Delhi HC Quashes Rs. 23 Crore Tax Attribution: No Service or Virtual PE for Clifford Chance Under India-Singapore DTAA

The dispute arose after the Assessing Officer (AO) treated Clifford Chance Pte. Ltd., a Singapore-based legal advisory firm, as having both a Service Permanent Establishment (PE) and a “virtual service PE” in India for AYs 2020-21 and 2021-22. The firm had filed NIL income returns, but the AO attributed income of Rs. 15.55 crore and Rs. 7.97 crore, respectively, to alleged services rendered in India. For AY 2020-21, the AO noted that two employees were present in India for 120 days and concluded that this exceeded the 90-day threshold under Article 5(6)(a) of the India-Singapore DTAA. For AY 2021-22, although no employees visited India, the AO held that digital delivery of legal services created a “virtual service PE”.

The DRP accepted, stating that physical presence was irrelevant. Chance appealed to the Tribunal, submitting detailed time-sheets showing that out of 120 days, only 44 days involved actual client service in India, short of the 90-day service threshold. The Tribunal accepted this evidence, held that a service PE requires physical performance of services in India, and rejected the concept of a virtual service PE on the ground that it finds no mention in the DTAA. The Revenue challenged this reasoning before the Delhi High Court.

Issue Raised: Whether the company constituted a service permanent establishment or a virtual service permanent establishment in India under Article 5(6) of the India-Singapore DTAA for relevant AYs.

HC Held: The Delhi High Court upheld the Tribunal’s findings and dismissed the Revenue’s appeals. It held that Article 5(6)(a) of the DTAA requires actual furnishing of services within India through employees physically present in the country. The Court explained that the words “within” and “through employees” demand a territorial nexus; services must be performed in India by personnel who are physically in India. Since vacation days, business-development days, and overlapping days involved no service to Indian clients, they could not be counted toward the 90-day threshold. With only 44 qualifying days in AY 2020-21 and no employee presence at all in AY 2021-22, no service PE could be said to exist.

The Court held that the DTAA contains no such concept, and courts cannot judicially introduce treaty language that negotiators themselves did not adopt. It noted that unless Article 5(6) is formally renegotiated, the requirement of physical presence remains mandatory. The Court concluded that virtual delivery of legal services from Singapore does not constitute furnishing of services “within India” under the DTAA. Therefore, both questions of law were answered in favor of the assessee.

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