ERNST & YOUNG (EMEIA) SERVICES LIMITED,NOIDA vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE INTERNATIONAL TAX 1(2)(2), NEW DELHI, NEW DELHI

PER KRINWANT SAHAY AM Appeal in this case has been filed by the assessee against the order dated 23.12.2025 passed by the ACIT, International Taxation Circle 1(2)(2), Delhi for the A.Y. 2023-24. Grounds of appeal are as under :- Ground 1.1: That on the facts and in the circumstances of the case and in law, the final assessment order dated 23 December 2025 passed under section 143(3) read with section 144C (13) of the Act ("impugned order") by the Assistant Commissioner of Income Tax, Circle International Tax 1(2)(2). Delhi ("Ld. AO") in conjunction with the directions passed by the Ld. Dispute Resolution Panel ("Ld. DRP") in the case of Appellant for AY 2023- 24, as assessing the income of the Appellant for the relevant assessment year at INR 2,06,84,07,991 as against the returned income of "NIL" is based on assumptions and surmises, hence, bad in law and liable to be quashed. Ground 1.2: That on the facts and in the circumstances of the case and in law, the impugned order passed by Ld. AO/ DRP is contrary to correct reading and interpretation of relevant statutory provisions and therefore, the impugned order is bad in law and liable to be set aside. Grounds challenging the addition of receipts as business income owing to creation of Virtual Service Permanent Establishment ("PE") Ground 2.1: That on the facts and in the circumstances of the case and in law, the Ld. AO/ DRP has erred in constituting a Service PE of the Appellant as per Article 5 of the India-UK tax treaty without appreciating and completely disregarding the fact that none of the Appellant's employees were present in India. Ground 2.2: That on the facts and in the circumstances of the case and in law, the Ld. AO/ DRP has erred in holding that the Appellant constituted 'Virtual Service PE', which is against the

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settled law, that a PE cannot be constituted when there is no physical presence in the source country. Ground 2.3: Without prejudice to the above, on the facts and in the circumstances of the case and in law, even assuming, without conceding, that the Appellant constitutes a Virtual Service PE in India, the Ld. AO/ DRP failed to appreciate the settled provisions of Article 7 of the India-UK tax treaty, which clearly mandate that only such part of income that is attributable to the operations carried out in India, can be taxed in India. Ground 2.4: That on the facts and in the circumstances of the case and in law, the Ld. AO/ DRP has erred in not adhering to the principle of judicial discipline and disregarding the fact that the issue in Appellant's case is squarely covered by the ruling of the Hon'ble ITAT in the case of Clifford Chance Pte. Ltd. [TS-186- ITAT-2024(DEL)], affirmed by the Hon'ble High Court as well [TS- 1603-HC-2025(DEL)]. Ground 2.5: Without prejudice to above, that on the facts and in the circumstances of the case and in law, the Ld. AO/DRP has erred in applying an arbitrary profit rate of 30% completely ignoring the fact that the global audited financial statements submitted by the Appellant depicted "NIL" profits. Ground 2.6: That on the facts and in the circumstances of the case and in law, the Ld. AO/ DRP has erred in arbitrarily computing the profits attributable to the alleged PE of the appellant in India by attributing the 50% of revenue earned from India, without any cogent basis.”

the decision of the Coordinate Bench order in assessee’s own case for A.Y.2022-23 in the order passed in ITA No.1976/Del/2025 dated 20.03.2026. 4. Per contra the Ld. DR relied on the order passed by the DRP and the AO. We find that this issue is squarely covered by the order passed in assessee’s own case by ITAT. Infact the order of the coordinate Bench of the ITAT has also taken into consideration and followed the order passed by the jurisdictional Hon’ble High Court Delhi in the case of CIT Vs. Clifford Chance Pte. Ltd. which is reproduced as under :-

“5. We find that one of the question of law for consideration before the Hon'ble Delhi High Court in the case CIT vs. Clifford Chance Pte. Ltd. (supra) was:

