No FTS Article in the India-UAE Treaty: How Offshore Engineering Income Is Taxed in India

By CA Mithilesh Reddy, Founder and CEO, and CA Rajesh Vaishnav, Partner, Steadfast Business Consulting LLP | Direct Tax Litigation / Controversy

Introduction

A double taxation avoidance agreement does not impose tax. It allocates the right to tax between two States, and it limits what the source State may do. The domestic Act creates the charge; the treaty decides how far that charge may reach a resident of the other State. Where the two differ, section 159(4) of the Income-tax Act, 2025 (section 90(2) of the 1961 Act, under which the treaty applies to the extent it is more beneficial) gives the treaty priority. That ordering is the whole of the argument in this area, and most disputes turn on a point of fact within it rather than on the ordering itself.

Where a treaty omits an article dealing with fees for technical services, the argument that follows is simple to state and routinely lost on execution. Assessing officers do not generally dispute the absence of the article. They dispute the facts that make Article 7 the operative provision: whether a permanent establishment exists, where the work was actually performed, and whether the taxpayer’s documentary position was in place at the time the payments were made rather than assembled afterwards. This note sets out the statutory framework, the authorities that govern each limb, and the evidence an assessment file needs to carry.

This note deals with the source State side of that question for technical and engineering services: how income is characterised when the treaty contains no article dealing with fees for technical services, what the permanent establishment analysis requires, where the work has to have been performed, and what the assessment file must contain before any of it can be argued. It also covers the procedural ground that frequently decides these assessments before the merits are reached. A companion note on the limits of summary processing under section 143(1) deals with the related problem of treaty claims disallowed without an assessment at all.

1. Why the treaty and the Act answer different questions

Section 9(7) of the Income-tax Act, 2025 (section 9(1)(vii) of the 1961 Act, which deems fees for technical services to accrue in India) brings within the Indian charge consideration for managerial, technical or consultancy services paid by a resident, subject to the exclusions in the provision. Section 207 (section 115A, the special rate for royalty and fees for technical services received by non-residents) then fixes the rate. Section 393(2), Table serial number 17 (section 195, withholding on sums payable to non-residents) imposes the deduction obligation on the payer.

None of this decides whether India may actually tax the income. Section 159(4) of the 2025 Act (section 90(2), under which the treaty applies to the extent it is more beneficial to the assessee) makes the treaty the governing instrument wherever it is more favourable. The Supreme Court settled the position in Union of India v. Azadi Bachao Andolan, (2003) 263 ITR 706 (SC), holding that a treaty operates even where it is inconsistent with the Act and overrides the Act in computing total income and tax liability.

One provision deserves attention. Section 159(6) of the 2025 Act, which carries forward section 90(2A) of the 1961 Act, provides that the general anti avoidance rules in Chapter XI apply even where they are not more beneficial to the assessee. The treaty override in section 159(4) is therefore expressly made subject to the anti avoidance chapter on the face of the statute. For a genuine operating business with real activity in the treaty state this changes nothing. For a structure whose only substance is the treaty claim, it narrows the room considerably.

2. Which treaties have no fees for technical services article

The India UAE treaty, signed on 29 April 1992 and in force from 22 September 1993, runs from Article 1 (Personal Scope) to Article 32 (Termination). Its articles include Article 5 (Permanent Establishment), Article 7 (Business Profits), Article 12 (Royalties), Article 14 (Independent Personal Services) and Article 22 (Other Income). There is no article headed Fees for Technical Services or anything equivalent. Article 12 covers royalties, including payments for information concerning industrial, commercial or scientific experience, but it is not a technical services provision.

India has several treaties in the same position, the UAE and Thailand among them. The position varies and has in some cases been altered by protocol, so the absence of a technical services article should be confirmed for the particular treaty rather than assumed from a list. The point to take from this is procedural rather than substantive: before building an argument on the absence of an article, read the operative text of the treaty as currently amended, including any protocol and the synthesised text reflecting the Multilateral Instrument. A treaty article that was absent in the original text may have been inserted later.

3. Where the income goes when the treaty is silent

If the treaty has no technical services article, the income must be allocated under some other article. Two candidates present themselves: Article 7, which deals with business profits, and the residuary Other Income article, which in the India UAE treaty is Article 22.

On the India UAE treaty the residuary route is closed by the text itself. Article 22(1) allocates income not expressly dealt with in the other articles exclusively to the State of residence, wherever it arises, subject only to the carve out in Article 22(2) for income effectively connected with a permanent establishment or fixed base. A Revenue argument that technical service income is taxable in India as other income therefore fails on the face of the article, without needing to go further.

