Arm's length remuneration to Indian agent leaves alleged dependent agency PE tax neutral, so profit attribution fails.

A dependent agency permanent establishment in India does not give rise to further taxable profits where the Indian agent is already remunerated at arm's length and the transfer pricing position has been accepted. Applying its earlier orders and the jurisdictional High Court ruling, the Tribunal found no deficiency in the agent's compensation and treated the alleged PE as tax neutral. The addition for profit attribution was therefore unsustainable and deleted.

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Issues: Whether the alleged dependent agency permanent establishment in India gave rise to taxable profits where the Indian agent had been remunerated at arm's length and the transfer pricing position stood accepted.

Analysis: The appeals concerned attribution of profits to an alleged dependent agency permanent establishment arising from software sales and related receipts. The Tribunal followed its own earlier orders in the assessee's case and the jurisdictional High Court's ruling that, where the Indian agent is compensated at arm's length, the existence of a dependent agency permanent establishment does not yield any further taxable profits in the hands of the foreign enterprise. The Tribunal noted that the revenue had not shown any deficiency in the arm's length remuneration paid to the Indian agent, and the transactions had already been accepted at arm's length. On that basis, the alleged permanent establishment was treated as tax neutral and the addition made on account of profit attribution was unsustainable.

Conclusion: The issue was decided in favour of the assessee and the addition on account of dependent agency permanent establishment profit attribution was deleted.

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