INCOME TAX ACT, 1961

Section 9

Income deemed to accrue or arise in India - Permanent establishment - Transaction at arm's length price -

Assessee-company based at UK was engaged in the business of shipping. AO noticed that assessee had earned freight income which was claimed to be exempt under article 9 of Indo-UK DTAA. AO did not accept the claim holding that article 9 did not apply to the facts of case, assessee had a Dependent Agency Permanent Establishment (DAPE) in India, by way of Freight Connections India Pvt. Ltd., and, in support of this conclusion, AO highlighted certain parts of the agency agreement between assessee and Freight Connections India Pvt. Ltd. Accordingly, AO attributed 10% of freight income as income attributable to DAPE. Held: Once agent was paid arm's length remuneration for the services rendered, as was not even in dispute in the instant case, no further profit could be attributed to PE. In other words, proposition was that, as the law stands now, existence of a DAPE is tax neutral except in a situation in which agent is not paid an arm's length remuneration for services rendered, and since it was nobody's case that agent had not been paid arm's length remuneration, nothing turned on existence of PE because, even if there was a PE, no further profits could be attributed to DAPE.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2005-06

INCOME TAX APPELLANTE TRIBUNAL RULES, 1963

Rule 34(5)

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