DTAA art 7

DTAA art 7 — the law in short

What the courts have decided on section DTAA art 7, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Hyatt International Southwest Asia Ltd v Addl DIT Supreme CourtHelps department
  We run an Indian hotel under a long management agreement but own no office here. Can the department say we have a permanent establishment?
  Yes, on facts like these. A twenty-year agreement under which the foreign company appointed and supervised the general manager, set human resource and procurement policy, controlled pricing and marketing, and operated the hotel's bank accounts, performed through its own staff working from the hotel, made the hotel premises a fixed place of business under Article 5(1) of the India-UAE treaty. Exclusive or designated space is not required; what is required is that the premises be at the enterprise's disposal and that its business be carried on through them.
• DIT v Travelport Inc. Supreme CourtHelps taxpayer
  The Assessing Officer has found a permanent establishment and wants to tax my client's entire Indian booking revenue. My client already pays its Indian distributor a commission larger than anything that could be attributed to India. Is there anything left to tax?
  No, where the commission already paid to the Indian agent exceeds the profit attributable to the Indian operations, the assessment is extinguished. The Supreme Court upheld the Tribunal's attribution of 15 per cent of the revenue to India on a functions, assets and risks analysis and held that, because the distribution commission was more than twice that figure and had already been taxed, no further income was taxable in India — and it declined to decide whether there was a permanent establishment at all, because the attribution answer disposed of the appeals.
• Union of India v U.A.E. Exchange Centre Supreme CourtHelps taxpayer
  My UAE client's Indian liaison office only downloads remittance instructions from the head office server and prints cheques on Indian banks. The Assessing Officer says that is a permanent establishment and wants to tax the whole remittance commission. Is he right?
  No, on these facts. The Supreme Court held that a liaison office whose only activity is downloading information from the head office server and printing and despatching cheques is carrying on an activity of a preparatory or auxiliary character, which Article 5(3)(e) of the India-United Arab Emirates DTAA expressly takes out of the expression 'permanent establishment'. Once the office is deemed by that legal fiction not to be a PE, Article 7 gives India no right to tax the enterprise's profits, and the deeming provisions in ss.5 and 9 of the Act 'can have no bearing whatsoever'.
• ADIT v E-Funds IT Solution Inc Supreme CourtHelps taxpayer
  We outsource back-office work to our Indian subsidiary. Does that give us a permanent establishment in India?
  No, not by itself. The Revenue must prove that a fixed place in India was at the disposal of the foreign company and that the foreign company carried on its own business through it. Close association between parent and subsidiary, and the fact that the Indian company depends on the group for its work, do not answer that question, and the functions-assets-risks analysis borrowed from transfer pricing is not the test for whether a fixed place permanent establishment exists.
• Ishikawajima-Harima Heavy Industries Ltd v DIT Supreme CourtHelps taxpayerSuperseded by amendment
  Our turnkey contract has offshore supply and offshore services alongside Indian work. Is the whole contract taxable in India?
  No — a composite turnkey contract can be split. Profits on equipment supplied and paid for outside India, where title passes outside India, are outside the Indian charge, because the contract being signed in India is immaterial and there must be a sufficient territorial nexus. On offshore services the Court read s.9(1)(vii) as requiring the services to be both utilised in India and rendered in India; that second requirement has since been removed retrospectively by statute, so only the offshore supply holding survives on the domestic law side.
• Standard Chartered Bank v ACIT (Mumbai Tribunal, 2026) ITATCuts both waysNo later treatment found
  The officer has treated expatriate salaries paid by our London head office as head office expenditure and capped them under s.44C. Is that correct, and does the treaty's non-discrimination article get me out of s.44C altogether?
  On the first question, no. Section 44C restricts only executive and general administrative expenditure incurred outside India in connection with the management of the non-resident's affairs; salary of expatriate employees deputed to and working exclusively for the India branch is not head office expenditure merely because the head office paid it first. On the second, the Tribunal declined to hold that Article 26(2) of the India-UK treaty knocks out s.44C in every case — that has to be decided on the nature of the expenditure and the facts, read with Article 7(4).
• Saab Technologies B.V. v DCIT (International Taxation), Kolkata ITATHelps taxpayerNo later treatment found
  The Assessing Officer has added together my client's installation contract and the annual maintenance contract that followed it, crossed the treaty's duration threshold, found an installation permanent establishment and attributed 10 per cent of the receipts. Can he aggregate the two contracts?
