Dependent agent permanent establishment requires treaty conditions to be proved; mere facilitation and communication are not enough.

A dependent agent permanent establishment under the India-Japan treaty requires affirmative proof that the Indian entity had authority to conclude contracts, habitually maintained stock for delivery, or habitually secured orders in India. Here, the Indian subsidiary was found to act only as a facilitator and communicator, while final approval over contracts and pricing remained with the non-resident principal. Its separate trading activity and arm's length service fee further supported the absence of treaty conditions for a dependent agent PE. On those facts, no permanent establishment was established and no profit attribution could survive.

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Issues: Whether the Indian subsidiary constituted a dependent agent permanent establishment of the non-resident under the India-Japan treaty and, if not, whether any profit attribution to the alleged permanent establishment could survive.

Analysis: The agency arrangement and the transfer pricing material showed that the Indian entity did not have authority to conclude contracts on behalf of the non-resident, did not habitually maintain stock for delivery to customers, and did not habitually secure orders in India. The role of the Indian entity was found to be limited to facilitation and communication, while the principal retained final approval over contracts and pricing. The record also showed that the Indian entity was independently engaged in trading activities and its service fee had been accepted at arm's length. On these facts, the revenue failed to establish the treaty conditions necessary for a dependent agent permanent establishment, and no further profits could be attributed to a non-existent permanent establishment.

Conclusion: The dependent agent permanent establishment allegation was rejected and the proposed attribution of income was not sustained.

Final Conclusion: The assessment based on the alleged Indian permanent establishment was set aside and the assessee's appeal succeeded.

Ratio Decidendi: A dependent agent permanent establishment arises only when the treaty conditions are affirmatively proved on facts, and where the agent merely facilitates communication without authority to bind the principal, no permanent establishment or profit attribution can be sustained.

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