Permanent establishment not found where agents merely handled payment steps and software use alone was insufficient.

A foreign enterprise was held not to have a permanent establishment in India. Mere installation and use of software by Indian agents to access the enterprise's systems did not create a fixed place PE, and the agents were found to act in the ordinary course of their business without being wholly or almost wholly devoted to the enterprise. No dependent agent PE arose because there was no material showing authority, or habitual exercise of authority, to conclude contracts on the enterprise's behalf; the agents only performed the payment leg of transactions already concluded outside India. As no PE existed, no profit attribution arose and the interest issue under section 234B became infructuous.

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Issues: (i) Whether the assessee had a permanent establishment in India, including a software PE and a dependent agent PE, so as to make its India-linked business profits taxable in India. (ii) Whether any attribution of profits and interest under section 234B arose once the existence of a PE was negatived.

Issue (i): Whether the assessee had a permanent establishment in India, including a software PE and a dependent agent PE, so as to make its India-linked business profits taxable in India.

Analysis: The Tribunal followed its earlier orders in the assessee's own case for prior assessment years and held that the mere installation and use of software by Indian agents to access the assessee's systems did not amount to a fixed place PE. It further held that the agents were acting in the ordinary course of their business, were not shown to be wholly or almost wholly devoted to the assessee, and their remuneration was at arm's length. On the dependent agent test, the Tribunal found no material to show that the agents had, or habitually exercised, authority to conclude contracts on behalf of the assessee. The agents only performed the payment leg of transactions already concluded outside India and could not be said to bind the assessee in contract.

Conclusion: The assessee did not have a permanent establishment in India, and its business profits were not taxable in India under article 7.

Issue (ii): Whether any attribution of profits and interest under section 234B arose once the existence of a PE was negatived.

Analysis: Since no permanent establishment was found in India, the question of attributing profits to Indian operations did not survive for adjudication. For the same reason, the challenge to non-levy of interest under section 234B also became infructuous.

Conclusion: No attribution of profits was called for, and the interest issue did not survive.

Final Conclusion: The Revenue's appeal failed in entirety because the assessee was held not to have a permanent establishment in India.

Ratio Decidendi: An agent does not constitute a dependent agent PE unless it has and habitually exercises authority to conclude contracts on behalf of the foreign enterprise; mere performance of the final payment or execution step of transactions concluded abroad is insufficient, and software use by agents without a right of business premises does not by itself create a PE.

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