Our Australian firm monitors a pipeline project in India for the owner - schedules, reporting, coordinating contractors. Is our fee a royalty, or business profits we are taxed on only if we have a permanent establishment?
It depends, and the applicant won half. The Authority ruled that WorleyParsons's receipts under its project monitoring contract with GAIL were not royalties under article 12 of the India-Australia agreement, because merely rendering services is not enough - the services must result in technical knowledge being made available. But it held that the applicant had a permanent establishment under article 5(2)(k), its supervisory activity in connection with the project having continued more than six months, with employees present in India for 165 days in 2003-04 and 90 to 95 per cent of the work done here. The receipts were therefore taxable as business profits under article 7, but only so far as attributable to the permanent establishment.
Pronounced by the Authority for Advance Rulings (P. V. Reddi, J. (Chairman), A. Sinha and Rao Ranvijay Singh, Members) on 2008-04-30. It bears on section 9(1)(i), section 9(1)(vii), section DTAA art 12, section DTAA art 5, section DTAA art 7 of the Income Tax Act 1961, in Residence & Treaty Benefit and Assessment & Scrutiny matters.
Useful for two separate points that often get run together. First, the make-available style limb: the Authority insisted that rendering a service is not the same as making technical knowledge available, which is the argument that keeps engineering and project-supervision fees out of the royalties article in treaties drafted this way. Second, and less comfortably for the applicant, winning that point does not end the case - long-running supervisory work on an Indian site will usually create a permanent establishment under the construction and supervision clause, and the fee then comes back as business profits under article 7. The practical consequence is different, since article 7 taxes attributable profit net rather than gross, but it is not an exemption.
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.
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WorleyParsons Services Pty. Ltd., an Australian company, contracted with Gas Authority of India Limited in July 2003 to act as project monitoring consultant for the Dahej to Vijaipur gas pipeline project. Its work consisted of monitoring the project schedule, identifying the critical path, reporting through a management information system and coordinating the various contractors engaged on the project. Approximately 90 to 95 per cent of the work was performed in India, and the applicant's employees were present in India for 165 days during 2003-04. Four questions were put to the Authority: whether the receipts from the GAIL contract were in the nature of royalties under article 12 of the double taxation avoidance agreement between India and Australia; whether the applicant had a permanent establishment in India; whether, if the answer to both was yes, only the receipts attributable to the permanent establishment were taxable in India; and whether the remaining receipts were not taxable in India.
The Authority held that the receipts were not royalties under article 12 of the India-Australia agreement. The definition in that treaty is not satisfied by the mere rendering of services; the services must result in technical knowledge or the like being made available to the recipient, and project monitoring of this kind did not do that. On the second question the Authority held that the applicant did have a permanent establishment in India under article 5(2)(k), which brings in supervisory activities in connection with a building site or construction or installation project where they continue beyond six months - the applicant's employees were in India for 165 days during 2003-04 and almost all the work was done in India. It followed that the receipts were taxable in India as business profits under article 7, and that the profits of the enterprise attributable to the permanent establishment in India were liable to be taxed as per the provisions of the Income-tax Act 1961, that is on a net basis and confined to what is attributable to the permanent establishment.
The Authority took the royalties article first, because if it applied, article 7 would not. The India-Australia definition is drafted so that a payment for services qualifies only where the services are of a particular kind - those that make technical knowledge, experience, skill or process available to the payer, or that consist in the supply of scientific, technical, industrial or commercial knowledge or information. The Authority read that as a real limitation and not a description of every consultancy: monitoring a schedule, identifying a critical path, preparing management reports and coordinating contractors is work done for the client, but it leaves the client no better equipped to do that work itself afterwards. Mere rendering of services was therefore not enough. Having taken the receipts out of article 12, the Authority had to place them in article 7, which requires a permanent establishment. Here the facts ran against the applicant. Article 5(2)(k) treats supervisory activities in connection with a construction or installation project as a permanent establishment where they continue for more than six months, and the applicant's people were on the ground for 165 days in the year with 90 to 95 per cent of the work being performed in India. The result is a familiar one: the applicant escaped a gross-basis charge under the royalties article and was brought within a net-basis charge under article 7, limited to the profits attributable to the permanent establishment and computed under the Act.
