Post by A Senthil Kumar

The Delhi High Court has held that virtual services rendered by a foreign law firm or other establishment not having any physical presence in India cannot be taxed under the India–Singapore Double Taxation Avoidance Agreement (DTAA) [Commissioner of Income Tax, International Taxation v Clifford Chance Pte Ltd]. A Division Bench of Justices V Kameswar Rao and Vinod Kumar noted that the concept of a “virtual service permanent establishment (PE)” does not exist under the DTAA. Article 5(6) of the India-Singapore DTAA contemplates that an enterprise shall be deemed to have a permanent establishment in the contracting state only if the activities within the contracting state continue for a period aggregating to 90 days in any fiscal year. Hence, it rejected the Income Tax Department’s move to tax Clifford Chance Private Limited, one of the largest international law firms, on services rendered remotely from Singapore.