Income Tax Dept Appeals ITAT Ruling on Clifford Chance’s India Tax Liability in Delhi HC [Read Order]

The Income Tax Department has approached the Delhi High Court challenging a ruling of the Income Tax Appellate Tribunal (ITAT) which gave relief to international law firm Clifford Chance in a tax dispute. The cases are registered as ITA 353/2025 and ITA 354/2025, Commissioner of Income Tax, International Taxation-1, New Delhi vs. Clifford Chance PTE Ltd.

The case relates to whether the Singapore arm of the UK headquartered firm had a permanent establishment in India and if its revenues from Indian clients were taxable.

The Assessing Officer ruled that the firm had a service permanent establishment in India and attributed its entire receipts to the alleged presence. The officer also added sums said to be income from ICICI Bank and interest on a past tax refund, citing entries in Form 26AS.

Clifford Chance challenged this, with its counsel arguing that its employees had been in India only for 44 days in AY 2020-21 and had not entered India at all in AY 2021-22. This was well below the 90 day threshold for creating a service permanent establishment under the DTAA.

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The firm also argued that the department’s reliance on a virtual service permanent establishment was not recognised under treaty law.

In March 2024, the two-member bench comprising BRR Kumar (Accountant Member) and Astha Chandra (Judicial Member) held that Clifford Chance did not have a permanent establishment in India under the India-Singapore Double Taxation Avoidance Agreement (DTAA). For the assessment year 2020-21, the firm had disclosed receipts of Rs. 15.55 crore from Indian clients, while in 2021-22 it reported receipts of Rs. 7.97 crore. In both years, it filed nil income returns but claimed tax deducted at source credit.

The ITAT observed that the physical presence of employees in India for more than 90 days was a clear requirement under the DTAA. Since this condition was not met, it ruled that Clifford Chance had no permanent establishment in India.

The Tribunal also explained that taxing the entire gross receipts was not justified and pointed out that entries in Form 26AS could not alone prove actual income. It further struck down the levy of interest under Section 234B.

The Department has now filed an appeal before a division bench of the Delhi High Court comprising Justice V Kameswar Rao and Justice Vinod Kumar. The matter was listed this week but did not come up as the bench was not in session yesterday. It will be taken up on a later date.

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