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.
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