That is not true of every treaty, because residuary articles are not uniformly drafted. Where the residuary article permits source State taxation, the question becomes live, and the answer is supplied by the Madras High Court in Bangkok Glass Industry Co. Ltd. v. ACIT, (2013) 34 taxmann.com 77 (Mad), dealing with the India Thailand treaty, which likewise contains no technical services article. The Court held that such income cannot be taxed under the residuary article; it falls to be considered under Article 7 and is taxable in India only where the non resident has a permanent establishment to which it is attributable.

The logic is one of structure. Technical service income earned by an enterprise in the course of its trade is, as a matter of ordinary characterisation, business profit. The residuary article is designed for items of income that fit nowhere else, not for the central receipts of an operating business. An authority that treats a residuary article as a general source taxing power would make the business profits article largely redundant in any treaty that has both.

4. The permanent establishment question

Once Article 7 applies, everything turns on the permanent establishment. For a UAE engineering company contracting with an Indian customer, the exposures are the usual four.

• Fixed place. An office, workshop, yard or other fixed place of business in India at the disposal of the enterprise.
• Project or installation. A building site, construction, assembly or installation project in India, where the treaty’s duration threshold is exceeded. Under the India UAE treaty, Article 5(2)(h) and Article 5(2)(i) each set a threshold of more than nine months, and in the case of Article 5(2)(i) that period is measured in the aggregate within any twelve month period for the same or a connected project. The threshold is therefore expressed in months and it aggregates, which makes the computation of duration, and the question of which activities form part of a connected project, the usual battleground.
• Service presence. Where the treaty contains a service permanent establishment clause, the furnishing of services through employees or other personnel present in India beyond the stated period.
• Dependent agent. A person in India habitually concluding contracts, or habitually playing the principal role leading to their conclusion, on behalf of the enterprise.

Most offshore engineering disputes are decided on the second and third of these. Where the contract is for fabrication, conversion or manufacture performed wholly at the contractor’s own yard outside India, with Indian presence limited to short supervisory or commissioning visits, the question is whether the visits cross the threshold and whether they are properly characterised as a separate installation project or as incidental to an offshore supply.

5. Where the work was done: offshore supply and offshore services

The Supreme Court’s decision in Ishikawajma-Harima Heavy Industries Ltd. v. DIT, (2007) 288 ITR 408 (SC), remains the starting point. The Court held that only income attributable to operations carried out in India is taxable; where property in the goods and payment both passed outside India, the offshore supply was not taxable in India, and the place at which the contract was signed was immaterial.

The decision has a second limb that must be handled carefully. On offshore services the Court held that, for section 9(1)(vii) to apply, the services had to be both rendered in India and utilised in India. That limb was legislatively reversed. The requirement of rendition in India was removed by the Explanation below section 9(2) of the 1961 Act, inserted by the Finance Act 2010 with retrospective effect from 1 June 1976, and the position is now carried in section 9(11)(b) of the 2025 Act, which deems income of the kinds described in sections 9(5), 9(6) and 9(7) to accrue in India whether or not the non resident has rendered services in India. Citing Ishikawajma for the territorial nexus proposition without flagging the reversal is a common and serious error in written submissions. The surviving and still powerful part of the decision is the offshore supply analysis and the principle that only operations carried out in India can generate Indian source profit under the treaty.

The Court followed the same approach in CIT v. Hyundai Heavy Industries Co. Ltd., (2007) 291 ITR 482 (SC). The installation permanent establishment came into existence only after the sale was concluded, so profits of the Korean design and fabrication operations had no economic nexus with the Indian permanent establishment and were not taxable in India. Only the profit attributable to Indian installation and commissioning was brought to tax.

More recently the Delhi Bench of the Tribunal considered related questions in Andritz AG v. Dy. CIT (IT), (2024) 165 taxmann.com 76 / (2025) 122 ITR 479 (Delhi Trib), a case under the India Austria treaty. The Bench held that consideration for drawings and designs was inseparable from the offshore supply and could not be carved out and taxed separately as fees for technical services, and that cost reimbursements without mark up were not fees for technical services. The decision should be cited with care rather than as a clean win on every point. The non taxability of the offshore supply was a premise already accepted in the proceedings rather than a holding in that order; the net basis treatment of onshore supervisory receipts under Article 7 was remanded rather than decided; and the Bench also observed that supervisory fees fall within the technical services article irrespective of a permanent establishment, which cuts against part of the proposition the decision is often cited for.

