India-US DTAA Service PE | Solar Days, Not Cumulative Man-Days, Determine 90-Day Threshold : ITAT Delhi

The Income Tax Appellate Tribunal, Delhi, has clarified a critical ambiguity in the application of the India-US Double Taxation Avoidance Agreement, holding that the 90-day threshold for constituting a Service Permanent Establishment must be calculated based on unique solar days of employee presence, not cumulative man-days. This ruling provides much-needed doctrinal clarity for foreign enterprises rendering services in India and significantly impacts the tax treatment of cross-border consulting engagements.

Background & Facts

The Dispute

The appellant, Degolyer and Macnaughton Corporation, a non-resident foreign company incorporated in the USA, provided petroleum consulting services to Indian oil companies Oil and Natural Gas Corporation (ONGC) and Oil India Limited (OIL) during the Assessment Year 2020-21. The total revenue earned from these services in India amounted to INR 147,620,042. The Assessing Officer (AO) contended that the duration of the contracts exceeded 90 days, thereby triggering the Service Permanent Establishment (PE) provision under Article 5(2)(l) of the India-US DTAA, and assessed deemed income at 10% of the receipts under Section 44BB of the Income Tax Act, 1961.

Key Facts

• The appellant filed its return on 05.02.2021 declaring nil income.
• Revenue from ONGC: INR 85,335,612; from OIL: INR 62,284,430.
• The AO issued a show-cause notice on 15.07.2021, asserting that the 90-day threshold under Article 5(2)(l) was crossed.
• The appellant submitted that no single employee stayed in India for more than 90 days.
• The appellant provided a list of employee visit dates, which the AO initially rejected for lack of documentary proof.
• The CIT(A) initially upheld the AO’s addition on 12.03.2024, but later reconsidered after the ITAT’s order in ITA No. 1065/Del/2023.
• The appellant submitted certified visit records from ONGC and OIL, confirming exact dates of employee presence.
• The aggregate cumulative man-days (counting overlapping days multiple times) totaled 181 days.
• The unique solar days (distinct calendar days on which any employee was present) totaled 72 days, including 8 days of personal vacation.

Procedural History

• 15.07.2021: AO issued show-cause notice under Section 142(1) and proposed addition under Section 44BB.
• 28.09.2021: Appellant filed written reply disputing existence of Service PE.
• 12.03.2024: CIT(A) passed first order upholding addition of INR 1,47,62,005.
• 02.04.2024: ITAT in ITA No. 1065/Del/2023 remanded the matter to CIT(A) for fresh consideration with opportunity to submit documentary evidence.
• 06.10.2025: CIT(A) passed second order, deleting the addition after examining employee visit records and applying the solar days methodology.
• 15.11.2025: Revenue filed appeal before ITAT Delhi (ITA No. 7615/Del/2025).
• 09.04.2026: Hearing held before ITAT Delhi.
• 30.04.2026: Judgment pronounced.

The Parties' Positions

For the Revenue (Appellant)

• Argued that Article 5(2)(l) requires computation of cumulative man-days, not unique solar days.
• Relied on the total aggregate presence of 181 man-days as evidence of continuous service provision.
• Contended that the CIT(A) erred in relying on Clifford Chance Pte. Ltd. and ignored the economic reality of multi-employee deployment.
• Asserted that the purpose of the 90-day threshold is to capture sustained business activity, regardless of whether employees overlap.

For the Assessee (Respondent)

• Maintained that the DTAA language refers to "activities... continue within that State for a period or periods aggregating more than 90 days" - referring to duration of time, not headcount.
• Cited Clifford Chance Pte. Ltd. (ITAT Delhi, 14.03.2024) and Linklaters (Mumbai ITAT) to support the solar days approach.
• Submitted that the 72 unique solar days, after excluding 8 days of personal vacation, fell below the 90-day threshold.
• Emphasized that the certificates from ONGC and OIL corroborated the exact dates of presence.

Relief Sought

The Revenue sought to set aside the CIT(A)’s order dated 06.10.2025 and restore the AO’s addition of INR 1,47,62,005 as deemed business income under Section 44BB. The assessee sought dismissal of the appeal with costs.

The Legal Issue

The central question was whether, for the purpose of constituting a Service Permanent Establishment under Article 5(2)(l) of the India-US DTAA, the 90-day threshold must be computed based on unique solar days of employee presence in India, or whether cumulative man-days - counting overlapping days multiple times - should be used.

