AAR on taxability of income from execution of contract in India by German company, having no PE in India

SUMMARY OF CASE LAW
It is not possible to hold that the place of manufacture of the sub-contractor situated far away from the installation site should notionally be regarded as part of the applicant’s PE; occasional or brief visit by some of the employees of the applicant right from the beginning does not give rise to inference of the existence of PE; hence, its business profits arising from the periodical payments made by TPT as a consideration for the contract cannot be subjected to tax under the Income-tax Act, 1961 in view of Article 7.1 of DTAA between India and Germany.
CASE LAW DETAILS
Decided by: THE AUTHORITY FOR ADVANCE RULINGS (INCOME TAX) NEW DELHI, In The case of: Pintsch Bamag, In re, Appeal No: AAR No. 790 of 2008, Decided on: September 11, 2009
RELEVENT PARAGRAPH
7. The contention of the Revenue is that the sub-contractor is undertaking various activities which constitute the core of the contract work entrusted to the applicant. All the activities undertaken by the sub-contractor are on behalf of the applicant and in connection with the execution of the contract between the applicant and TPT. It is pointed out that the sub-contractor is a nominee of the applicant and the delegation of work to the sub-contractor for its own convenience should not influence the decision on the question whether the applicant has a PE in India. In other words, the Revenue wants to treat the workshop or place of manufacture of the sub-contractor as part of the permanent establishment of the applicant itself. If the duration of the work done by the sub-contractor at the workshop or the factory is taken into account, the duration will be much beyond six months which is the period stipulated in Clause (i) of Article 5.2 of the Treaty. That is why the Revenue has taken this stand. 8.8. I do not find any merit in the Revenue’s contention. It admits of no doubt and in fact it is not disputed that clause (i) of Article 5.2 gets attracted to the present case as the contract awarded to the applicant relates to installation and assembly project, and, therefore, the duration test of six months should necessarily be applied even if the applicant at one point of time or the other may set up a fixed place of business for the purpose of monitoring and supervising the installation. The inter-play between para 1 of Article 5