Our US company laid a submarine pipeline offshore India as a subcontractor. The work took 39 days. Does that give us a permanent establishment under the India-US treaty?
No. The Authority ruled that Brown and Root Inc, a US company, had no permanent establishment in India and so the revenue from its subcontract with Hyundai Heavy Industries was not taxable here. The work - installing a 12-inch submarine gas pipeline between offshore platforms using the vessels Subtec 1 and Captain BO - ran 39 days, from 30 November 1996 to 7 January 1997. Article 5(2)(k) of the India-US convention makes a construction or installation project or supervisory activity a permanent establishment only where it continues more than 120 days in any twelve months. Falling short of that, article 7 was not attracted. The ruling binds only that applicant.
Pronounced by the Authority for Advance Rulings (S. Ranganathan, J. (Chairman) and Subhash C. Jain, Member) on 1997-10-27, reported as [1999] 237 ITR 156 (AAR). It bears on section 90(2), section 245Q, section DTAA art 5, section DTAA art 7 of the Income Tax Act 1961, in Residence & Treaty Benefit and Assessment & Scrutiny matters.
This is the plainest AAR application of the 120-day construction and installation test in the India-US convention, and it is useful because it is unglamorous: the Authority simply counted the days, found 39, and stopped. That is the discipline worth borrowing, because most disputes over short offshore campaigns are lost on evidence of duration rather than on law. The treaty provision it turned on has not changed - article 5(2)(k) still reads 120 days in any twelve-month period, and no protocol after the one of 12 September 1989 amends the convention. What the reader must not take from the ruling is a general non-aggregation principle: article 5(2)(k) itself directs that a site or project be counted together with other such sites, projects or activities, and the Authority did not have to decide that question.
Binding only on the applicant who sought it, in respect of the transaction the ruling was sought on, and on the Principal Commissioner or Commissioner and the authorities subordinate to him in respect of that applicant and that transaction — and only until the law or the facts change (section 245S). It binds nobody else. The Tribunal and the courts nonetheless treat a considered ruling as persuasive, which is why practitioners cite them.
Read aloud by your device. Press again to stop.
Brown and Root Inc., a company incorporated in and tax resident of the United States, took a subcontract from Hyundai Heavy Industries Co. Ltd, a Korean company, for the installation of a 12-inch submarine gas pipeline between offshore platforms off the Indian coast. The work was carried out entirely offshore using two vessels, Subtec 1 and Captain BO, and lasted 39 days, from 30 November 1996 to 7 January 1997. The applicant put a single question to the Authority: the taxability, in terms of article 7 read with article 5 of the agreement for the avoidance of double taxation concluded between India and the United States of America which came into effect from 1 April 1991, of the revenues it earned from its contract with Hyundai Heavy Industries. The applicant's case was that the activity was too short to create a permanent establishment under the construction and installation clause of the convention.
The Authority held that no permanent establishment existed. Article 5(2)(k) of the India-US convention treats a building site or construction, installation or assembly project, or supervisory activities in connection with one, as a permanent establishment only where the site, project or activities continue for more than 120 days in any twelve-month period. The applicant's activity ran 39 days and so fell short of the threshold. The Authority also considered and rejected the other limbs of article 5(2) pressed against the applicant. Because there was no permanent establishment, article 7 of the convention - which permits India to tax the business profits of a US enterprise only to the extent attributable to a permanent establishment in India - was not attracted. The revenue earned by the applicant from its contract with Hyundai Heavy Industries was accordingly held not liable to tax in India.
The reasoning is short because the treaty does the work. Section 90(2) allows a non-resident to be taxed under the Act or under the applicable convention, whichever is more beneficial, so the question resolved into whether the convention permitted India to tax at all. Under the convention business profits are taxable in the source State only through a permanent establishment. Article 5(1) requires a fixed place of business through which the enterprise's business is wholly or partly carried on; the applicant's operations were conducted from vessels in offshore waters for a single campaign, and the Authority found nothing answering that description. The Revenue's real case therefore rested on the deeming clauses in article 5(2), and in particular on clause (k), which is the provision drafted for exactly this kind of installation work. Clause (k) is not a test of permanence or of degree - it is a counted threshold, and the count is of days. The activity occupied 39 days between 30 November 1996 and 7 January 1997, which is less than the 120 days the clause requires in any twelve-month period. Once that arithmetic was done there was nothing left to decide. Without a permanent establishment article 7 could not operate, and the receipts stayed outside the Indian charge. The Authority did not need to consider, and did not consider, how clause (k) treats activities under unconnected contracts.
