Dependent agent PE and arm's length remuneration: Indian intermediaries created no further taxable profits for the non-resident.

A non-resident had no dependent agent permanent establishment in India under the Indo-Mauritius DTAA because the Indian advertising intermediaries acted as independent contractors, lacked authority to conclude contracts, and did not habitually bind the principal. Their functions were limited to promotion, forwarding requests, collection of payments, and regulatory approvals, while pricing and acceptance remained with the non-resident. Where the Indian agents were remunerated at arm's length, including a commission accepted as fair on comparable material, no further profits were attributable to the foreign enterprise in India. The revenue's appeal therefore failed and the relief granted below remained undisturbed.

---

---

Issues: (i) Whether the Indian advertising agents constituted a dependent agent permanent establishment of the non-resident under Article 5 of the Indo-Mauritius DTAA. (ii) Whether, if any permanent establishment existed, any further profits were taxable in India when the agent's remuneration was at arm's length.

Issue (i): Whether the Indian advertising agents constituted a dependent agent permanent establishment of the non-resident under Article 5 of the Indo-Mauritius DTAA.

Analysis: The Agreement showed that the non-resident controlled pricing, invoicing, acceptance of advertisements, and the right to reject advertisements, while the Indian entities only promoted sales, forwarded requests, collected payments, and obtained RBI approvals. They were described as independent contractors and were prohibited from binding the principal without prior consent. On these facts, the agents did not have, nor habitually exercise, authority to conclude contracts in India. Their activities were also not shown to be devoted wholly or almost wholly in the treaty sense so as to displace their independent status.

Conclusion: No dependent agent permanent establishment arose in India.

Issue (ii): Whether, if any permanent establishment existed, any further profits were taxable in India when the agent's remuneration was at arm's length.

Analysis: The remuneration to the Indian agents was found to be at arm's length, with 15% commission accepted as a fair rate in comparable material and in line with CBDT circular guidance. The governing principle applied was that where the Indian agent is adequately remunerated at arm's length for the functions performed, nothing further remains to be attributed to the foreign enterprise's Indian operations.

Conclusion: No additional profits were taxable in India.

Final Conclusion: The revenue's appeal failed and the assessee's cross objection became infructuous, leaving the relief granted by the first appellate authority undisturbed.

Ratio Decidendi: A non-resident does not have a dependent agent permanent establishment where the Indian intermediary lacks authority to conclude contracts and functions only as an independent contractor, and where the intermediary is remunerated at arm's length, no further profits can be attributed to India.

---