SAAIRA India Bridge Constructions Private Limited (SAAIRA INDIA) is in the trading business of equipment, machinery and accessories used for infrastructure. It also caters services to onsite construction activities and provides installation and assembly services for the use of machinery and equipment. SAAIRA INDIA is engaged in Assembly Projects in Country K, which is carrying construction activities and providing installation services of the machinery in collaboration with Country K - Government. The project started on December 1, 2021, and will last till April 30, 2023. For the purpose it has set up a project office in Country K. ANAIRA AS is a Company from Country N which is into the business of providing designs, drawings and in manufacturing and trading of equipment, machinery and accessories. ANAIRA AS works on ERP (Enterprise Resource Planning system) software. Any person placing orders with ANAIRA AS must place through the web-based app only. ANAIRA has no PE in India. SAAIRA INDIA has entered into following agreement with ANAIRA AS: Indian Activities: An agreement for regular supply of equipment from ANAIRA AS to all its onsite locations across the globe including India. The total contract value amounts to INR 250 Crores spread in different locations as follows: Location of BusinessAmount (In Crores) India100 Country K50 Others100 Total250 In pursuance of the agreement, SAAIRA INDIA has been provided a login ID to place an order on the ANAIRA's app. Payment is to be made in advance or during the time of placing the order. Country K Project Activities: (a) ANAIRA made direct supplies of the equipment / machinery to the tune of INR 50 Crores to Country K onsite project based on "Ship to, Bill to Basis". The invoice is raised on Indian entity and the equipment is directly shipped at the Country K Project site without touching the Indian port. Modus Operandi: The order is placed by SAAIRA INDIA through its login ID on ANAIRA's App. On confirmation of the order by ANAIRA AS, the products get directly delivered from its warehouse to Country K Project site on F.O.B. basis. (b) SAAIRA INDIA deployed its supervisory team in FY 22-23 to oversee this project. The supervisory team mainly assist in supervision of activities and assists in installation of machinery. The supervisory teams consist of following personnel: • An Expatriate: Mr. Rolex is a Singapore tax resident till March 2022. To render administrative and managerial services on the project, he is sent from SAAIRA's Singapore subsidiary to SAAIRA INDIA. His stay in India will be from September 29, 2022-March 31st, 2023. For the same, the Singapore subsidiary is paid a total sum of INR 5 lakhs by SAAIRA INDIA at the end of the assignment. • Two specialist technicians: Mr. Ram and Mr. Rahim, both as Resident and Ordinarily Resident (ROR) in India will render technical consultancy in installation of machinery and equipment for the Country K project. They are on a fixed salary basis and are on the payrolls of SAAIRA INDIA @ INR _1,00,000.00 per month. The SAAIRA INDIA cross charges half of their salary to the Country K project office since October 1, 2021, as they spent half of their time on the Project in Country K. They will continue to do so till the project lasts. • An independent renowned engineer: Mr. Lalu Meena, an Indian Citizen, is an expert and specialises into equipment installation. He has stayed for 120 days in UAE for FY 22-23. He was a resident of UAE for previous 2 financial years. The SAAIRA INDIA has entered into a contractual agreement for a period of 6 months. He is paid INR 24 lakhs for the services in India, and he is physically present for 135 days in India and the balance he manages from virtual meetings. The amount is directly credited to his UAE overseas account. SAAIRA INDIA has involved him in the Country K project also. He will stay for 61 days in Country K for the project. He will be paid AED 100,000 directly from Country K to his UAE bank account as a Professional Fees. He spends balance 49 days of the year in Switzerland as a vacation. In addition to the above supervisory team, a Locum Doctor*: Dr. Vidyut was hired on a retainership fee from India and was sent to Country K as a substitute for a medical officer (who was working in-house in the project office of Country K). Dr. Vidyut stays for a period of 8 months in Country K from August 1, 2022 till March 31, 2023. Dr. Vidyut has always been a tax resident of India till FY 21-22. He runs his own clinic in India and earned INR 28 lakhs as gross receipts in FY 22-23, The project office in Country K paid Dr. Vidyut INR 2.5 lakh per month for the services rendered in Country K. He was additionally made a payment of INR 10 lakhs in lieu of foregoing his Indian practice during that period by Country K project office. The project office in Country K deducts TDS @ 20% on the entire amount paid to Dr. Vidyut. Additional information: (i) In the case of SAAIRA INDIA, the draft assessment order was passed for AY 2021-22 by the Assessing Officer (AO) under Section 143(3) read with Section 144C of the Act on 30.09.2022. In the draft assessment order, the AO proposed an adjustment