Permanent establishment and withholding tax apply only to income attributable to the fixed place of business.

A foreign enterprise can create a permanent establishment in India where a venue is at its disposal for business use, even if access and control are time-bound, if the contractual matrix shows dominant control, exclusive use during the relevant period, and commercial exploitation through that place. On that basis, the Buddh International Circuit was treated as a fixed place of business under Article 5 of the DTAA and Section 9 of the Income-tax Act. For withholding tax, Section 195 applies only to sums chargeable under the Act, so tax deduction is limited to the portion of income attributable to the permanent establishment, not the full gross payment; the attributable amount remains a matter for assessment.

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Issues: (i) whether the Buddh International Circuit constituted a fixed place of business and a permanent establishment of the foreign enterprise in India under Article 5 of the DTAA and Section 9 of the Income-tax Act, 1961; (ii) whether tax was deductible at source under Section 195 only on the portion of income attributable to that permanent establishment.

Issue (i): whether the Buddh International Circuit constituted a fixed place of business and a permanent establishment of the foreign enterprise in India under Article 5 of the DTAA and Section 9 of the Income-tax Act, 1961.

Analysis: Article 5 requires a fixed place of business through which the enterprise carries on business. The relevant agreements showed that the foreign enterprise retained dominant control over the event, the circuit was reserved for its exclusive use during the race period, access to critical areas was regulated by it, and the commercial exploitation of the event was carried on through the circuit and the associated arrangements. The circuit was not a merely transient venue in the relevant sense, because the access and control, though time-bound, recurred under a five-year arrangement and were integral to the business carried on in India. On a combined reading of the treaty and the contractual matrix, the place was at the disposal of the enterprise for the conduct of its business.

Conclusion: the circuit constituted a permanent establishment in India, and the foreign enterprise carried on business in India through that fixed place.

Issue (ii): whether tax was deductible at source under Section 195 only on the portion of income attributable to that permanent establishment.

Analysis: Section 195 operates only in respect of sums chargeable under the Act. Since only the income attributable to the permanent establishment is chargeable in India, the withholding obligation cannot extend to the entire gross amount if part of it is not taxable in India. The determination of the exact attributable portion is a matter for assessment.

Conclusion: tax deduction at source was required only on the income attributable to the permanent establishment, not on the entire payment.

Final Conclusion: the appeals challenging the finding of a permanent establishment failed, while the withholding-tax issue was confined to the taxable portion attributable to that establishment.

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