6. The contrary line, and why a submission should address it

A submission that presents this area as settled invites the Revenue to produce the other half of the jurisprudence. In Voith Paper GmbH v. Dy. DIT, (2020) 80 ITR (Trib) 589 (Delhi Trib), the Tribunal held that the contracts could not be viewed independently of one another, that the buyer’s dominant purpose throughout was the installation of a plant under the supplier’s supervision, that a business connection was therefore established, and that a service permanent establishment existed with thirty five per cent of profits attributed to it. Interest was held exigible because the assessee had conceded the permanent establishment before the assessing officer.

Two lessons follow. First, the composite nature of a contract cuts both ways. A taxpayer who argues that a contract is commercially indivisible in order to defend an expense deduction cannot simultaneously argue that it is severable in order to keep an offshore supply outside the Indian charge. The positions must be reconciled across the whole file. Second, a concession on the existence of a permanent establishment made at assessment stage is very difficult to withdraw later, and carries consequences for advance tax and interest that are not always considered when the concession is made.

7. What the treaty position requires by way of documentation

Treaty entitlement is substantive, but it is proved by documents, and the documents must exist contemporaneously. For a UAE resident claiming Article 7 treatment the file should carry the following.

• A valid tax residency certificate issued by the UAE authority for each relevant year, covering the period in which the income arose.
• Form 10F, filed electronically, with the particulars matching the residency certificate.
• A no permanent establishment declaration from the non resident, specific to the contract and the year rather than generic.
• Evidence of where the work was performed: yard records, fabrication logs, production records, shipping and delivery documents, and the contractual terms governing passage of title and risk.
• A day count record for every employee or representative who travelled to India in connection with the contract, with dates, purpose and location. This is the single document most often missing and most often decisive.
• The contract itself, with the scope of work, the division of responsibilities, the pricing of each component and the delivery terms.

On the timing of Form 10F, a procedural lapse should not be allowed to defeat a substantive entitlement. Where residency and the absence of a permanent establishment are established on the evidence, the position is that treaty benefit flows from the treaty and the statute, not from the form. That argument is considerably stronger where the certificate itself was in existence at the relevant time and only the filing was late.

8. The procedural limb: finalising an assessment before the Panel has spoken

For an eligible assessee, which under section 275 of the 2025 Act means a person in whose case a variation arises from an order of the transfer pricing officer, a non resident who is not a company, or a foreign company, section 275 of the 2025 Act (section 144C, the Dispute Resolution Panel) prescribes a mandatory sequence. The assessing officer must pass a draft order. The assessee then has the option of filing objections before the Panel. The Panel issues directions, which bind the officer, and only then may the final order be passed.

Where an officer passes a final order without first issuing a draft, or passes it before the Panel’s directions are received, the weight of tribunal and High Court authority treats the defect as jurisdictional rather than procedural, so that the order is void rather than merely irregular and the defect is not cured by the eventual issue of directions. The consequence, on that line of authority, is that the entire assessment falls and the substantive merits never arise. The point should be pleaded with the authorities relevant to the particular bench, because the consequence claimed is a strong one and the officer will resist it.

Two practical points. First, the defect must be pleaded as a ground; it is not something a tribunal will usually take up unprompted. Second, pleading it does not require abandoning the substantive grounds, and a well constructed appeal runs both tracks. A taxpayer who wins on the jurisdictional ground alone secures the year but establishes nothing for the years that follow, which is why the substantive treaty argument should be fully developed even where the procedural ground looks strong.

9. A worked example

Consider a hypothetical UAE-resident engineering enterprise providing an offshore work package to an Indian customer. The substantive work and supporting records are overseas, and only limited activities occur in India. The legal enquiry is whether any Indian presence satisfies Article 5 and, if so, which profit can properly be attributed to it. Documentary evidence of where the work was done, visits and contract performance is essential.

The Revenue’s likely position. The payments are consideration for technical services, section 9(7) (section 9(1)(vii)) applies, section 207 (section 115A) fixes the rate, and the Indian payer was obliged to withhold under section 393(2), Table serial number 17 (section 195). The Indian visits are relied on as evidence of a taxable presence, and the single lump sum is relied on to resist any splitting of the consideration.

