Arm's length remuneration bars further profit attribution to an alleged Indian permanent establishment for the same transactions

Where the Indian associated enterprise had already been compensated at arm's length for the relevant cross-border transactions, no further profit attribution to the foreign enterprise was permissible merely because an Indian permanent establishment was alleged for the same activity. The Tribunal applied the settled principle that arm's length remuneration to the Indian entity exhausts the attribution exercise in relation to those transactions and followed the earlier decision in the assessee's own case. On that basis, the addition made by the Assessing Officer could not survive and was deleted.

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Issues: Whether any further income could be attributed in India to the assessee on the basis of an alleged permanent establishment where the transactions with the Indian subsidiary had already been accepted at arm's length.

Analysis: The decisive consideration was that the assessee's arrangement with the Indian subsidiary had already been found to satisfy the arm's length standard in the transfer pricing proceedings. Once that principle stood satisfied, no further profits could be attributed to the foreign enterprise merely because a permanent establishment was alleged to exist in India. The Tribunal followed the earlier decision in the assessee's own case and applied the settled principle that arm's length remuneration to the Indian entity exhausts the profit attribution exercise for the same transactions.

Conclusion: Further attribution of income to the assessee's alleged Indian permanent establishment was not permissible, and the addition made by the Assessing Officer was deleted in favour of the assessee.

Final Conclusion: The appeal succeeded on the core question of profit attribution, and the assessed addition could not survive once arm's length compensation had been accepted for the relevant arrangement.

Ratio Decidendi: Where the Indian associated enterprise has been compensated at arm's length for the relevant cross-border transactions, no further profits can be attributed to the foreign enterprise in India on account of an alleged permanent establishment for the same activity.

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