Permanent establishment depends on real employment and agency control, not formal labels or website references.

Permanent establishment exposure depends on the substantive employment and agency arrangements, not merely on references or revenue assumptions. Where the documentary record showed that the individuals were deputed to and controlled by the Indian group company, with salary borne in India and tax compliance undertaken there, they were treated as employees of the Indian company rather than of the foreign enterprise, so attribution of their remuneration to a service permanent establishment was unsustainable. On the same facts, they could not be treated as dependent agents of the foreign enterprise, and offshore sales could not be attributed to an agency permanent establishment in India. The additions were deleted.

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Issues: (i) whether the two individuals were employees of the assessee so as to justify attribution of their remuneration to a service permanent establishment in India; (ii) whether the same individuals constituted dependent agents so as to create an agency permanent establishment and render offshore sales taxable in India.

Issue (i): whether the two individuals were employees of the assessee so as to justify attribution of their remuneration to a service permanent establishment in India.

Analysis: The relevant agreements and employment documents showed that the individuals were deputed to the Indian group company, worked under its control and supervision, and were treated as its employees. Their salary was borne by the Indian company, tax was deducted in India, and returns were filed in India. The records relied upon by the revenue, including website references, did not outweigh the documentary evidence establishing the employment relationship with the Indian company and not with the assessee.

Conclusion: The individuals were not employees of the assessee, and the addition made by attributing their remuneration to the assessee's service permanent establishment was unsustainable.

Issue (ii): whether the same individuals constituted dependent agents so as to create an agency permanent establishment and render offshore sales taxable in India.

Analysis: Once it was found that the individuals were employees of the Indian company and signed the purchase arrangements in that capacity as directors or authorised signatories, there was no basis to treat them as persons acting on behalf of the assessee. The essential conditions for a dependent agent permanent establishment were therefore absent, and the offshore sale, carried out outside India, could not be attributed to an agency permanent establishment in India on that footing.

Conclusion: No agency permanent establishment was established, and the addition made on account of offshore sales was liable to be deleted.

Final Conclusion: The appeal succeeded and the additions made on the footing of both a service permanent establishment and an agency permanent establishment were deleted.

Ratio Decidendi: Employment and agency status for permanent establishment purposes must be determined from the substantive contractual and payroll arrangements, and where the individuals are in fact employed and controlled by the Indian group company, they cannot be treated as employees or dependent agents of the foreign enterprise for attribution of income in India.

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