The taxpayer’s position. The treaty has no technical services article, so the domestic deeming provision cannot be imported into it. Article 22(1) allocates other income exclusively to the State of residence, so the residuary route is closed on the text, and the income is business profits under Article 7. The aggregate presence falls well below the nine month threshold in Article 5(2)(i), and the visits are incidental to delivery of the offshore supply rather than a separate project of their own. Under Ishikawajma and Hyundai Heavy Industries, no profit attributable to the UAE fabrication operations has an economic nexus with India. Under Andritz AG, even if some element of the consideration were attributable to an Indian presence, it would be taxed as business profits on a net basis, not on a gross basis as technical service fees.

What decides it. Not the legal proposition, which is reasonably well settled, but the presence record, the yard documentation, the delivery terms and whether the contract on its face supports the characterisation. Where those four hold, the position is defensible. Where presence is reconstructed after the event from passport stamps and the contract describes the scope in terms of services rather than supply, it is not.

10. Where these files are usually weak

First, the treaty text relied on is not the current text. Protocols and the Multilateral Instrument have altered a number of Indian treaties, and a submission built on an outdated article invites a short answer.

Second, the presence record is incomplete. Visits by subcontractor personnel, by personnel of group companies, and short trips not recorded in the project file are routinely omitted and then produced by the Revenue from immigration data. Because the India UAE threshold aggregates across connected projects, an omission in one project file can affect the position in another.

Third, the contract describes the work in service language throughout. Commercial teams draft for commercial clarity, and a contract that speaks of providing engineering services will be read as what it says, whatever the underlying activity.

Fourth, the positions taken across years are inconsistent. A permanent establishment conceded or returned in one year is very difficult to disclaim in the next on materially identical facts.

Fifth, the residuary article argument is not anticipated. On the India UAE treaty it is answered by the text of Article 22(1), but under a treaty whose residuary article is drafted to permit source State taxation it is a live point, and a submission built only on the absence of a technical services article has nothing further to say.

Sixth, the withholding and the recipient’s position are argued separately. The payer’s obligation under section 393(2) (section 195) and the recipient’s liability are related but distinct, and a submission that conflates them loses the benefit of the arguments available on each.

11. A pre assessment review

1. Obtain the current text of the treaty, including protocols and the synthesised text, and confirm the article structure.
2. Identify every article under which the Revenue could seek to tax the receipt, and prepare a position on each, not only on the technical services characterisation.
3. Reconstruct the presence record from primary sources, for every person connected with the contract, aggregate it across connected projects within the relevant twelve month period, and reconcile it to immigration records before the Revenue does.
4. Read the contract as an assessing officer would, and identify the clauses that work against the characterisation being advanced.
5. Confirm that the residency certificate, Form 10F and the no permanent establishment declaration exist for every relevant year and are internally consistent.
6. Map where title and risk passed, and assemble the shipping and delivery evidence that proves it.
7. Check the positions taken in earlier and later years, including in the payer’s withholding filings, and resolve any inconsistency before it is put to you.
8. If the matter is at draft order stage, verify that the Panel sequence has been followed and record the dates.
9. Where any part of the receipt is attributable to an Indian presence, prepare the net basis computation under Article 7 as an alternative position.
10. Consider whether the anti avoidance chapter could be invoked, and document the commercial substance of the arrangement in the treaty state.

Practitioner’s perspective

The absence of a technical services article is a strong position, but it is a position about the law, and assessments are decided on facts. In our experience the cases that fail do not fail because the tribunal disagrees that Article 7 governs. They fail because the day count was incomplete, the contract was drafted in the language of services, or the taxpayer had taken a different position in an earlier year and could not explain the change.

Two developments should be factored into any current review. The Income-tax Act, 2025 came into force on 1 April 2026, and while section 536 preserves the 1961 Act for pending proceedings and for earlier tax years, submissions filed from here on will increasingly need to carry both sets of references. Separately, section 159(6), which carries forward section 90(2A) of the 1961 Act, makes the treaty override expressly subject to the anti avoidance chapter, which raises the premium on demonstrable substance in the treaty state.

For UAE engineering and technical service providers with Indian contracts, the practical conclusion is that the defence is built at contracting stage and maintained through the project, not assembled when the notice arrives. The documents that decide these cases are generated in the ordinary course of the project, and they are only available later if someone decided to keep them.

Frequently asked questions

1. Does the India UAE treaty contain a fees for technical services article?

No. The agreement runs from Article 1 to Article 32 and contains no article headed Fees for Technical Services or any equivalent. Article 12 deals with royalties, which includes payments for information concerning industrial, commercial or scientific experience, but it is not a technical services provision.

