Dependent agent permanent establishment not found where Indian entity only provided marketing support and lacked contract-concluding authority.

An Indian group entity performing marketing and sales support as an independent contractor did not constitute a dependent agent permanent establishment of the non-resident under Article 5 of the India-UK DTAA. The analysis notes that the Indian entity only identified leads, while contract negotiation and conclusion remained with the non-resident; it had no authority to conclude contracts, maintain stock, deliver goods or software, or habitually secure orders on its behalf. As the entity operated on its own resources and was remunerated at arm's length, the conditions for Article 5(4) and the exception in Article 5(5) were not met, so offshore software sale profits could not be attributed to a permanent establishment in India.

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Issues: Whether the Indian group entity constituted a dependent agent permanent establishment of the non-resident assessee under Article 5 of the India-UK DTAA, and whether profits from offshore software sales could be attributed to such alleged permanent establishment.

Analysis: The Service Agreement described the Indian entity as an independent contractor engaged mainly in marketing and sales support services and did not confer any power to direct or control the day-to-day activities of the assessee. The material on record showed that the Indian entity only identified leads, while contractual negotiations and conclusion of sales remained with the assessee. There was no finding that the Indian entity had authority to conclude contracts, maintained stock, delivered goods or software, or habitually secured orders on behalf of the assessee. The arrangement also showed the Indian entity operating in the ordinary course of business on its own resources and being remunerated at arm's length. The conditions of Article 5(4) and the exception in Article 5(5) were thus not satisfied.

Conclusion: The Indian entity was not a dependent agent permanent establishment of the assessee, and the addition made by attributing profits from offshore sales to a permanent establishment in India was unsustainable.

Final Conclusion: The assessee succeeded on merits, and the transfer of profits to India on the premise of a permanent establishment was deleted.

Ratio Decidendi: A separate legal entity performing marketing and sales support functions as an independent contractor, without authority to conclude contracts, maintain stock, or habitually secure orders on behalf of the non-resident enterprise, does not constitute a dependent agent permanent establishment under Article 5 of the DTAA.

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