Arm's length remuneration to Indian dependent agent prevents further profit attribution to foreign enterprise under Rule 10.

Where the Indian associated enterprise or dependent agent is remunerated at arm's length, no further profit can be attributed to the foreign enterprise merely because a permanent establishment exists in India. The Tribunal noted that the transfer pricing material supporting arm's length remuneration was not doubted by the assessing authority, and held that ad hoc attribution of revenue and profits under Rule 10 was unsustainable on those facts. The addition was therefore deleted.

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Issues: (i) Whether any further profit could be attributed to the assessee's Indian dependent agent permanent establishment after the Indian associated enterprise had been remunerated at arm's length.

Analysis: The assessment records showed that the assessee had furnished transfer pricing material to demonstrate that the transactions with its Indian associated enterprise were at arm's length, and that this position was not doubted by the assessing authority. The Tribunal relied on the settled principle that where the Indian entity constituting the permanent establishment or dependent agent is already compensated at arm's length, no further profit can be attributed to the foreign enterprise merely on the basis of the existence of a permanent establishment. The ad hoc attribution of revenue and profits under Rule 10 was therefore unsupported on the facts and contrary to the settled legal position.

Conclusion: No further profit was liable to be attributed to the assessee's permanent establishment in India, and the addition was deleted.

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