ITAT holds Toyota Tsusho lacked permanent establishment in India as supervisory activities fell short of six-month threshold under India-Japan DTAA Article 5(4).
ITAT: No Supervisory PE for Toyota Tsusho Under DTAA
The ITAT has ruled that Toyota Tsusho Corporation did not create a permanent establishment (PE) in India due to supervisory activities at project sites, as the duration did not exceed the 183-day threshold under Article 5(4) of the India-Japan Double Taxation Avoidance Agreement (DTAA). The decision reaffirms strict adherence to treaty-based PE conditions.
The assessing officer had argued that supervisory activities at infrastructure projects constituted a construction PE. However, the tribunal found that individual site visits were fragmented and cumulatively lasted less than the stipulated six months. The ITAT stressed that treaty provisions override domestic tax law, and the absence of continuity disqualified the activities from constituting a PE.
"Episodic and non-continuous supervision, even if technical, cannot constitute a construction or supervisory PE under Article 5(4) of the DTAA when the time threshold is not met."
This ruling provides relief to foreign companies engaged in short-term supervisory roles in India. It underscores the importance of precise project duration tracking and treaty compliance in cross-border engagements. Taxpayers should maintain contemporaneous records of deployment periods to defend against PE assertions.
Citations
- India-Japan DTAA, Article 5(4)