  No. The Kolkata Tribunal held that providing annual maintenance services after the project or site has been handed over to the customer is not carrying out installation activities for the purpose of constituting an installation permanent establishment, so that the Assessing Officer's cumulative consideration of the original installation contract and the subsequent maintenance contract was bad in law and the resulting attribution of 10 per cent of the receipts was erroneous. On the duration itself the Tribunal held that the count does not start from the date of signing the contract, and that on the completion certificate and site readiness report the entire transaction was less than six months, so there was no PE under Article 5(3) of the India-Netherlands DTAA.
• Linklaters LLP v ACIT (International Taxation), Mumbai ITATHelps taxpayerNo later treatment found
  The Assessing Officer has taxed my client, a UK limited liability partnership, under the Independent Personal Services Article of the treaty because its partners are professionals. Can that Article apply to a firm at all?
  No, on this Tribunal's view. The Mumbai Tribunal held that Article 15 of the India-United Kingdom DTAA deals only with the taxability of independent personal services or independent activity of a similar character and not with a partnership firm, and that the assessee, not being an individual, was outside it. On the same order the Tribunal also held, following its own decisions in the assessee's earlier years, that the remuneration received for providing legal services was not fees for technical services and that the treaty overrode the Act.
• eBay International AG v ADIT ITATHelps taxpayer
  We charge Indian sellers a fee for listing on our overseas marketplace. Is that fees for technical services, and do our Indian support companies make us taxable here?
  No on both, and note how the second answer is reached. Providing a platform on which others transact is not the rendering of managerial, technical or consultancy services, so the user fees are not fees for technical services. On the treaty the Tribunal accepted that the Indian group companies, working exclusively for the Swiss company, were dependent agents - the assessee lost that limb - but held that a dependent agent becomes a permanent establishment only if it performs one of the functions listed in Article 5(5), and marketing and collection work is not among them. They were not a place of management either. Without a permanent establishment the business profits article keeps the income out of the Indian charge.
• KnoWerX Education (India) P Ltd v DIT Advance RulingHelps taxpayer
  We collect examination fees in India for two American professional bodies and send the money on. Is that taxable here, and must we deduct tax before we remit?
  No. The Authority ruled that the examination fees collected for APICS and AST&L and remitted to them were not taxable in India, that the income was business income in nature, and that the applicant need neither deduct tax nor pay any. The fees were received in India by the applicant on the American bodies' behalf, so section 5(2)(a) was in play; but both bodies were residents of the United States for the agreement notwithstanding their exemption under section 501(c)(6) of the Internal Revenue Code, and the applicant was not their permanent establishment. With no permanent establishment, article 7 left the profits taxable only in the United States, and section 195 had nothing to bite on.
• WorleyParsons Services Pty Ltd v DIT (International Taxation) Advance RulingCuts both waysNo later treatment found
  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.
• In re Airports Authority of India (Raytheon contracts) Advance RulingCuts both waysSuperseded by amendment
  We send faulty equipment abroad for repair by a US supplier and separately pay it to maintain the software. Do we deduct tax on either, and at what rate?
  It depends on which contract. The Authority ruled that the payment to Raytheon for hardware repair support was not taxable in India and that the applicant was not required to deduct tax on it: the repairs were done outside India, delivery was taken outside India and Raytheon had no permanent establishment here, so article 7 left those business profits to the United States. The software maintenance contract went the other way. The deputation of an engineer created no permanent establishment, but the payments were fees for included services under article 12, the applicant having a conditional right to use the software rather than an outright purchase. Tax was to be withheld at 10 per cent apart from surcharge.
• In re Cargo Community Network Pte. Ltd. Advance RulingHelps departmentNo later treatment found
  Indian cargo agents pay our Singapore company a subscription for a password to use our air-cargo booking portal, which sits on our servers in Singapore. Is that taxable in India?
  Yes. The Authority ruled that the payments made by Indian subscribers to Cargo Community Network Pte. Ltd. for a password to access and use its Ezycargo portal, hosted on servers in Singapore, were taxable in India and subject to deduction of tax at source. The portal and the server together were held to be integrated commercial-cum-scientific equipment which the Indian agents used in India, so the subscription was royalty under article 12(3)(b) of the India-Singapore agreement. The training and help-desk support supplied through the applicant's Chennai liaison office were fees for technical services under article 12(4), being ancillary to the enjoyment of the equipment. The ruling binds only that applicant.
• In re Morgan Stanley and Co. Inc. Advance RulingCuts both waysPartly overruled — read this first
  Our Indian subsidiary does back-office work for us and we pay it cost plus a mark-up, and we send some of our own people over. Is the subsidiary our permanent establishment, and can the Revenue attribute anything more to us once the subsidiary has been paid an arm's length price?
