Arm's length agent remuneration bars further profit attribution where India accounts show no additional taxable income.

Arm's length remuneration to the Indian agent exhausted any further profit attribution to the foreign enterprise where country-wise accounts showed no additional India-linked profit. The assessee's agent was paid commission at 15% for soliciting and collecting airtime advertisement revenue, and the transfer pricing material accepted that rate as arm's length. On the maintained India allocation of revenues and expenses, and in the absence of further attributable profit, estimation of income by applying a flat percentage of gross receipts was unsustainable. CBDT Circular No. 742 was held inapplicable on these facts because country-wise accounts were maintained, and no additional taxable income survived beyond the arm's length commission.

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Issues: Whether any further profits were attributable in India to the assessee on account of the alleged business connection or dependent agent permanent establishment, after the Indian agent had been remunerated at arm's length and the assessee had maintained country-wise accounts; and whether CBDT Circular No. 742 could justify estimation of additional taxable profits.

Analysis: The assessee's Indian agent was paid commission at 15 per cent for soliciting and collecting airtime advertisement revenue, and the transfer pricing material accepted that rate as arm's length. The accounts placed before the authorities showed allocation of revenues and expenses to the India footprint and reflected a loss. In these circumstances, the principles recognised in the arm's length attribution line of cases were applicable, and once the agent was adequately remunerated, nothing further survived for attribution to the foreign enterprise. CBDT Circular No. 742 did not apply because country-wise accounts were maintained, and the attempt to estimate profits at a flat percentage of gross receipts was unsustainable on the facts.

Conclusion: No further income was attributable in India over and above the arm's length commission paid to the Indian agent, and the assessee succeeded.

Ratio Decidendi: Where the Indian agent is remunerated at arm's length and the assessee's India-related accounts show no additional profit attributable to the foreign enterprise, no further taxation can be made by estimating a notional percentage of gross receipts.

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