Since the activity falls short of 120 days, the applicant could not be said to have a permanent establishment in India.
Upload it and we will read it, work out your deadline and draft the reply. A CA reviews before anything is filed.
Handle my notice → Ask a CA on WhatsAppNo. The Authority ruled that Brown and Root Inc, a US company, had no permanent establishment in India and so the revenue from its subcontract with Hyundai Heavy Industries was not taxable here. The work - installing a 12-inch submarine gas pipeline between offshore platforms using the vessels Subtec 1 and Captain BO - ran 39 days, from 30 November 1996 to 7 January 1997. Article 5(2)(k) of the India-US convention makes a construction or installation project or supervisory activity a permanent establishment only where it continues more than 120 days in any twelve months. Falling short of that, article 7 was not attracted. The ruling binds only that applicant. This was decided by the Advance Ruling (S. Ranganathan, J. (Chairman) and Subhash C. Jain, Member) and bears on section 90(2), section 245Q, section DTAA art 5, section DTAA art 7 of the Income Tax Act 1961. It is reported as [1999] 237 ITR 156 (AAR). This is the plainest AAR application of the 120-day construction and installation test in the India-US convention, and it is useful because it is unglamorous: the Authority simply counted the days, found 39, and stopped. That is the discipline worth borrowing, because most disputes over short offshore campaigns are lost on evidence of duration rather than on law. The treaty provision it turned on has not changed - article 5(2)(k) still reads 120 days in any twelve-month period, and no protocol after the one of 12 September 1989 amends the convention. What the reader must not take from the ruling is a general non-aggregation principle: article 5(2)(k) itself directs that a site or project be counted together with other such sites, projects or activities, and the Authority did not have to decide that question. If it applies to you, the first step is this: Build the day-count from primary documents - vessel logs, mobilisation and demobilisation dates, completion certificates - and put them in the reply.
Brown and Root Inc., a company incorporated in and tax resident of the United States, took a subcontract from Hyundai Heavy Industries Co. Ltd, a Korean company, for the installation of a 12-inch submarine gas pipeline between offshore platforms off the Indian coast. The work was carried out entirely offshore using two vessels, Subtec 1 and Captain BO, and lasted 39 days, from 30 November 1996 to 7 January 1997. The applicant put a single question to the Authority: the taxability, in terms of article 7 read with article 5 of the agreement for the avoidance of double taxation concluded between India and the United States of America which came into effect from 1 April 1991, of the revenues it earned from its contract with Hyundai Heavy Industries. The applicant's case was that the activity was too short to create a permanent establishment under the construction and installation clause of the convention. The matter was decided on 1997-10-27 by the Advance Ruling (S. Ranganathan, J. (Chairman) and Subhash C. Jain, Member). On those facts the Advance Ruling held as follows. The Authority held that no permanent establishment existed. Article 5(2)(k) of the India-US convention treats a building site or construction, installation or assembly project, or supervisory activities in connection with one, as a permanent establishment only where the site, project or activities continue for more than 120 days in any twelve-month period. The applicant's activity ran 39 days and so fell short of the threshold. The Authority also considered and rejected the other limbs of article 5(2) pressed against the applicant. Because there was no permanent establishment, article 7 of the convention - which permits India to tax the business profits of a US enterprise only to the extent attributable to a permanent establishment in India - was not attracted. The revenue earned by the applicant from its contract with Hyundai Heavy Industries was accordingly held not liable to tax in India.
The reasoning is short because the treaty does the work. Section 90(2) allows a non-resident to be taxed under the Act or under the applicable convention, whichever is more beneficial, so the question resolved into whether the convention permitted India to tax at all. Under the convention business profits are taxable in the source State only through a permanent establishment. Article 5(1) requires a fixed place of business through which the enterprise's business is wholly or partly carried on; the applicant's operations were conducted from vessels in offshore waters for a single campaign, and the Authority found nothing answering that description. The Revenue's real case therefore rested on the deeming clauses in article 5(2), and in particular on clause (k), which is the provision drafted for exactly this kind of installation work. Clause (k) is not a test of permanence or of degree - it is a counted threshold, and the count is of days. The activity occupied 39 days between 30 November 1996 and 7 January 1997, which is less than the 120 days the clause requires in any twelve-month period. Once that arithmetic was done there was nothing left to decide. Without a permanent establishment article 7 could not operate, and the receipts stayed outside the Indian charge. The Authority did not need to consider, and did not consider, how clause (k) treats activities under unconnected contracts. In the words reproduced by the source cited on this page: "Since the activity falls short of 120 days, the applicant could not be said to have a permanent establishment in India."
