justified in assessing 10% of the receipts as Business Income of the PE of the appellant in India u/s 44BB ignoring the beneficial provisions of Article 5 r.w.s. Article 7 of the DTAA. The impugned addition of Rs. 1,47,62,005 is, accordingly, hereby deleted.”

7. The solitary issue involved in the present Appeal is that, while computing the period for which the activities of providing petroleum consultancy services by the Appellant continued in India through the presence of its Employees in terms of Article 5(2)(i) of the India-US-DTAA, whether unique solar day to be considered or the cumulative man days.

8. The Co-ordinate Bench of the Tribunal in the case of Clifford Chance PTE Ltd. Vs. ACIT vide order dated March 14t^h 2024, decided the issue in favour of the Assessee. Further, the order of the Tribunal in the case of Clifford Chance PTE Ltd. Vs. ACIT (supra) has been affirmed by Jurisdictional High Court in the case of Commissioner of Income-tax, International Taxation Vs. Clifford Chance Pte Ltd. Reported in [2025] com 254(Delhi) vide Judgment dated 4th December, 2025.

9. The Ld. CIT(A) has followed the order of the Tribunal in the case of Clifford Chance PTE Ltd. Vs. ACIT (supra) while deleting the addition. The said order of the Tribunal Clifford Chance PTE Ltd. Vs. ACIT (supra) has been subsequently confirmed by the Jurisdictional High Court in the case of Commissioner of Income-tax, International Taxation Vs. Clifford Chance Pte Ltd. Reported in [2025] com 254(Delhi) vide Judgment dated 4t^h December, 2025. Thus, in the absence of any contrary judicial precedents brough on record by the Revenue before us and in the absence of differentiating facts brought on record, we find no error or infirmity in the order of the Ld. CIT(A) in deleting the addition. Accordingly, finding no merit in the Grounds of Appeal, Appeal of the Revenue is dismissed.

Order pronounced in the Open Court on this 30^th Day of April, 2026