Mere rendering of services is not sufficient to attract Clause (g), but those services should result in technical knowledge, etc. being made available.
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Handle my notice → Ask a CA on WhatsAppIt depends, and the applicant won half. The Authority ruled that WorleyParsons's receipts under its project monitoring contract with GAIL were not royalties under article 12 of the India-Australia agreement, because merely rendering services is not enough - the services must result in technical knowledge being made available. But it held that the applicant had a permanent establishment under article 5(2)(k), its supervisory activity in connection with the project having continued more than six months, with employees present in India for 165 days in 2003-04 and 90 to 95 per cent of the work done here. The receipts were therefore taxable as business profits under article 7, but only so far as attributable to the permanent establishment. This was decided by the Advance Ruling (P. V. Reddi, J. (Chairman), A. Sinha and Rao Ranvijay Singh, Members) and bears on section 9(1)(i), section 9(1)(vii), section DTAA art 12, section DTAA art 5, section DTAA art 7 of the Income Tax Act 1961. Useful for two separate points that often get run together. First, the make-available style limb: the Authority insisted that rendering a service is not the same as making technical knowledge available, which is the argument that keeps engineering and project-supervision fees out of the royalties article in treaties drafted this way. Second, and less comfortably for the applicant, winning that point does not end the case - long-running supervisory work on an Indian site will usually create a permanent establishment under the construction and supervision clause, and the fee then comes back as business profits under article 7. The practical consequence is different, since article 7 taxes attributable profit net rather than gross, but it is not an exemption. If it applies to you, the first step is this: Split the argument: characterisation under the royalties article and permanent establishment under article 5 are separate battles and you can lose the second after winning the first.
WorleyParsons Services Pty. Ltd., an Australian company, contracted with Gas Authority of India Limited in July 2003 to act as project monitoring consultant for the Dahej to Vijaipur gas pipeline project. Its work consisted of monitoring the project schedule, identifying the critical path, reporting through a management information system and coordinating the various contractors engaged on the project. Approximately 90 to 95 per cent of the work was performed in India, and the applicant's employees were present in India for 165 days during 2003-04. Four questions were put to the Authority: whether the receipts from the GAIL contract were in the nature of royalties under article 12 of the double taxation avoidance agreement between India and Australia; whether the applicant had a permanent establishment in India; whether, if the answer to both was yes, only the receipts attributable to the permanent establishment were taxable in India; and whether the remaining receipts were not taxable in India. The matter was decided on 2008-04-30 by the Advance Ruling (P. V. Reddi, J. (Chairman), A. Sinha and Rao Ranvijay Singh, Members). On those facts the Advance Ruling held as follows. The Authority held that the receipts were not royalties under article 12 of the India-Australia agreement. The definition in that treaty is not satisfied by the mere rendering of services; the services must result in technical knowledge or the like being made available to the recipient, and project monitoring of this kind did not do that. On the second question the Authority held that the applicant did have a permanent establishment in India under article 5(2)(k), which brings in supervisory activities in connection with a building site or construction or installation project where they continue beyond six months - the applicant's employees were in India for 165 days during 2003-04 and almost all the work was done in India. It followed that the receipts were taxable in India as business profits under article 7, and that the profits of the enterprise attributable to the permanent establishment in India were liable to be taxed as per the provisions of the Income-tax Act 1961, that is on a net basis and confined to what is attributable to the permanent establishment.