B. Whether on the facts and in the circumstances of the case, and in law, the Tribunal erred in holding that the assessee does not have a virtual service permanent establishment in India?" 1 The Hon'ble High Court after examining the provisions of India- Singapore DTAA answered the above question as under:- "41. Another issue that has been raised is that even when the employees were not physically present in India, services continued to be rendered virtually, for more than 90 days. That apart, in AY 2021-22, though the assessee did not have physical presence of any employees in India, services were still provided virtually by the assessee to its clients in India, and as such, it constituted a virtual service permanent establishment in India. The view of the assessing officer, as propounded by the Revenue before the Tribunal and before us, is that as a result of rapid digitalisation, services including consultancy services can be provided virtually without the physical presence of employees in the contracting state. According to them, nothing in the DTAA 4 | P a g e

requires the employees to be physically present in India for providing the services, 42. Article 5(6)(a) of the DTAA reads "An enterprise shall be deemed to have a permanent establishment in a Contracting State if it furnishes services... within a Contracting State through employees or other personnel...". The words "within a Contracting State" and "through employees or other personnel" contemplates rendition of services in India by the employees of the non-resident enterprise, while mandating a fixed nexus; a physical footprint within India. The term within" has a certain territorial connotation and in the absence of personnel physically performing services in India, there can be no furnishing of services within" India. A plain reading of the whole provision would thus reveal that, it such rendition of services by employees present within the country which would constitute a service permanent establishment. 43. Mr. Rai has vehemently contended that receipts on account of virtual services rendered by the assessee must be held to be amenable to taxation in India, since a virtual service permanent establishment" has been established. We find that no such eventuality is contemplated by the DTAA. The concept of a virtual service permanent establishment does not find mention anywhere in the DTAA. In the absence of any such provision, the argument of Mr. Rai would be at variance that the express provisions of the DTAA which we have already interpreted above. 44. At this juncture, we find it necessary to acknowledge that the Revenue may potentially be justified in raising concerns regarding taxability of foreign entities in the increasingly open global virtual economy, and the diminishing requirement of physical presence of non-resident employees to furnish services. However, taxability of entities in such instances, as always, remains subject to the applicable provisions of law- both treaty and domestic. 45. The law insofar as the present controversy is concerned, is clear and unambiguous. The DTAA, which has been carefully drafted and executed after numerous rounds of bilateral deliberations and negotiations at the highest level, must necessarily be interpreted strictly. If something is conspicuous by its absence, the presumption is that it has deliberately been done so. It is not for courts to read in concepts which are not expressly provided for by the treaty. The guiding principle here is that 5 | P a g e

language which is not explicitly included in treaty provisions cannot be artificially read into suc provisions by way of judicial fiction. 46. As already stated, Article 5(6) of the DTAA only contemplates rendering of services by employees present within the country. If that be so, it is not for this Court to analyse the status or merits of a virtual service permanent establishment which does not find mention either in the DTAA or in the domestic Act. As such, the contention of the established for AYs 2020-21 and 2021-22 cannot be accepted." Revenue that a virtual service permanent establishment of the assessee has been ITA No. 1976/DEL/2025 (Α.Υ. 2022-23) (Emphasized by us] The provisions of Article 5(2)(k) of India-UK DTAA are pari- material to Article 5(6)(a) of India- Singapore DTAA w.r.t. physical presence of employee or personnel of foreign enterprise in the Contracting State (India) for rendering service to constitute Service PE. The Hon'ble High Court emphasized for strict Treaty interpretation and held that in the absence of explicit language of the DTAA, courts cannot artificially create or read in concepts not expressly provided in DTAA, including virtual PE. 12. The impugned assessment order is based solely on the concept of VSPE, which is not supported by the treaty language or judicial precedent. Thus, in light of the aforesaid judgment, the theory of VSPE cannot be accepted, unless DTAA provides for the same. The provisions of Article 5 of India-UK DTAA makes no provision for VSPE. Hence, the fiction of VSPE cannot be read into provisions of the DTAA. Thus, ground of appeal No. 2.1 to 2.4 are allowed. 13. Without prejudice to primary submissions assailing existence of Service PE/VSPE, the assessee has also assailed attribution of profits to Indian PE. Since, the assessee succeeds on primary issue, the question of attribution of profit does not arise. Hence, ground of appeal no. 2.5 and 2.6 have become academic.”

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Sd/- Sd/- . SD (VIKAS AWASTHY) (KRINWANT SAHAY) JUDICIAL MEMBER ACCOUNTANT MEMBR Dated : 05/08/2026 *Neha Sr. PS* Copy forwarded to : 1. Appellant 2. Respondent 3. CIT 4. CIT (Appeals) 5. DR: ITAT

ASSISTANT REGISTRAR ITAT NEW DELHI

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