Dependent agent permanent establishment fails where the local representative is independent and limited to liaison and support functions.

A foreign enterprise is not treated as having a dependent agent permanent establishment where the local representative is an independent contractor, acts for other clients, lacks authority to conclude contracts, and only performs liaison and project-support functions. On those facts, the representative also cannot be characterised as an installation permanent establishment merely because of related contractual work by a consortium partner. In the absence of a permanent establishment, attribution of income in India fails, and receipts for engineering design and drawings supplied from abroad and paid outside India are not sustained on the tax treatment adopted by the Revenue.

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Issues: (i) Whether Rajalaxmi International Corporation constituted a dependent agent permanent establishment of the assessee in India under the India-USA DTAA; (ii) Whether the receipts from design and drawing were taxable as fee for technical services under section 9(1)(vii) of the Income-tax Act, 1961 instead of section 44DA of the Income-tax Act, 1961.

Issue (i): Whether Rajalaxmi International Corporation constituted a dependent agent permanent establishment of the assessee in India under the India-USA DTAA.

Analysis: The agreement described the representative as an independent contractor, and the record showed that it also acted for other clients. It had no authority to conclude contracts on behalf of the assessee and its role was limited to liaisoning and assistance in identifying project partners. On the facts, the agent was not financially or functionally dependent in the manner required to treat it as a dependent agent permanent establishment. The consortium partner's separate contractual work also did not justify treating the arrangement as an installation permanent establishment.

Conclusion: Rajalaxmi International Corporation did not constitute a dependent agent permanent establishment or installation permanent establishment of the assessee.

Issue (ii): Whether the receipts from design and drawing were taxable as fee for technical services under section 9(1)(vii) of the Income-tax Act, 1961 instead of section 44DA of the Income-tax Act, 1961.

Analysis: Once no permanent establishment was found, the basis for attribution of income in India failed. The assessee had supplied engineering design from abroad and received the consideration outside India, and the Revenue's characterization of the receipts as fee for technical services could not survive on the footing adopted in the assessment.

Conclusion: The receipts were not sustained to be taxable in the manner adopted by the Revenue, and the assessee's position prevailed.

Final Conclusion: The assessee succeeded and the Revenue's appeal failed, as the alleged Indian permanent establishment was negatived and no attribution of income in India was sustained.

Ratio Decidendi: A foreign enterprise does not have a dependent agent permanent establishment where the local representative is an independent contractor without authority to conclude contracts and merely performs liaisoning or support functions.

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