INCOME TAX ACT, 1961

--Double taxation relief--Agreement between India and Singapore Permaent establishment--Aramex group enters into agreements with customers for the purpose of acceptance of articles and for their deliveries at various destinations around the world. For that, the Aramex group has created a subsidiary in India, AIPL. Without the association of AIPL, the business of Aramex group as regards the articles sent to India, could not be performed. After formation of the Singapore entity, the applicant, the operations in India were looked after by the applicant. The applicant entered into an agreement with AIPL (an Indian company) for carrying on the business arrangement originally conducted through Aramex Internationa, Bermuda. As per the agreement between the applicant and AIPL, AIPL had to look after the movement of packages within India both outbond and in bound. According to the applicant, it had appointed AIPL as a non-exclusige service provider with respect to the international express business into India and from India. The applicants wants to know whether the receipts by it from outbound and inbound consignments were attributable to the PE of the applicant in India. Held: Merely entering into an agreement describing the subsidiary controlled legally or persuasively by the principal as an independent entity or a non-exclusive agent, would not bring the case of a subsidiary like AIPL within the ambit of para 10 to article 5 of the DTAC. Further, AIPL secures orders in India wholly for the Aramex group. and concludes contracts for the group for its express shipment business. It was not a case of AIPL undertaking purchase of article 5 goods or merchandise to take it out of the deeming provision in para 8. AIPL had to be deemed to be a PE of Aramex group and the applicant in India. Therefore, the receipts by the applicant from outbound and inbound consignments attributable to the PE in India were taxable in India. Held: When a business could not be carried on exclusively insofar as it relates to customers in India like in the present case, without intervention of another entity, a subsidiary, normally that entity must be deemed to be the establishment of the group in that particular country. The position may be different when the entity is an independent entity uncontrolled by the group unless it satisfies the other requirements mentioned in article 5(2) of the DTAC. But in a case where a 100 per cent subsidiary is created for the purpose of attending to the business of the group in a particular country, the Indian subsidiary must be taken to be a PE of the group in India. The question has to be examined whether under article 5 of the DTAC between India and Singapore, the subsidiary in India, AIPL, would be considered to be a PE of the applicant in India. Para 1 of article 5 provides that for the purpose of the DTAC, the term 'PE' means a fixed place of business through which the business of an enterprise is wholly or partly carried out. Clearly, AIPL has a fixed place of business and branches. Para 10 of article 5 of the DTAC says that the fact that a company which is a resident of a Contracting State controls or is controlled by a company which is a resident of the other Contracting State or which carries on business in that other Contracting State, shall not of itself constitute either company a PE of the other. In other words, the fact that the applicant, on behalf of the Aramex group, controls AIPL or that AIPL carries on its business in India, shall not of itself constitute AIPL a PE of the applicant. Merely entering into an agreement describing the subsidiary controlled legally or persuasively by the principal as an independent entity or a non-exclusive agent, would not bring the case of a subsidiary like AIPL within the ambit of para 10 to article 5 of the DTAC. Para 8 of article 5 of the DTAC provides that where an agent of an independent status to whom para 9 does not apply, is acting in a Contracting State on behalf of an enterprise of the other Contracting State, that enterprise shall be deemed to have a PE, notwithstanding paras 1 and 2 of article 5, if it habitually exercises in that State an authority to conclude contracts on behalf of the enterprise or habitually secures orders in the first-mentioned State wholly or almost wholly for the enterprise itself or for the enterprise under the same common control. Here, further, AIPL secures orders in India wholly for the Aramex group. and concludes contracts for the group for its express shipment business. It was not a case of AIPL undertaking purchase of goods or merchandise to take it out of the deeming provision in para 8 of article 5.