Summary
The Revenue alleged that two US e-Funds companies had Indian permanent establishments through their Indian subsidiary’s outsourcing operations. The Court held that the evidence established neither premises at their disposal nor services furnished by them in India, and no agency foundation had been laid. It also rejected reliance on a year-specific mutual-agreement settlement as a precedent.
Issues
- Whether the subsidiary’s operations created fixed-place, service or agency permanent establishments under the India–US treaty.
- Whether an earlier mutual-agreement settlement established PE status for other years.
- Whether arm’s-length remuneration left further profits attributable.
Provisions considered
- Section90(1)–(2), Income-tax Act,1961Provides for treaty implementation and application of more beneficial provisions; the PE inquiry here arose under the India–US treaty. (¶¶ 6, 10)
Held
- The Revenue initially bore the burden of proving an Indian PE. A fixed-place PE required premises at the US enterprises’ disposal through which they carried on their own business. Ownership of a subsidiary, outsourcing, economic dependence and group-wide reporting did not themselves meet that test; the requisite finding was absent. (¶ 10–16)
- Article5(2)(l) required services furnished by the foreign enterprises within India. No customer, resident or otherwise, received their services in India; the subsidiary performed auxiliary support for services delivered abroad. The unnegated explanation of the seconded employees’ Indian-company role also supported rejection of a service PE. The Court did not decide the proposed broader meaning of other personnel. (¶ 17–20)
- The agency-PE argument had not been pursued before the Tribunal, and no factual basis showed contract-concluding authority or the other Article5(4) conditions. (¶ 21)
- The Court accepted that the arm’s-length principle was satisfied here, so no further profits would be attributable even assuming a PE. This principle requires an analysis covering the relevant functions and risks; omitted functions or risks can require further attribution. The separate challenge to the Tribunal’s nil-tax calculation was unnecessary after the no-PE finding. (¶¶ 22, 29)
- The mutual-agreement settlement expressly did not bind future years and did not establish PE status for these assessments. It was case- and time-specific. A new adverse-inference argument based on nonproduction of documents was not entertained when absent from proceedings below. (¶ 23–28)
Result
Revenue’s appeals dismissed; no Indian permanent establishment established on these facts; no costs.