Permanent establishment test failed where Indian entity only provided marketing support and could not conclude contracts.

The Indian entity's functions were limited to marketing support and customer education, while the agreement barred it from negotiating or concluding contracts and sales were made through independent distributors. On the material recorded, the statutory test for an agency permanent establishment was not satisfied because the entity did not habitually secure orders or exercise authority to conclude contracts. A later domestic-law amendment was held inapplicable to the years under consideration, and the treaty position for those years remained unchanged. The non-resident was therefore treated as having no permanent establishment in India, and the addition based on attribution to India was deleted.

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Issues: Whether the activities of the Indian entity created a permanent establishment or business connection of the non-resident assessee in India, and whether the resulting income could be attributed to India.

Analysis: The agreement prohibited the Indian entity from negotiating or concluding contracts on behalf of the non-resident, and the evidence showed that sales were executed through independent distributors. On the material on record, the Indian entity's role was confined to marketing support and customer education. The statements recorded during survey, read as a whole, did not conclusively establish that the Indian entity habitually secured orders, habitually exercised authority to conclude contracts, or otherwise carried out activities that satisfied the statutory test for agency permanent establishment. The amendment to the domestic law from a later date was also held not to govern the years under consideration, and the treaty position remained unchanged for those years.

Conclusion: The assessee did not have a permanent establishment in India for the years under consideration, and the addition made on that basis was deleted.

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