Permanent establishment under the Indo-USA DTAA failed where no actual business activity through the Indian branch was proved.

The branch office in India was a fixed place, but the decisive issue was whether the foreign enterprise carried on business wholly or partly through it under the Indo-USA DTAA. The revenue failed to prove that the relevant employees were the assessee's employees or that services were actually furnished through the branch, so the burden of establishing a permanent establishment was not discharged. On that basis, the branch was not treated as a permanent establishment in India, the receipts were not brought to tax in India for the year, and attribution of profits, transfer pricing, and interest under section 234B did not survive.

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Issues: Whether the assessee's branch office in India constituted a permanent establishment under the Indo-USA DTAA and whether the receipts and related activities were liable to tax in India.

Analysis: The branch office was a fixed place in India, but the decisive question was whether the business of the foreign enterprise was carried on wholly or partly through that place. The record did not establish that the employees whose salaries were paid through the branch were the assessee's employees or that services were in fact furnished by the assessee through them. The revenue, which carried the burden to show that the foreign company had a permanent establishment in India, failed to establish actual business activity through the branch. On that basis, the questions concerning attribution of profits and transfer pricing did not arise, and the interest charge under section 234B ceased to survive.

Conclusion: The branch office was held not to constitute a permanent establishment in India, and the assessee was held not chargeable to tax in India for the year concerned.

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