2. If the treaty has no technical services article, can India still tax the income under its domestic law?

Only to the extent the treaty permits. Section 9(7) of the 2025 Act (section 9(1)(vii)) creates the domestic charge, but section 159(4) (section 90(2)) applies the treaty where it is more beneficial. The treaty allocates the income to Article 7, which confines Indian taxing rights to profits attributable to a permanent establishment.

3. Why does it matter whether the income falls under Article 7 or the residuary article?

Article 7 requires a permanent establishment before India may tax, while a residuary article may, depending on its drafting, permit source State taxation without one. Under the India UAE treaty the point does not arise, because Article 22(1) allocates other income exclusively to the State of residence. For treaties whose residuary article is drafted differently, Bangkok Glass holds that technical service income falls under Article 7 rather than the residuary article.

4. Is Ishikawajma-Harima still good law?

In part. The offshore supply analysis and the territorial nexus principle survive. The holding that services had to be both rendered in India and utilised in India was reversed by the Explanation below section 9(2) of the 1961 Act, inserted by the Finance Act 2010 with retrospective effect from 1 June 1976, and now carried in section 9(11)(b) of the 2025 Act. A submission that cites the decision without noting the reversal is vulnerable.

5. What presence in India creates a permanent establishment under the India UAE treaty?

Article 5(2)(h) and Article 5(2)(i) each set a threshold of more than nine months, and under Article 5(2)(i) that period is measured in the aggregate within any twelve month period for the same or a connected project. The threshold is in months, not days, and it aggregates across connected projects.

6. What happens if Form 10F was filed late?

A late filing does not by itself extinguish treaty entitlement where residency and the absence of a permanent establishment are established on the evidence. The position is stronger where the residency certificate was in existence during the relevant period and only the filing of the form was delayed.

7. Can the Indian payer be treated as in default if the recipient is ultimately held not taxable?

The payer’s obligation under section 393(2), Table serial number 17 (section 195) and the recipient’s substantive liability are distinct questions. Where the income is not chargeable in India, the foundation for the deduction obligation falls away, but the payer should be in a position to show the basis on which it formed that view at the time of payment.

8. What is the effect of an assessment order passed before the Dispute Resolution Panel issues directions?

Section 275 of the 2025 Act (section 144C) prescribes a mandatory sequence of draft order, objections and binding directions. An order passed outside that sequence is void rather than irregular, and the defect is not curable. The ground must be specifically pleaded.

9. If part of the income is taxable in India, how is it computed?

Under Article 7 the attributable profit is computed on a net basis, with deduction of expenses incurred for the purposes of the permanent establishment. This is materially different from gross basis taxation at the special rate under section 207 (section 115A), and the distinction was applied in Andritz AG.

10. Does the general anti avoidance rule affect a treaty claim?

Section 159(6) of the 2025 Act provides that Chapter XI applies even where it is not more beneficial to the assessee, so the treaty override in section 159(4) is expressly subject to the anti avoidance chapter. A genuine operating business with real activity in the treaty state is unaffected; a structure whose only function is to support the treaty claim is exposed.

11. Is Form 10F still used after the Income-tax Act, 2025 came into force?

For tax years beginning on or after 1 April 2026, the Income Tax Department lists Form 41 under the Income-tax Rules, 2026 (self-declaration under section 159(8)) as the counterpart of Form 10F under the 1962 Rules. Form 10F continues to be relevant for earlier years. Both are filed electronically with the tax residency certificate.

12. Can fees for technical services under the India-Thailand treaty be taxed as other income?

Tribunal decisions say not where the income is business profits. The Madras High Court in Bangkok Glass Industry and the Delhi Tribunal in Denso (2024 and 2026 orders) held that a residuary article cannot be used for such receipts if the services form part of the recipient’s business and there is no permanent establishment. Each case turns on its facts.

Related reading from SBC

• Limits of Summary Processing: Why a Section 143(1) Intimation Cannot Decide Treaty or Forex Questions
• Attributing Profits to an Indian Project Office: Which Head Office Expenses Count?
• Shared Services from Singapore: Applying the ‘Make Available’ Test to Indian Withholding
• More articles on the SBC blog

Disclaimer

This article is for general information and does not constitute professional advice. It reflects the law as understood at the date of publication and does not take account of developments after that date. The Income-tax Act, 2025 came into force on 1 April 2026 and section 536 preserves the Income-tax Act, 1961 for proceedings pending on 31 March 2026 and for proceedings relating to earlier tax years, so the applicable numbering depends on the year and the stage of the proceeding. Treaty positions turn on the specific facts, the contractual documentation and the current text of the applicable agreement. No reader should act on the basis of this article without taking advice on their own circumstances.