Permanent establishment under India-UK DTAA requires a fixed place at the enterprise's disposal or a true dependent-agent arrangement.

A foreign enterprise has a permanent establishment in India only if it has a fixed place at its disposal through which it carries on its own business, or if a dependent agent in India in fact carries on business on its behalf. Mere storage of consignment stock for standby use does not create a fixed-place PE, and the airline's custody of stock did not amount to a dependent-agent PE. Receipts for repairs and overhauling done outside India were not taxable as business profits attributable to a PE, but the separate question whether consideration for the use or right to use replacement components is taxable under article 13 required fresh adjudication.

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Issues: (i) whether the assessee had a permanent establishment in India under article 5 of the India-UK DTAA; and (ii) whether the consideration for use or right to use replacement components required further adjudication under article 13 of the DTAA.

Issue (i): whether the assessee had a permanent establishment in India under article 5 of the India-UK DTAA.

Analysis: A permanent establishment under the basic rule requires a fixed place of business through which the enterprise carries on business, and the place must be physically identifiable, at the disposal of the enterprise, and functionally used for the enterprise's own business. Mere storage of consignment stock in India, without the assessee having a place at its disposal or carrying on its business through that place, does not satisfy these requirements. The stock kept with the airline was for standby use and did not amount to the assessee projecting its business into India. The dependent agent clause was also not attracted, as there was no material to show that the airline or its staff habitually carried out business for or on behalf of the assessee in the legal sense required by article 5(4) and article 5(5).

Conclusion: The assessee did not have a permanent establishment in India.

Issue (ii): whether the consideration for use or right to use replacement components required further adjudication under article 13 of the DTAA.

Analysis: The receipts relating to repairs and overhauling done outside India could not be taxed in India as business profits attributable to a permanent establishment. However, the consideration for use or right to use the replacement components was distinct, and its taxability under article 13 on a gross basis could arise independently. As this aspect had not been examined by the lower authorities, a limited remand was necessary for fresh adjudication on that question alone.

Conclusion: The question of taxability of the consideration for use or right to use the equipment was remitted for fresh adjudication.

Final Conclusion: The finding that no permanent establishment existed in India displaced the attribution made by the tax authorities, but the separate issue of taxability of the equipment-use consideration remained open for limited reconsideration by the appellate authority.

Ratio Decidendi: A foreign enterprise has a permanent establishment in India only when it has a fixed place at its disposal through which it actually carries on its own business, and a dependent-agent permanent establishment arises only where business is in fact carried on through a legally dependent agent.

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