No PE attribution and arm's length commission acceptance prevent profit attribution to the foreign enterprise in India.

Where an Indian subsidiary is not a dependent agent permanent establishment, profits cannot be attributed to the foreign enterprise under Article 7 of the applicable DTAA. The Tribunal treated the issue as covered by its earlier orders in the assessee's own case and found no basis to sustain PE attribution in India. It also noted that the commission paid to the Indian entity had been accepted at arm's length, so there was no ground to restrict that payment or make a corresponding addition once no taxable PE income existed. The remaining grounds were treated as academic and infructuous.

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Issues: (i) Whether Mitsui India Pvt. Ltd. constituted a dependent agent permanent establishment of the assessee in India and whether any income could be attributed to the assessee's Indian operations. (ii) Whether the commission paid to Mitsui India Pvt. Ltd. could be restricted notwithstanding acceptance of the payment at arm's length.

Issue (i): Whether Mitsui India Pvt. Ltd. constituted a dependent agent permanent establishment of the assessee in India and whether any income could be attributed to the assessee's Indian operations.

Analysis: The issue was treated as covered by the Tribunal's earlier decisions in the assessee's own case for earlier assessment years, where the subsidiary was held not to be a dependent agent permanent establishment. Once no permanent establishment is found, profits cannot be attributed to the Indian operations under Article 7 of the applicable DTAA.

Conclusion: The finding of a dependent agent permanent establishment was not sustained and no income was attributable on that basis.

Issue (ii): Whether the commission paid to Mitsui India Pvt. Ltd. could be restricted notwithstanding acceptance of the payment at arm's length.

Analysis: The commission paid to the Indian entity had been accepted at arm's length by the transfer pricing authority. In view of the absence of any taxable permanent establishment income, there was no basis to restrict the commission or make a corresponding addition.

Conclusion: The restriction of commission and the related addition were deleted.

Final Conclusion: The Revenue's challenge failed, while the assessee obtained relief on the core issues concerning permanent establishment attribution and commission disallowance; remaining grounds were treated as academic and infructuous.

Ratio Decidendi: Where the Indian entity is not a dependent agent permanent establishment and the related remuneration is accepted at arm's length, no profits can be attributed to the foreign enterprise's Indian operations under the treaty.

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