of INR 20 Crores based on the arm's length price of international transactions determined under Section 92CA(3) of the Act. The total income for FY 2020-21 is INR 50 Crores. The Income Tax Return (ITR) for FY 20-21 was filed on 20.11.2021. The draft assessment order was received by SAAIRA INDIA as on 01.10.2022. SAAIRA INDIA did not agree with adjustment and decided to challenge the addition of INR 20 Crores to the appropriate authorities. SAAIRA INDIA fought upto the Income Tax Appellate Tribunal (ITAT) level. The ITAT also upheld the addition of INR 20 Crores made by the AO which was finally accepted by SAAIRA INDIA. The date of issue of ITAT Order is 15.01.2023. (ii) *A locum doctor is a medical professional who substitutes for a practice of a regular doctor for a period of time. (iii) 1 AED = INR 25 (iv) The DTAA between India and Country K and Country N are in line with UN Model Convention 2017 and OECD Model Convention, respectively. (v) Article 6(b) of the India-Singapore DTAA refers to Article 9 of the DTAA. A related enterprise within the meaning of Article 9 of the DTAA, for the purposes of this question is understood as similar to an associated enterprise under section 92A of the Act. Therefore, to identify related enterprises for the purposes of Article 6(b) the principles as laid down in Section 92A of the Act may be used. (vi) Reference to the Act would mean the Income-tax Act, 1961. (vii) Reference to the Rule would mean the Income-tax Rules, 1962. Reference Material The relevant extract of India-UAE DTAA ARTICLE 4-RESIDENT 1. For the purposes of this Agreement the term 'resident of a Contracting State' means: (a) in the case of India: any person who, under the laws of India, is liable to tax therein by reason of his domicile, residence, place of management or any other criterion of a similar nature. This term, however, does not include any person who is liable to tax in India in respect only of income from sources in India; and (b) in the case of the United Arab Emirates: an individual who is present in the UAE for a period or periods totalling in the aggregate at least 183 days in the calendar year concerned, and a company which is incorporated in the UAE, and which is managed and controlled wholly in UAE. 2. _________ 4. _________ ARTICLE 5-PERMANENT ESTABLISHMENT 1. For the purposes of this Agreement, the term "permanent establishment" means a fixed place of business through which the business of an enterprise is wholly or partly carried on. 2. The term "permanent establishment" includes especially: (a) _________ (g) _________ (h) building site or construction or assembly project or supervisory activities in connection therewith, but only where such site, project or activity continues for a period of more than 9 months; (i) the furnishing of services including consultancy services by an enterprise of a Contracting State through employees or other personnel in the other Contracting State, provided that such activities continue for the same project or connected project for a period or periods aggregating more than 9 months within any twelve-month period. 3. _________ 5. _________ The relevant extract of India-Singapore DTAA ARTICLE 5-PERMANENT ESTABLISHMENT 1. For the purposes of this Agreement, the term "permanent establishment" means a fixed place of business through which the business of the enterprise is wholly or partly carried on. 2. XXXXXXXX 3. A building site or construction, installation or assembly project constitutes a permanent establishment only if it continues for a period of more than 183 days in any fiscal year. 4. An enterprise shall be deemed to have a permanent establishment in a Contracting State and to carry on business through that permanent establishment if it carries on supervisory activities in that Contracting State for a period of more than 183 days in any fiscal year in connection with a building site or construction, installation or assembly project which is being undertaken in that Contracting State. 5. Notwithstanding the provisions of paragraphs 3 and 4, and enterprise shall be deemed to have a permanent establishment in a Contracting State and to carry on business through that permanent establishment if it provides services or facilities in that Contracting State for a period of more than 183 days in any fiscal year in connection with the exploration, exploitation or extraction of mineral oils in that Contracting State. 6. An enterprise shall be deemed to have a permanent establishment in a Contracting State if it furnishes services, other than services referred to in paragraphs 4 and 5 of this Article and technical services as defined in Article 12, within a Contracting State through employees or other personnel, but only if : (a) activities of that nature continue within that Contracting State for a period or periods aggregating more than 90 days in any fiscal year, or (b) activities are performed for a related enterprise (within the meaning of Article 9 of this Agreement) for a period or periods aggregating more than 30 days in any fiscal year. 7. _________ 10. _________ Required: Choose the most appropriate alternative for the following MCQs: