Dependent agent permanent establishment not found; offshore sales attribution deleted, but group service reimbursements were taxable as technical fees.

A dependent agent permanent establishment was not established where the Indian subsidiary bought products on its own account, acted as an independent contractor, bore market, credit and inventory risks, and had no authority to bind the foreign enterprise; attribution of offshore sales income was therefore deleted. Reimbursements for software, IT support, cloud facilities, email hosting and related group services were treated as consideration for managerial services, not a pure cost-to-cost pass-through, and were held taxable as fees for technical services under the treaty and domestic law. The assessee obtained relief on the permanent establishment issue but failed on the fees for technical services issue.

---

---

Issues: (i) Whether the Indian subsidiary constituted a dependent agent permanent establishment of the foreign assessee in India, and whether 35% of offshore sales could be attributed as income in India; (ii) whether reimbursement of expenses by the Indian subsidiary was taxable as fees for technical services.

Issue (i): Whether the Indian subsidiary constituted a dependent agent permanent establishment of the foreign assessee in India, and whether 35% of offshore sales could be attributed as income in India.

Analysis: The sales arrangement showed that the Indian subsidiary purchased products for resale on its own account, acted as an independent contractor, and did not have authority to bind the foreign assessee. The agreement negatived any principal-agent relationship, while the subsidiary bore market, credit and inventory risks and acted in the ordinary course of its business. The conditions for an agency permanent establishment under Article 5(5) were not shown to exist, as there was no material to establish habitual conclusion of contracts, maintenance of stock on behalf of the assessee, or habitual securing of orders for the assessee. In the absence of a permanent establishment, attribution of offshore sales income did not arise.

Conclusion: The issue was decided in favour of the assessee. No dependent agent permanent establishment was held to exist, and the attribution of 35% of offshore sales was deleted.

Issue (ii): Whether reimbursement of expenses by the Indian subsidiary was taxable as fees for technical services.

Analysis: The amounts recovered represented arrangements made by the foreign assessee for software, IT support, cloud facilities, email hosting, training-related facilities and related group services, which were held to constitute managerial services. The arrangement was not treated as a mere pass-through reimbursement on a pure cost-to-cost basis. The treaty did not require a make-available element, and the consideration was held to fall within the treaty definition of fees for technical services under Article 13 and the domestic law definition under section 9(1)(vii).

Conclusion: The issue was decided against the assessee. The reimbursement was upheld as taxable fees for technical services.

Final Conclusion: The appeals succeeded on the permanent establishment and attribution issue, but failed on the fees for technical services issue, resulting in partial relief to the assessee.

Ratio Decidendi: A dependent agent permanent establishment is not established unless the Revenue proves that the Indian entity habitually concludes contracts, maintains stock, or secures orders on behalf of the foreign enterprise, and a payment for arranged business support services may constitute fees for technical services where it is in substance consideration for managerial services.

---