Agents not working exclusively for assessee and having no power to conclude contracts are not dependent agents

Brief of the case:

• The Hon’ble Bombay High Court in the case of B4U International Holdings held that the agents of the foreign company if not exclusively working for assessee and they are not decision makers with no power of concluding contracts and as such their activities being incidental in nature.
• Therefore, such agents cannot be treated as Dependent Agent Permanent Establishment (DAPE) of the assessee.

Facts of the case:

• The assessee is a foreign company incorporated in Mauritius engaged in telecasting of TV channels. It earned income from selling time slot to advertising from India.
• The assessee in its return of income not offered such income to tax on the belief that it did not have a permanent establishment in India, it is not liable to tax in India under Article 7 of the DTAA between India and Mauritius.
• The Assessing officer did not agree with the claim of assessee on the ground that the Indian companies are merely an extension of assessee and working in India as Dependent Agent.
  

Contention of the Revenue:

• The fact that the commission paid to the Indian company is on Arm length basis make the agents as dependent. It is why because the Indian companies are merely an extension of assessee.
• From the transfer pricing analysis angle, functions performed and the risks assumed by the agent in India indicate that agents are PE of India.
  

Contention of the Assessee:

• The Indian companies cannot be treated as dependent agent of the assessee because of their independent functioning as the activity carried out by them in India are incidental in nature carried out in a routine manner as per the direction of the principal.
• Even if the Indian companies are treated as the dependent agent of the assessee, the assessee’s income cannot be taxed because the agents have been paid off at Arm Length Price and no further profits could be attributable.
  

Held by the Hon’ble Bombay High Court:

• As per Article 5 of India – Mauritius DTAA an enterprise of a contracting State shall not be deemed to have a permanent establishment in the other contracting State merely because it carries on business in that State through a broker, general commission agent, or any other agent having an independent status acting for assessee in its ordinary course of business.

• The status of Indian companies acting as agent for the assessee is independent because they were not exclusively working for the assessee and also the remuneration were being paid to them on arm length basis. Therefore, the income earned by assessee cannot be taxed in India under Article 7 of DTAA as assessee has no PE.
• Further, the court agree to the findings of tribunal that clauses in the agreement between the assessee and B4U that B4U India is not a decision maker nor it has the authority to conclude contracts. The only activity which is carried out in India is incidental or auxiliary in nature which as per the direction of the principal (assessee company) without application of mind and hence B4U is not a dependent agent.
• In view of above findings the income earned by the assessee by selling advertisement time slots is not taxable in India.