Arguments Presented

For the Appellant

The Revenue contended that the phrase "activities... continue within that State for a period or periods aggregating more than 90 days" should be interpreted to mean the total number of days worked by all employees combined, regardless of overlap. It argued that the economic substance of the transaction - sustained, multi-person consulting activity over an extended period - justified treating 181 man-days as evidence of continuous service provision. The Revenue relied on the principle of substance over form and cited the OECD Commentary’s general guidance on PE, asserting that the CIT(A)’s interpretation undermined the treaty’s anti-avoidance intent.

For the Respondent

The assessee argued that the DTAA’s wording - "through employees or other personnel" - focuses on the duration of the activity, not the number of personnel. It emphasized that the treaty uses the singular "period" and "activities" in the context of continuity, not aggregation of individual contributions. The assessee relied on binding precedents from the Delhi ITAT and the Delhi High Court in Commissioner of Income-tax, International Taxation v. Clifford Chance Pte Ltd. ([2025] taxmann.com 254), which held that only unique calendar days count. It further submitted that the 8-day vacation period was properly excluded, leaving only 64 days of actual service provision.

The Court's Analysis

The Tribunal undertook a detailed textual, contextual, and purposive analysis of Article 5(2)(l) of the India-US DTAA. It noted that the provision requires that "activities of that nature continue within that State for a period or periods aggregating more than 90 days". The key phrase is "a period or periods" - indicating a temporal duration, not a count of person-days.

"The Article rather uses plural form while referring to the presence of the employees in that state."

The Tribunal observed that the use of plural "employees" does not imply aggregation of days; rather, it acknowledges that multiple individuals may be deployed simultaneously. The focus remains on the continuity of service delivery over time.

The Tribunal extensively relied on the precedent set by the Delhi ITAT in Clifford Chance Pte. Ltd. ([2024] 160 taxmann.com 424), which held that counting common days multiple times would distort the treaty’s intent and lead to artificial inflation of presence. The Tribunal noted that the Delhi High Court had affirmed this view in Commissioner of Income-tax, International Taxation v. Clifford Chance Pte Ltd. ([2025] taxmann.com 254), making the interpretation binding on the Tribunal.

The Tribunal further held that the certificates issued by ONGC and OIL, confirming exact dates of employee visits, constituted reliable documentary evidence under Rule 12A of the Income Tax Rules. The exclusion of 8 days of personal vacation was accepted as reasonable, as the treaty does not treat personal travel as service provision.

The Tribunal rejected the Revenue’s reliance on the OECD Commentary, noting that while it may be persuasive, it cannot override the clear language of the bilateral treaty. The principle of lex specialis derogat legi generali applied: the India-US DTAA, as a specific treaty, prevails over general OECD guidance.

The Tribunal concluded that the CIT(A) correctly applied the solar days methodology and that the appellant’s activities did not continue in India for more than 90 days. The absence of any contrary judicial precedent or distinguishing facts rendered the Revenue’s appeal untenable.

The Verdict

The Revenue’s appeal was dismissed. The ITAT upheld the CIT(A)’s order dated 06.10.2025, deleting the addition of INR 1,47,62,005. The Tribunal held that the appellant did not constitute a Service Permanent Establishment in India under Article 5(2)(l) of the India-US DTAA, and therefore, the income was not taxable under Section 44BB. No costs were awarded.

What This Means For Similar Cases

Solar Days Are the Only Valid Metric for Service PE

• Practitioners must now calculate employee presence using unique calendar days, not cumulative man-days, for all DTAA-based Service PE assessments.
• Tax authorities cannot rely on total employee-days to trigger taxation under Section 44BB if the distinct days of presence are below 90.
• Foreign companies should maintain precise, third-party-verified logs of employee visits (e.g., entry/exit stamps, client site access records).

Documentary Evidence Is Critical

• Oral submissions or internal summaries are insufficient; certificates from Indian clients (ONGC, OIL, etc.) are now essential to substantiate presence.
• Vacation days and business development days (where no services are rendered) must be excluded and clearly documented.
• Taxpayers should proactively submit visit logs during scrutiny to avoid remand delays.

Precedent Binding Across Jurisdictions

• The Delhi ITAT’s ruling in Clifford Chance and its affirmation by the Delhi High Court now form binding precedent for all cases involving the India-US DTAA.
• Other jurisdictions (Mumbai, Bangalore, Kolkata) must follow this interpretation unless a contrary ruling is issued by the Supreme Court.
• Revenue authorities are now on notice: assessments based on man-days are legally unsustainable.