Arm's length remuneration blocks further profit attribution from a dependent agency permanent establishment.

Where the Indian associated enterprise was already remunerated at arm's length for the functions performed, assets employed and risks assumed, no further profit could be attributed to the foreign enterprise on account of a dependent agency permanent establishment. The transfer pricing analysis had accepted the international transactions at arm's length, and the alleged PE did not justify an additional taxable profit in India. On that basis, the addition was deleted and the PE issue was treated as tax-neutral for the dispute.

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Issues: Whether any further profit was attributable to the assessee's Indian operations after the Indian associated enterprise was remunerated at arm's length, and whether the existence of a dependent agency permanent establishment survived as a separate tax issue.

Analysis: The transfer pricing determination had accepted the international transactions at arm's length, and the Indian associated enterprise's remuneration was not shown to be inadequate. Following binding precedent on attribution of profits in a dependent agency permanent establishment situation, the existence of a dependent agent does not, by itself, justify further profit attribution where the agent has already been compensated at arm's length for the functions performed, assets employed, and risks assumed. On that basis, the alleged permanent establishment did not create any additional taxable profit in the hands of the foreign enterprise, and the PE question became tax-neutral for the present dispute.

Conclusion: No further profit could be attributed to the assessee in India once the Indian associated enterprise was paid arm's length remuneration. The addition was liable to be deleted, and the assessee succeeded.

Ratio Decidendi: Where the Indian agent or associated enterprise is remunerated at arm's length for its functions, assets, and risks, no further profits are attributable to the foreign enterprise on account of a dependent agency permanent establishment.

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