Case Law Details
Paragraph 8 of Article 5 of the DTAC provides that where an agent of an independent status to whom paragraph 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 permanent establishment, notwithstanding paragraphs 1 and 2 of Article 5, if it habitually exercise in that state an authority to conclude contracts on behalf of the enterprise or habitually secures orders in the first mentioned stage wholly or almost wholly for the enterprise itself or for the enterprise under the same common control. Here, AIPL secures orders in India wholly for the Aramex group. It also has the right to conclude and concludes contracts for the group for its Express shipment business. On facts it appears to me that AIPL has to be deemed to be a permanent establishment of Aramex group and the applicant in India. It is not a case of AIPL undertaking purchase of goods or merchandise to take it out of the deeming provision in paragraph 8.
In a Ruling in AAR No.542 of 2001, (274 ITR 501) in a similar situation, this Authority ruled that an independent agent of an American principal would be a permanent establishment of the American company in terms of paragraph 1 of Article 5 of the DTAC between India and USA. I am in respectful agreement with the reasoning and conclusion on this question. The following passage in paragraph 7 of the OECD commentary on Article 5,“For a place of business to constitute a permanent establishment, the enterprise using it must carry on its business wholly or partly through it”and the following passage in paragraph 41 that “However, a subsidiary company will constitute a permanent establishment for its parent company under the same conditions stipulated in paragraph 5 as are valid for any other unrelated company, i.e. if it cannot be regarded as an independent agent in the meaning of paragraph 6, and if it has and habitually exercises an authority to conclude contracts in the name of the parent company. And the effects would be the same as for any other unrelated company to which paragraph 5 applies”and the statement in paragraph 42 “The same rules should apply to activities which one subsidiary carrys on for any other subsidiary of the same company”also indicate that AIPL would emerge as a permanent establishment of the applicant in India. Here, the applicant gets done its entire business related to India through AIPL.
Thus, I find that AIPL is a Permanent Establishment of the applicant in India within the meaning of Article 5 of the DTAC between India and Singapore.
AUTHORITY FOR ADVANCE RULINGS (INCOME TAX), NEW DELHI
7th Day of June, 2012
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