Business connection and permanent establishment tests fail where the Indian affiliate acts as an independent contractor.

The assessee's Indian affiliate was treated as an independent contractor, and the facts did not satisfy Explanation 2 to section 9(1) for a business connection in India. The treaty conditions for a service permanent establishment or agency permanent establishment were also not met because the services were not shown to be rendered through the Indian entity as the assessee's employees or personnel. Following the assessee's earlier decision on substantially the same facts, the Tribunal held that no business connection or permanent establishment existed in India, so the income was not taxable in India on this issue.

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Issues: Whether the assessee had a business connection or permanent establishment in India so as to make its income taxable in India.

Analysis: The assessee's Indian affiliate was treated as an independent contractor, and the record did not satisfy the conditions of Explanation 2 to section 9(1) for a business connection. The activities also did not establish a service permanent establishment or agency permanent establishment under the treaty framework, as the services were not shown to be rendered by the Indian entity as the assessee's employees or personnel. The reasoning followed the assessee's own earlier decision on substantially the same facts.

Conclusion: The assessee was held not to have a business connection or permanent establishment in India, and the income was not taxable in India on this issue in favour of the assessee.

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