PE under Article 5(1) – degree of permanence relative to the nature and requirement of business carried on - Need not be forever
Even before the discussion on the 2017 decision of Supreme Court on FOWC could die, the AAR in Production Resource Group [ 1330/2012 dated 8 Nov 2017] had occasion to deal with a similar issue involving a Belgian Applicant that rendered turnkey services of providing technical equipment and services for CWG events. Observing that the Applicant was allocated exclusive office under the lock and key of the Applicant and onsite space by the Owner, the Authority found that even a limited presence for 114 days was sufficient to constitute PE under Article 5(1) as ‘the establishment need not be enduring or permanent in the sense that it should be in its control forever in order to constitute a PE and that the length of time has to be necessarily tied to the nature and requirements of the business under consideration.’ The Authority found that all ingredients of Article 5(1) were satisfied - place of business, power of disposition, permanence of location, business activity and business connection it cumulatively and collectively resulted in a PE.
The AAR rejected the alternate plea of the Department that the payment was also one of ‘Royalty’.
Comment and Analysis:
According to both Commentaries, the word ‘permanent’ does not connote in the literal sense of everlasting/forever/eternal in nature or without interruption. Article 5(1) does not make any reference to minimum period and the duration of a basic rule PE under Art 5(1) need not be in years but may be of months only as ruled in P.No. 24 of 1996 [ Nilesh Modi]. These, coupled with the Supreme Court decision in FOWC, appears to have led the Authority to rule in favour of PE. In this connection, one needs to recall the Authority’s negative finding of PE in the FOWC case, which subsequently was overturned by the Delhi High Court. The Supreme Court affirmed the existence of PE under Art 5(1) in the said case. Comment on SC on FOWC is available in this Blog.