Period of existence of independent project offices shall not be clubbed to determine PE in India

Facts:

a)    The assessee, a Japanese company, had established project offices in connection with three Projects. In some of the contracts assessee received supervision fees (‘FTS’) from the Maruti Udhyog Ltd for supervising the installation of machinery and equipments supplied by it;

b)    The assessee contended that it did not have any PE in India to tax the supervision income as business income under Article 7 of India-Japan DTAA. Therefore, it would be taxable as FTS under Article 12(2) of such DTAA;

c)    The Assessing Officer (‘AO’) held that if the enterprise had a PE it was not necessary that each project should have a separate PE. He further contended that the supervision period of all the contracts had to be aggregated and the same was more than six months to constitute a PE in India;

d)    Accordingly, the AO held that supervision fees received under contract was effectively connected with a PE and brought it to tax under section 115A.