Arm's length remuneration to an Indian intermediary barred further profit attribution to the foreign enterprise in India.

An Indian representative was found to have been adequately remunerated at arm's length for soliciting advertisements and collecting advertisement revenue, so no further profit attribution to the foreign enterprise in India could be sustained. The accepted commission for the intermediary exhausted the taxable profit element arising from those functions, and the authorities' adjustment was deleted. Once that principle was applied, the question whether the Indian entity constituted a dependent agent permanent establishment or a fixed place permanent establishment did not require determination.

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Issues: Whether the remuneration paid to the Indian representative was at arm's length so as to preclude further attribution of profits in India, and whether the question of permanent establishment survived after such arm's length remuneration was accepted.

Analysis: The Indian representative was engaged only for solicitation of advertisements and collection of advertisement revenue, and its commission of 10% on the net billed revenue had been accepted at arm's length. The other activities of the Indian entity related to separate businesses for other group concerns and were not part of the assessee's transaction. Applying the settled principle that once the intermediary is adequately remunerated at arm's length, no additional profit can be attributed to the foreign enterprise in India, the adjustment made by the authorities could not stand. In view of this finding, the question whether the Indian entity constituted a dependent agent permanent establishment or a fixed place permanent establishment became unnecessary to decide.

Conclusion: The attribution of further profits to the assessee was deleted, and the assessee succeeded.

Final Conclusion: The appeals were allowed because arm's length remuneration to the Indian entity exhausted the taxable profit element in India, leaving no surviving basis for additional attribution or effective determination of permanent establishment.

Ratio Decidendi: Where the Indian agent is remunerated at arm's length for the functions performed, no further profits can be attributed to the foreign enterprise in India.

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