“permanent establishment”
The decision most relied on for permanent establishment is DIT v. Morgan Stanley & Co. (292 ITR 416), cited in 360 judgments on BharatTax.
Leading authorities on permanent establishment
A Permanent Establishment (PE) signifies a foreign enterprise's virtual projection into another country, with a fixed place PE existing where an MNE's business is wholly or partly carried on. A dependent agent PE requires the agent to act as such and/or have the authority to conclude contracts for the foreign enterprise under DTAA provisions.
Payments for the supply of software along with telecom equipment are not in the nature of royalty if they are for the use of a copyrighted article, not the copyright itself. Such payments are not taxable in India in the absence of a Permanent Establishment (PE).
Payments for the use of copyrighted software, without the transfer of any rights in the underlying copyright itself, do not constitute 'royalty' under the Income-tax Act or tax treaties. Such payments are often treated as business income, taxable only if a permanent establishment exists.
Income derived by a non-resident for services related to mineral oil operations, falling under the presumptive taxation regime of Section 44BB, cannot simultaneously be treated as fees for technical services under Section 9(1)(vii). The specific presumptive provisions override the general FTS definition, particularly when DTAA applies.
Revenue must demonstrate the existence of a Permanent Establishment (PE) of a foreign enterprise in India, including establishing that transactions underlying a Dependent Agent PE were not at arm's length. Income from the sale of goods is not taxable in India if title and risk in the goods pass outside India.
This case provides foundational principles that illuminate the contours of the concept of 'Permanent Establishment' (PE) under tax treaties, especially regarding a 'fixed place' PE.
Once a transfer pricing analysis has been undertaken for an Indian associated enterprise, no further profits are attributable to it as a Permanent Establishment, thereby extinguishing the need for additional profit attribution.
One cannot make a taxable profit or loss from transactions with oneself, as profit only arises from dealings with external third parties, even when transferring assets between different accounts or divisions of the same entity.
