Arm's length transfer pricing can exhaust permanent establishment profit attribution, leaving no further Indian tax exposure.

Where the assessee's associated-enterprise transactions had already been accepted at arm's length, no further profit attribution to an Indian permanent establishment was warranted for the functions and risks so compensated. The transfer pricing analysis was treated as exhausting attribution of income in India on that footing, so additional taxation on a PE basis was not justified. Interest under section 234B was only consequential to that primary attribution question and fell away with the main finding.

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Issues: Whether, where the transactions between the assessee and its associated enterprise were accepted at arm's length, any further income could be attributed to the assessee in India on account of a permanent establishment; and whether interest under section 234B was chargeable.

Analysis: The accepted transfer pricing position showed that the remuneration/commission paid to the Indian agent had already been examined at arm's length. Following the settled principle that an arm's length transfer pricing analysis exhausts attribution of profits to the permanent establishment to the extent the functions and risks have been duly compensated, no additional income could be taxed in India on that account. The challenge to interest under section 234B was only consequential to the primary attribution issue.

Conclusion: No further income was attributable to the assessee in India on account of the permanent establishment, and the primary issue was decided in favour of the assessee. The interest issue failed as a consequence of that finding.

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