The Delhi High court has ruled that a Project office set-up by a foreign company in relation to a contract for design and fabrication of petroleum platform is not a Permanent Establishment. The said ruling was given in the case of National Petroleum construction company, a resident of U.A.E.

The High Court accepted the argument advanced on behalf of the foreign company that the role of the project office was limited to performance of co-ordination activities. The fact that the contract which the foreign company entered into with the Indian party (ONGC) required it to set-up a Project office in India was also not considered relevant. The argument by the counsel of the foreign company that the employees at the project office had a low-profile and the team which was engaged in critical contractual discussions were not employees of the project office, as alleged by Revenue, found favor with the Court.

The Court further opined that the existence or otherwise of the Installation PE would have be tested from the time the activities are actually commenced at the site by the foreign company itself and time spent at the site by the sub-contractor for carrying our survey activities would not be reckoned for the purpose of determination of existence or otherwise of the PE.

Interesting, the company itself admitted to its project office as being a PE in its return of income filed and offered to tax that portion of income which related to activities in India. The company revised its position at the time of scrutiny, which was not accepted by the lower authorities – the Assessing Officer, the first level Dispute Resolution Panel as well as the Tax Tribunal – all of which  came to the uniform conclusion that there was a PE in India.