Permanent establishment under the India-Japan treaty requires disposal or supervisory activity before offshore sales profits can be attributed to India.

Article 5 of the India-Japan DTAA requires satisfaction of the treaty tests for a fixed place or supervisory permanent establishment before Indian taxation can arise. On the stated facts, the Indian premises were used only for agreed services and were not at the enterprise's disposal, so no fixed place permanent establishment existed. The employees' visits were for technical assistance and support, not supervisory activity connected with a building, construction, installation or assembly project, so no supervisory permanent establishment arose either. As the sales of raw material and capital goods were made offshore on a principal-to-principal basis with title passing outside India, no profit could be attributed to an alleged permanent establishment in India.

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Issues: Whether the assessee had a permanent establishment in India in the nature of a fixed place permanent establishment or a supervisory permanent establishment under Article 5 of the India-Japan Double Taxation Avoidance Agreement, and whether the profit from sales of raw material and capital goods could be attributed to such alleged permanent establishment.

Analysis: The factual matrix was held to be identical to the assessee's earlier years, and the Tribunal followed its consistent view in those years. For a fixed place permanent establishment, the relevant test was whether the place was at the disposal of the enterprise and through which its business was carried on. On the facts, the Indian entity's premises were only accessed for rendering agreed services, without control or right of use sufficient to satisfy the disposal test, and the supplies of goods were made outside India on a principal to principal basis with title passing outside India. For a supervisory permanent establishment, the Tribunal applied Article 5 of the treaty and found that the employees' visits were for technical assistance and related support, not supervisory functions in connection with any building site, construction, installation or assembly project, and therefore the six-month condition did not arise for consideration.

Conclusion: The assessee did not have either a fixed place or a supervisory permanent establishment in India, and no part of the profit from the impugned sales could be attributed to a permanent establishment in India. The addition was deleted.

Final Conclusion: The appeal succeeded on the core transfer-tax nexus issue, while consequential interest grounds required no separate adjudication and the stay application became infructuous.

Ratio Decidendi: A permanent establishment under Article 5 of the India-Japan Double Taxation Avoidance Agreement requires satisfaction of the specific treaty tests of disposal, fixed place, or supervisory activity, and where those conditions are not met, profits from offshore sales cannot be attributed to India.

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