The Income Tax Appellate Tribunal (ITAT), Mumbai Bench held that the dependent agent permanent establishment (DAPE) is wholly tax-neutral if the Agent paid remuneration on Arm’s Length Price (ALP).
The assessee, Asia Today Limited is a foreign telecasting company incorporated in Mauritius and having a tax residency certificate of Mauritius. It sells advertising time and collects subscription revenues through its Indian affiliates Zee Telefilms Limited and El Zee, but its claim was that since it does not have any permanent establishment in India, no part of its income was taxable in India.
The Assessing Officer did not accept the claim. He was of the view that its Indian agent constitutes a virtual projection of the foreign company, and, therefore, it has a permanent establishment in India.
The Assessing Officer further observed that the assessee has an agency permanent establishment in India, under article 5(4) of India Mauritius DTAA, inasmuch as its Indian agents are the dependent agents. As for the plea that in case the assessee is held to have a dependent agent permanent establishment, as was held by the Assessing Officer, no further profits can be attributed in the hands of the assessee as the agent has been paid arm’s length remuneration services.
The coram headed by the Vice President, Pramod Kumar clarified that so far as profit attribution of a DAPE is concerned, the legal position is that as long as an agent is paid an arm’s length remuneration for the services rendered, nothing survives for taxation in the hands of the dependent agency permanent establishment. Viewed thus, the existence of a dependent agency permanent establishment is wholly tax neutral. The ITAT held that the existence of dependent agency permanent establishment is wholly tax-neutral unless it is shown that the agent has not been paid an arm’s length remuneration, and when it is not the case of the Assessing Officer, that the agents have not been paid an arm’s length remuneration, the question regarding the existence of dependent agency permanent establishment, i.e., under article 5(4), is a wholly academic question.
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