Permanent establishment (‘PE’), inter alia, refers to a fixed place of business through which business of an enterprise is wholly or partly carried on. However, for certain types of business activities, which by their very nature would satisfy the fixed place of business criteria as the same cannot be carried out without a fixed place, DTAA specifies a duration test and only when the test is breached that the enterprise is considered to have a PE in the source State.

For example, where the business activity relates to installation of equipment at a site, DTAAs, in general, provide for a duration threshold for such site to be treated as a PE. While most DTAAs require this duration threshold to be satisfied for each site independently, few DTAAs require the duration test to be met in aggregate for all such sites where similar activities are carried out by an enterprise.

As per existing jurisprudence, where a particular DTAA provides for the aggregation of duration for each site, where similar activities are undertaken by an enterprise, such sites must be seen together for evaluating the duration threshold and the existence of PE. However, where no such aggregation principle is embodied in a DTAA, Courts in India have refrained from considering different sites together, unless such sites form a coherent whole – geographically and commercially.^[1] This exception, which has its source in international tax commentaries, has been adopted by Indian Courts, especially, where the activities performed at each site are similar. Therefore, the common thread in the jurisprudence around aggregation of duration test for different sites to be considered as a single coherent whole is the commonality of the nature of activities carried out at each such site. That apart, Courts have also applied the aggregation approach where artificial splitting of contracts is manifest in the operations of an enterprise in the source State.

Recently, the Income Tax Appellate Tribunal in Planetcast International Pte Ltd. v. ACIT,^[2] has reinforced these principles. In this decision, the Tribunal was considering the definition of PE under the India-Singapore DTAA, which, inter alia, provides a threshold of 183 days for a building site or construction, installation or assembly projects (or supervisory activities in connection with a site or project) to be considered as a PE. This decision of the Tribunal eventually lays down that in the absence of the aggregation principle in the India-Singapore DTAA, such principle cannot be imported from DTAAs where it exists. However, the overarching reason, which is discernible from the factual findings returned by the Tribunal, seems to be the fact that the activities undertaken at different sites in question were not similar and were in any case, not meeting the duration test whether by applying aggregated approach or a segregated approach. Such interpretation is in fact in line with the principle that various business activities performed by one and the same enterprise, none of which constitutes a PE, cannot lead to a PE, if combined.

[1] ADIT v. Valentine Maritime (Mauritius) Ltd., [Order dated April 05, 2010 in ITA No. 1532/Mum/2005] (Mumbai Tribunal).

[2] [Order dated July 14, 2023 in ITA No. 1831/Del/2022] (Delhi Tribunal).