It was decided by the Advance Ruling on 1997-10-27 and is reported as [1999] 237 ITR 156 (AAR). Binding only on the applicant who sought it, in respect of the transaction the ruling was sought on, and on the Principal Commissioner or Commissioner and the authorities subordinate to him in respect of that applicant and that transaction — and only until the law or the facts change (section 245S). It binds nobody else. The Tribunal and the courts nonetheless treat a considered ruling as persuasive, which is why practitioners cite them. An advance ruling binds only the applicant who sought it, only for the transaction it was sought on, and only the Commissioner and the officers under him in relation to that applicant and that transaction — and only until the law or the facts change. That is section 245S, and it means the ruling is not a precedent and binds nothing in your case. You cite it because the Authority reasoned the point out, often first and most fully, and the Tribunal and the courts treat a considered ruling as persuasive. Check before you rely on one: most of these were pronounced before 2009, and a great deal of cross-border tax has been rewritten since by amendment, protocol and judgment. On section 90(2), section 245Q, section DTAA art 5, section DTAA art 7, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The Authority held that no permanent establishment existed. Article 5(2)(k) of the India-US convention treats a building site or construction, installation or assembly project, or supervisory activities in connection with one, as a permanent establishment only where the site, project or activities continue for more than 120 days in any twelve-month period. The applicant's activity ran 39 days and so fell short of the threshold. The Authority also considered and rejected the other limbs of article 5(2) pressed against the applicant. Because there was no permanent establishment, article 7 of the convention - which permits India to tax the business profits of a US enterprise only to the extent attributable to a permanent establishment in India - was not attracted. The revenue earned by the applicant from its contract with Hyundai Heavy Industries was accordingly held not liable to tax in India. It arises in Residence & Treaty Benefit and Assessment & Scrutiny matters, on section 90(2), section 245Q, section DTAA art 5, section DTAA art 7 of the Income Tax Act 1961, and was decided by S. Ranganathan, J. (Chairman) and Subhash C. Jain, Member. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Read article 5(2)(k) whole: it aggregates a site with other such sites, projects or activities, so identify what else your client had running in the same twelve months. Do not assume separate contracts are automatically counted separately; this ruling decides nothing about aggregation. Cite it as persuasive only - section 245S confines an advance ruling to its own applicant and transaction.
Still good law. Checked the India-US convention as published at incometaxindia.gov.in: article 5(2)(k) still reads 'more than 120 days in any twelve-month period' and the only protocol shown is the one of 12 September 1989, which forms part of the original convention - no later protocol touches article 5. Searched Indian Kanoon for a High Court or Supreme Court decision dealing with this ruling and found none. The arithmetic ratio therefore stands. The Authority itself was replaced by the Board for Advance Rulings from 1 September 2021 (Finance Act 2021; Notification 96/2021), whose rulings are appealable to the High Court under section 245W, and the Income-tax Act 1961 was replaced by the Income-tax Act 2025 from 1 April 2026. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The note we were given describes this as 'the classic ruling that the duration threshold is counted per site and is not aggregated across unconnected contracts'. The ruling does not decide that. It found 39 days against a 120-day threshold and went no further; article 5(2)(k) on its face requires a site or project to be counted together with other such sites, projects or activities. The reported citation is taken from the Indian Kanoon text and was not checked against the ITR volume. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The Authority held that no permanent establishment existed. Article 5(2)(k) of the India-US convention treats a building site or construction, installation or assembly project, or supervisory activities in connection with one, as a permanent establishment only where the site, project or activities continue for more than 120 days in any twelve-month period. The applicant's activity ran 39 days and so fell short of the threshold. The Authority also considered and rejected the other limbs of article 5(2) pressed against the applicant. Because there was no permanent establishment, article 7 of the convention - which permits India to tax the business profits of a US enterprise only to the extent attributable to a permanent establishment in India - was not attracted. The revenue earned by the applicant from its contract with Hyundai Heavy Industries was accordingly held not liable to tax in India.
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
You pay a foreign supplier for software. Is that royalty, and must you deduct TDS?
I hold a valid TRC. Can the AO go behind it and reopen my assessment for lack of substance?
I moved to Singapore with my family. Can the AO's tie-breaker questionnaire alone make me an Indian resident?
The officer says the PPT in the MLI destroys my Mauritius capital gains exemption on shares bought in 2015. Does the Board's own circular help?