Permanent establishment under the India-France DTAA failed where arm's length dealings were not disproved; section 234B interest was deleted.

Under Article 5 of the India-France DTAA, a fixed place permanent establishment was not made out on the agency structure because the foreign enterprise did not have the agent's premises at its disposal as of right. For a dependent agent permanent establishment, the Revenue had to show not only agency activity but also that the principal-agent dealings were not at arm's length under Article 5(6); no such finding or material was recorded, so no permanent establishment in India was sustained and no profit attribution survived. Interest under section 234B was also deleted because the issue was covered by binding jurisdictional precedent.

---

---

Issues: (i) Whether the assessee had a permanent establishment in India under Article 5 of the India-France DTAA, and if so, whether any profits could be attributed to such permanent establishment; (ii) Whether interest under section 234B of the Income-tax Act, 1961 was leviable.

Issue (i): Whether the assessee had a permanent establishment in India under Article 5 of the India-France DTAA, and if so, whether any profits could be attributed to such permanent establishment.

Analysis: The agency arrangement was examined under Article 5(5) and 5(6) of the DTAA. The basic rule of fixed place permanent establishment was held inapplicable in an agency structure because the foreign enterprise did not have the agent's premises at its disposal as a matter of right. For a dependent agent permanent establishment to arise under this treaty, the Revenue had to establish not merely agency activity but also that the transactions between the agent and the enterprise were not at arm's length, since Article 5(6) treated such an agent as independent unless that negative condition was shown. No such finding was recorded by the Assessing Officer or the Dispute Resolution Panel, and no material was brought on record to show lack of arm's length dealing.

Conclusion: The assessee was held not to have a permanent establishment in India, and the attribution of profits on that basis was not sustained.

Issue (ii): Whether interest under section 234B of the Income-tax Act, 1961 was leviable.

Analysis: The issue was covered by the jurisdictional High Court decision relied upon by the parties, and the Tribunal followed that binding precedent.

Conclusion: The levy of interest under section 234B was deleted.

Final Conclusion: The appeal succeeded on the permanent establishment and interest issues, while the remaining grounds were not pressed or were rejected, resulting in only partial relief to the assessee.

Ratio Decidendi: Under Article 5(6) of the India-France DTAA, a dependent agent permanent establishment cannot be inferred unless the Revenue establishes that the transactions between the principal and the agent were not at arm's length, and the onus to prove existence of the permanent establishment lies on the Revenue.

---