Permanent establishment test defeats treaty taxation where business connection exists but agency nexus is not proved.

Remittances from integrated cargo transhipment operations were treated as arising from a business connection under section 9(1)(i) for source-based taxation, but treaty taxation under Article 7 depended on the Singapore enterprise carrying on business through a permanent establishment in India. The record did not show that the Indian company habitually concluded contracts, secured orders wholly or almost wholly for the non-resident, or otherwise constituted an agency permanent establishment under Article 5(8) or Article 5(9). The evidence was insufficient to establish the requisite treaty nexus, so the receipts could not be taxed in India merely on the basis of business connection once treaty protection applied.

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Issues: Whether the remittances made to the non-resident assessee were chargeable to tax in India on the basis of business connection and accrual of income in India, and whether the assessee had a permanent establishment in India under the applicable double tax avoidance agreement so as to permit taxation of business profits in India.

Analysis: The remittances arose from integrated cargo transhipment operations, and the earlier finding of business connection under section 9(1)(i) of the Income-tax Act, 1961 was accepted for source-based taxation purposes. However, for treaty purposes, Article 7 permitted taxation of business profits in India only if the Singapore-resident enterprise carried on business through a permanent establishment in India. The record did not establish that WSA Shipping (Bombay) Pvt. Ltd. habitually exercised authority to conclude contracts, habitually secured orders wholly or almost wholly for the assessee, or otherwise constituted an agency permanent establishment within Article 5(8) or Article 5(9). The material relied upon was insufficient to establish the requisite treaty nexus, and the assessee's receipts could not be taxed merely on the basis of business connection once treaty protection applied.

Conclusion: The assessee had no permanent establishment in India and the remittances could not be brought to tax in India under the treaty.

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