ITAT – taking virtual reality a bit too seriously ?

Yogesh S. Limaye

 Objective

a) A reader should be able to come to his / her own conclusion by applying the legislative enactments and judicial pronouncements to the facts of the case. While re-producing any portion of legislative enactment or judicial pronouncement, it is para phrased and emphasis is supplied by way of underline.

Structure-:

b) The article gives authors own analysis. This article is based on a judicial pronouncement and is divided into following parts.

 Part – I – case in brief

Background

c) IT is very normal for multinational companies [MNC] to render services within the group. With the growth of information technology, MNCs are very aggressive to use the same in effectively and efficiently handling their affairs.

d) This case is a landmark judgement whereby ITAT- Bangalore in the case of ABB FZ-LLC v. DCIT decided on June 21, 2017 has recognised the existence of virtual reality or in simple terms, the way business is conducted in real life.

e) It has taken an ambulatory approach in interpretation as to whether an entity has a virtual existence on soil of India i.e. through Permanent establishment.

Entering the Subject-:

f) The question considered by the ITAT was how to determine the PE of a non resident entity in India. Article 5 of India-UAE DTAA is relevant in this regard.

The most striking and decisive paragraph of the order is as follows

49. Therefore it is clear that furnishing of services including consultancy services by assessee to ABB Ltd for the project in India or with connected Project was for a period 3 months after commencing its activities in January 2010. Thus it fulfil are the prerequisite of service PE and in our view service PE do not require permanent establishment as well. In the present age of technology where the services, information, consultancy, management etc., can be provided with various virtual modes like e-mail, internet, videoconference, remote monitoring, remote access to desktop, etc., through various software, therefore, the argument of fixed place of business, raised by the ld. Senior Advocate for the assessee that three employees were rendered services only for 25 days cannot be sustained, as the services can be rendered without the physical presence of employees of the assessee.

57. Thus respectfully following the path shown by the Apex Court (supra), in our view, the requirement of fixed place of business is not applicable to the clauses (2), (4) mid (5). Clause (i) of Article 5(2) which provides the service PE, is not dependent upon, the fixed place of business as is only dependent upon the continuation of the activity for the same project or connected project for a period / periods aggregating to more than 9 months within 12. Accordingly we hold that assessee is having the service PE in India, However the determination of this issue will only have any hearing on the issues under considerations if on examination of facts we come to conclusion that the activities of the assessee do not fall in any of the Article of DTAA.
[Emphasis supplied by way of underline]

Issues and Answer