Permanent establishment under the India-Japan DTAA was not found, so profit attribution to the alleged PE was unsustainable.

A foreign enterprise did not have a fixed place PE in India under the India-Japan DTAA because the Indian premises were not at its disposal and its personnel used them only for limited technical assistance; the supply of goods was also completed outside India, with title passing outside India, so no Indian business operation was shown. It also did not have a supervisory PE because the personnel's activities were technical support, production assistance, maintenance, quality control, safety and IT support, not supervision of a building site or construction, installation or assembly project. With no PE in existence, attribution of profits to any alleged PE was not sustainable, and the additions were set aside.

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Issues: (i) whether the assessee had a Fixed Place Permanent Establishment in India under Article 5(1) of the India-Japan DTAA; (ii) whether the assessee had a Supervisory Permanent Establishment in India under Article 5(4) of the India-Japan DTAA; (iii) whether any attribution of profits to an alleged permanent establishment was sustainable.

Issue (i): Whether the assessee had a Fixed Place Permanent Establishment in India under Article 5(1) of the India-Japan DTAA.

Analysis: A fixed place permanent establishment requires a place of business, a degree of permanence, disposal of the place to the foreign enterprise, and carrying on of the enterprise's business through that place. Mere access to the Indian entity's for rendering agreed services does not satisfy the disposal test. The premises of the Indian entity remained under its own control, and the assessee's personnel used them only for limited technical assistance. The supply of goods was held to be completed outside India, with title passing outside India, so no business operation in India was shown for the supply transactions.

Conclusion: No Fixed Place Permanent Establishment existed in India.

Issue (ii): Whether the assessee had a Supervisory Permanent Establishment in India under Article 5(4) of the India-Japan DTAA.

Analysis: Supervisory permanent establishment under the treaty requires supervisory activities in connection with a building site or construction, installation or assembly project. The activities of the visiting personnel were found to be technical assistance, support for production, maintenance, quality control, safety, IT support and related services, not supervision of any building site or installation or assembly project. The Indian entity was already engaged in its existing business, and no such project was shown to be underway.

Conclusion: No Supervisory Permanent Establishment existed in India.

Issue (iii): Whether any attribution of profits to an alleged permanent establishment was sustainable.

Analysis: Since no permanent establishment was found to exist, there was no basis to attribute profits to any alleged permanent establishment.

Conclusion: Attribution of profits was not permissible.

Final Conclusion: The additions based on the alleged permanent establishment were set aside and the assessee's appeals succeeded.

Ratio Decidendi: A foreign enterprise does not constitute a fixed place permanent establishment unless the Indian premises are at its disposal and through them its own business is carried on, and supervisory permanent establishment arises only where supervisory activities are performed in connection with a building, construction, installation or assembly project.

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