  It depends on which limb. The Authority ruled that Morgan Stanley Advantage Services was not a fixed-place permanent establishment of Morgan Stanley & Co. Inc., because the US company did not carry on its business through MSAS's premises, and not an agency permanent establishment, because MSAS could not conclude contracts, held no stock and secured no orders. But it would be a service permanent establishment under article 5(2)(l) if employees were sent to India for more than 90 days, whether for stewardship or on deputation. On attribution, once MSAS was remunerated at arm's length no further income could be attributed to the permanent establishment. The ruling binds only that applicant.
• In re General Electric Pension Trust Advance RulingHelps departmentSuperseded by amendment
  We are a US pension trust, exempt from tax at home, investing a small part of our fund in Indian securities. Can we claim the India-US treaty, and are our gains business income?
  No on the treaty, and yes on business income - the trust lost. The Authority ruled that the profits arising to General Electric Pension Trust from the sale of its portfolio investments in India would be treated as its business income, given the continuous purchases and sales through Indian brokers. It then held that the trust was a resident of the United States for treaty purposes only so far as its income was subject to tax there; being tax-exempt, it was not a resident of a contracting State and could not claim the convention. The business income was therefore taxable in India under the Act. The ruling binds only that applicant.
• In re Morgan Stanley and Co. International Limited Advance RulingHelps taxpayerSuperseded by amendment
  We are a UK company registered as an FII, trading index and stock futures and options on Indian exchanges through brokers and custodians. Is that income taxable in India?
  No. The Authority ruled that the income derived by Morgan Stanley and Co. International Limited, a UK resident, from trading in exchange-traded derivative instruments in India would not be taxable in India under the India-UK agreement. It held first that income from derivative trading is business income and not capital gains, derivative contracts being excluded from the definition of capital asset. Business profits are taxable in India only through a permanent establishment, and the brokers, custodians and bankers the applicant used were independent agents acting for many clients in the ordinary course of their business, so no permanent establishment arose under article 5. The ruling binds only that applicant.
• In re Dun and Bradstreet Espana S.A. Advance RulingHelps taxpayerNo later treatment found
  We buy standardised business information reports from a Spanish company and resell them here. Do we have to withhold tax on what we pay, as royalty or technical fees?
  No. The Authority ruled that the payments made by Dun and Bradstreet Information Services India for electronic purchases of business information reports from its Spanish associate were the Spanish company's business profits within article 7 of the India-Spain agreement; that the Spanish company had no permanent establishment in India under article 5; that it was therefore not taxable in India on those profits; and that the Indian company was not required to withhold tax under section 195. Buying a finished report was likened to buying a book, not to acquiring intellectual property or a service. Three of the seven questions were not pressed. The ruling binds only that applicant.
• In re Fidelity Advisor Series VIII Advance RulingHelps taxpayerSuperseded by amendment
  Our US fund buys and sells Indian shares through local brokers and a custodian bank. Are our gains business profits or capital gains, and does the custodian give us a permanent establishment?
  Business profits, and no permanent establishment - so the fund won. The Authority ruled that the gains arising to Fidelity Advisor Series VIII from sales of its portfolio investments in India were its business profits covered by article 7 of the India-US convention, the shares and securities being held as business assets. It further ruled that the fund had no permanent establishment in India under article 5: it had no branch, office, employee or dependent agent here, and Standard Chartered Bank, its domestic custodian, was an independent agent within paragraph 5 of article 5. Without a permanent establishment the fund was not taxable in India under the convention. The ruling binds only that applicant.
• In re P. No. 30 of 1999 Advance RulingHelps departmentSuperseded by amendment
  Our Indian company pays its US group parent for time on the group's mainframe computers and for use of the group data network. Is that royalty taxable in India?
  Yes. The Authority ruled that the charges paid by the Indian company to its US group company for access to and use of the group's mainframe computers and consolidated data network were taxable in India, and fell within article 12(3)(a) of the India-US convention rather than article 12(3)(b). The Indian company was billed by reference to CPU utilisation time, email usage, bandwidth and network management. The Authority held the payment was for the use of a secret process - the embedded, customised, encrypted software through which the data was processed - and so was royalty on the first limb, not a payment for equipment. The ruling binds only that applicant.
• Brown and Root Inc v CIT Advance RulingHelps taxpayer
  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.
• Horizontal Drilling International SA v CIT Advance RulingHelps taxpayer
  Our French company drilled a pipeline crossing under a river in India for a public sector customer. The whole job took three months. Can the Revenue tax the contract price as fees for technical services even though we have no permanent establishment?
