Permanent establishment not found where Indian agents used their own premises and lacked contract authority under the India-US DTAA.

A foreign enterprise was held not to have a permanent establishment in India under Article 5 of the India-US DTAA because its Indian agents worked from their own or hired premises, the liaison offices performed only preparatory or auxiliary functions, software access did not create control over premises, and the agents lacked authority to conclude contracts. The Tribunal also held that the enterprise had a business connection in India under Section 9(1) because its cross-border money transfer operations created continuity and nexus with India, but profit attribution on a PE basis failed since no PE existed. Interest under Section 234B was treated as consequential.

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Issues: (i) Whether the assessee had a permanent establishment in India under Article 5 of the Double Taxation Avoidance Agreement between India and the United States of America, including a fixed place, liaison office, software-based or dependent agent permanent establishment. (ii) Whether the assessee had a business connection in India under Section 9(1) of the Income-tax Act, 1961, and whether interest under Section 234B was chargeable.

Issue (i): Whether the assessee had a permanent establishment in India under Article 5 of the Double Taxation Avoidance Agreement between India and the United States of America, including a fixed place, liaison office, software-based or dependent agent permanent establishment.

Analysis: The assessee's agents operated from their own or hired premises, and there was no evidence that the assessee had a right to use those premises as its own place of business in India. The liaison offices performed only support functions such as coordination, training, facilitation and software assistance, which were treated as preparatory or auxiliary. The software installed with the agents did not by itself create a permanent establishment, since the assessee did not control the premises and the software was only a facilitative tool. The agents were also found to be independent, because their activities were not wholly or almost wholly devoted to the assessee, and the agreements did not confer authority to conclude contracts on behalf of the assessee; the payment of remittances in India was only the execution of the last step of contracts already concluded abroad.

Conclusion: The assessee did not have a permanent establishment in India; this issue was decided in favour of the assessee.

Issue (ii): Whether the assessee had a business connection in India under Section 9(1) of the Income-tax Act, 1961, and whether interest under Section 234B was chargeable.

Analysis: The Tribunal followed its earlier decision in the assessee's own case for the prior assessment year and held that the assessee's cross-border money transfer operations created continuity and nexus with India sufficient to constitute a business connection under Section 9(1). On interest, the Tribunal accepted the view that liability under Section 234B was consequential and that consequential relief, if any, would follow the outcome of the assessment.

Conclusion: The assessee had a business connection in India, but the profit attribution failed because no permanent establishment existed; interest under Section 234B was only consequential.

Final Conclusion: The Revenue's appeals and the assessee's cross-objections were dismissed, and the taxability of Indian business profits on a permanent establishment basis was negatived.

Ratio Decidendi: A foreign enterprise does not have a permanent establishment in India merely because its Indian agents perform the payment leg of an offshore contract or use software supplied for access to overseas systems, where the agents operate from their own premises, carry on their own business, and lack authority to conclude contracts on the enterprise's behalf.

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