India: Duration test for supervisory permanent establishment under Japan treaty must be applied on a project-by-project basis, not an employee-by-employee basis (tribunal decision)

The Delhi Bench of the Income-tax Appellate Tribunal held (ITA 1828/Del/2018) that the taxpayer, a Japan-based company, did not constitute a supervisory permanent establishment (PE) in India under the India-Japan income tax treaty merely because some of its employees were present in India for more than six months.

The tribunal noted that the supervisory PE clause requires two cumulative conditions to be satisfied: (1) supervisory activities must be carried out in India for more than six months, and (2) such activities must be carried out in connection with a building site, construction, installation or assembly project (“construction project”). The tribunal held that the duration test is required to be examined on a project-by-project basis, and not on an employee-by-employee basis, and that the length of stay of particular employees cannot be aggregated to determine the duration of a project.

The tribunal found that none of the taxpayer’s projects in India met the duration threshold, except for one, which did not qualify as a construction project. Thus, the conditions for constituting a supervisory PE were not cumulatively fulfilled for any project.

Read a September2026 report prepared by the KPMG member firm in India