The Authority took the royalties article first, because if it applied, article 7 would not. The India-Australia definition is drafted so that a payment for services qualifies only where the services are of a particular kind - those that make technical knowledge, experience, skill or process available to the payer, or that consist in the supply of scientific, technical, industrial or commercial knowledge or information. The Authority read that as a real limitation and not a description of every consultancy: monitoring a schedule, identifying a critical path, preparing management reports and coordinating contractors is work done for the client, but it leaves the client no better equipped to do that work itself afterwards. Mere rendering of services was therefore not enough. Having taken the receipts out of article 12, the Authority had to place them in article 7, which requires a permanent establishment. Here the facts ran against the applicant. Article 5(2)(k) treats supervisory activities in connection with a construction or installation project as a permanent establishment where they continue for more than six months, and the applicant's people were on the ground for 165 days in the year with 90 to 95 per cent of the work being performed in India. The result is a familiar one: the applicant escaped a gross-basis charge under the royalties article and was brought within a net-basis charge under article 7, limited to the profits attributable to the permanent establishment and computed under the Act. In the words reproduced by the source cited on this page: "Mere rendering of services is not sufficient to attract Clause (g), but those services should result in technical knowledge, etc. being made available."
It was decided by the Advance Ruling on 2008-04-30. 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 9(1)(i), section 9(1)(vii), section DTAA art 12, 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 cuts both ways and is cited by both sides. The Authority held that the receipts were not royalties under article 12 of the India-Australia agreement. The definition in that treaty is not satisfied by the mere rendering of services; the services must result in technical knowledge or the like being made available to the recipient, and project monitoring of this kind did not do that. On the second question the Authority held that the applicant did have a permanent establishment in India under article 5(2)(k), which brings in supervisory activities in connection with a building site or construction or installation project where they continue beyond six months - the applicant's employees were in India for 165 days during 2003-04 and almost all the work was done in India. It followed that the receipts were taxable in India as business profits under article 7, and that the profits of the enterprise attributable to the permanent establishment in India were liable to be taxed as per the provisions of the Income-tax Act 1961, that is on a net basis and confined to what is attributable to the permanent establishment. It arises in Residence & Treaty Benefit and Assessment & Scrutiny matters, on section 9(1)(i), section 9(1)(vii), section DTAA art 12, section DTAA art 5, section DTAA art 7 of the Income Tax Act 1961, and was decided by P. V. Reddi, J. (Chairman), A. Sinha and Rao Ranvijay Singh, Members. 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. For the make-available point, show what the client was left able to do on its own - a report delivered is not knowledge transferred. Count the days of supervisory presence against the treaty threshold before you advise; here 165 days settled it. If a permanent establishment is conceded, move the fight to attribution under article 7 and compute on a net basis.
Searched for later treatment; none was found. That is not the same as a source affirming it. No High Court or Supreme Court decision dealing with this ruling was found on Indian Kanoon, so its standing is not established and it is not marked good law. What was checked: the India-Australia agreement has been modified by the Multilateral Instrument - a synthesised text is published on the departmental site - so the principal purpose test and, depending on India's and Australia's positions, the anti-contract-splitting rule now sit in front of the article 5 analysis. The Explanation below section 9(2) as it now stands also deems fees for technical services to accrue in India whether or not services were rendered here, which affects any domestic-law alternative. 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.
No ITR citation appears in the Indian Kanoon text. The exact wording of the clause of article 12 the Authority refers to as 'Clause (g)' is not reproduced in the fetched text, so the make-available limb is described in substance rather than quoted in full. The Authority's answers to questions 3 and 4 are given together in the text and are recorded here as one. 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 the receipts were not royalties under article 12 of the India-Australia agreement. The definition in that treaty is not satisfied by the mere rendering of services; the services must result in technical knowledge or the like being made available to the recipient, and project monitoring of this kind did not do that. On the second question the Authority held that the applicant did have a permanent establishment in India under article 5(2)(k), which brings in supervisory activities in connection with a building site or construction or installation project where they continue beyond six months - the applicant's employees were in India for 165 days during 2003-04 and almost all the work was done in India. It followed that the receipts were taxable in India as business profits under article 7, and that the profits of the enterprise attributable to the permanent establishment in India were liable to be taxed as per the provisions of the Income-tax Act 1961, that is on a net basis and confined to what is attributable to the permanent establishment.
TaxSphere, “WorleyParsons Services Pty Ltd v DIT (International Taxation)”, https://taxnotice.vittsphere.com/caselaw/case/worleyparsons-services-pty-ltd-vs-commissioner-concerned-aar-2008/ (validity last checked 2026-09-02)
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