Permanent establishment threshold controls India taxation; no PE, no profit attribution, and no section 234B interest.

A foreign enterprise is not taxable in India on business profits under the India-US DTAA unless it has a permanent establishment in India. On the facts discussed, no fixed place PE existed because the enterprise's core functions were carried on outside India and no Indian premises were at its disposal. No service PE or dependent agent PE was shown because services were not furnished through personnel in India and the Indian entity was not authorised to conclude contracts or habitually secure orders. With no PE and arm's length transactions, no further profits were attributable, and section 234B interest was not leviable for the non-resident.

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Issues: (i) whether the assessee had a fixed place permanent establishment in India under Article 5 of the India-US DTAA; (ii) whether the assessee had a service permanent establishment or dependent agent permanent establishment in India; and (iii) whether any further profits were attributable to the alleged permanent establishment and whether interest under section 234B was leviable.

Issue (i): whether the assessee had a fixed place permanent establishment in India under Article 5 of the India-US DTAA.

Analysis: The assessee was a US resident and the core business functions, including strategy, contract negotiation, customer relations, sales and marketing, were carried on from outside India. The Indian entity rendered outsourced back-office and support services. No material showed that any premises in India were at the disposal of the assessee or that the assessee had a right to use Indian premises for carrying on its own business. The disposal test and the requirement of a fixed physical place through which the enterprise's business is carried on were not satisfied.

Conclusion: The assessee did not have a fixed place permanent establishment in India.

Issue (ii): whether the assessee had a service permanent establishment or dependent agent permanent establishment in India.

Analysis: The record did not show that the assessee furnished services in India through employees or other personnel. There was also no factual foundation that the Indian entity was authorised to conclude contracts on behalf of the assessee or habitually secured orders for it in India. The Indian company was treated as an independent service provider and the conditions for service PE and agency PE were not established.

Conclusion: The assessee did not have a service permanent establishment or dependent agent permanent establishment in India.

Issue (iii): whether any further profits were attributable to the alleged permanent establishment and whether interest under section 234B was leviable.

Analysis: Since no permanent establishment was established, no attribution of business profits to India survived. In any event, the transactions were accepted as having been at arm's length, and on that basis no further profits could be attributed. As regards interest, the assessee being a non-resident and tax being deductible at source, advance tax liability did not arise for the years in question and section 234B was not applicable.

Conclusion: No further profits were attributable in India, and interest under section 234B was not leviable.

Final Conclusion: The Revenue's challenge failed on all material grounds, and the assessee succeeded in resisting the taxability of the disputed income in India.

Ratio Decidendi: A foreign enterprise is not taxable in India on business profits unless it has a permanent establishment in India under the treaty, and where transactions are at arm's length no further profits are attributable to the alleged permanent establishment.

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