Permanent establishment under India-Korea DTAA failed where alleged employees were actually linked to the associated enterprise.

For determining an alleged permanent establishment under Article 5(3)(b) of the India-Korea DTAA, persons shown by employment agreements and Form 16 to be employees of the associated enterprise could not be treated as the assessee's employees merely because travel reimbursement records suggested otherwise. Their presence in India therefore could not be counted against the assessee for the treaty stay threshold, and the factual basis for attributing offshore sales to an Indian PE failed. On that footing, the addition was deleted, and the issue was resolved in favour of the assessee.

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Issues: Whether the addition made by attributing a portion of offshore sales to an alleged permanent establishment in India was sustainable on the basis that two persons were treated as the assessee's employees for computing the stay period under Article 5(3)(b) of the India-Korea DTAA.

Analysis: The addition rested on the assumption that the travel reimbursement details for two named persons showed them to be employees of the assessee and that their stay in India pushed the relevant threshold beyond 183 days. On the material produced, including employment agreements and Form 16, those persons were found to be employees of the assessee's associated enterprise and not of the assessee. Their presence in India could not, therefore, be counted against the assessee for the purpose of determining the stay period under Article 5(3)(b). The rejection of the assessee's explanation was held to be based on surmises and conjectures, and the factual foundation for the attribution failed.

Conclusion: The addition was deleted and the issue was decided in favour of the assessee.

Final Conclusion: The appeal succeeded to the extent of the disputed addition, and the remaining grounds were left without adjudication after the core addition was deleted.

Ratio Decidendi: Persons shown to be employees of an associated enterprise cannot be treated as the assessee's employees for computing the treaty stay threshold or for sustaining an alleged permanent establishment without reliable contrary evidence.

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