  No. The Authority ruled that Horizontal Drilling International SA was not liable to Indian tax on the proceeds of its contract with GAIL. The job - laying gas pipeline under the Yamuna by horizontal drilling - ran about three months, well short of the six months that article 5(3) of the India-France agreement requires before a construction or installation project becomes a permanent establishment. Without a permanent establishment article 7 gave India nothing. The Authority refused to let the Revenue reach the same money through article 13 instead, holding that the price of executing a project is not consideration for services rendered while executing it. The ruling binds only that applicant.
• TVM Ltd v CIT Advance RulingHelps taxpayerSuperseded by amendment
  My Mauritius company sells advertising airtime on a channel beamed into India, and an Indian associate canvasses the advertisers and collects the money for us. Does that associate give us a permanent establishment here?
  No. The Authority ruled that TVM Ltd, a Mauritius company, had no permanent establishment in India, so its business profits from Indian advertising could not be taxed here. TVI, the Indian company soliciting the advertisements, was not an agent of independent status because it worked exclusively for TVM; but it was not a dependent-agent permanent establishment either, because under the solicitation agreement it had no authority to conclude contracts and final acceptance rested with TVM. The profits were deemed to accrue under section 9, but article 7 of the India-Mauritius treaty kept them outside the Indian net. The ruling binds only TVM.
• Ericsson Telephone Corporation India AB v CIT Advance RulingCuts both waysSuperseded by amendment
  Indian operators are about to deduct 55 per cent from what they pay my Swedish company for installing a GSM network. Can they deduct on my thin net margin instead?
  No, not on the margin, though the rate came down. The Authority ruled that the Indian companies should not withhold at 55 per cent but at 30 per cent, the rate applicable to such payments under the Finance Act 1995. It refused the applicant's case that only its net profit from local operations, said to be not more than 10 per cent of receipts, could be taxed. The receipts being fees for technical services and the agreements having been made after 31 March 1976, section 44D(b) barred any deduction for expenditure or allowance, and the entire gross receipts fell to be taxed at 30 per cent under section 115A. The net profit question was left open.
• Tekniskil (Sendirian) Berhard v CIT Advance RulingHelps taxpayerSuperseded by amendment
  We are a Malaysian company that recruits skilled workers abroad and supplies them to a Korean contractor working offshore India. We are paid outside India and we supervise nothing. Are we taxable here?
  No. The Authority ruled that Tekniskil, a Malaysian manpower company, was not taxable in India on sums received abroad and had no permanent establishment here. It supplied about a hundred skilled workers to Hyundai Heavy Industries for offshore installation work at Bombay High. It recruited them outside India, bore their mobilisation and personal costs, and handed them over; HHI directed and supervised them on its own barges. Supplying labour was a business activity, so article 7 of the India-Malaysia agreement applied, and with no fixed place at Tekniskil's disposal there was nothing for the profits to attach to. The ruling binds only Tekniskil.
• In re Advance Ruling P. No. 13 of 1995 Advance RulingCuts both waysSuperseded by amendment
  Our French engineering group will build a turnkey plant in India, with some work done here and a great deal done abroad. Can India tax the work done abroad, and are the payments royalties, technical fees or business profits?
  Mostly against the applicant. The Authority ruled that the French company's Indian project headquarters and site office together were a permanent establishment; that the payments under the seven agreements were royalties and fees for technical services within articles 13.3 and 13.4 of the India-France agreement; and that the outside activities were effectively connected with that permanent establishment, so the receipts fell to be taxed under article 7 read with article 13.6 as business profits. Only profits referable to operations carried out in India were taxable. Payments to head office for licensed technology and subcontracted services were not deductible reimbursements. The ruling binds only that applicant.
• In re UAE Exchange Centre LLC Advance RulingHelps departmentOverruled
  Our UAE remittance house has Indian liaison offices that download remittance particulars and post cheques to the beneficiaries. Does that make us taxable in India?
  Yes, the Authority said so, but the decision did not survive. It ruled that income was deemed to accrue in India from the activities carried out by the liaison offices. It found a business connection under section 9(1)(i): a real and intimate relation between the remittance business carried on in the UAE and what the offices did here, contributing to the earning of income, with continuity. On the treaty it distinguished two modes. For telegraphic transfers the offices only handled complaints, which was auxiliary; but downloading the data, preparing the cheques and despatching them by courier was an important part of the main work itself, so those offices were a permanent establishment.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.