ITAT rejects profits attribution to alleged DAPE considering arm’s length remuneration to agent.
This tax alert summarizes the recent ruling given by Income Tax Appellate Tribunal, Mumbai branch, which rules that once an agent has been paid arm’s length remuneration, and the income embedded in such remuneration has been taxed in India, no further profits can be taxed in the hands of the DAPE (Dependent Agency PE).
Background and facts of the case: –
The assessing officer contended that there is attribution of income because of formation of a DAPE in India to the extent of 10% of freight income earned by the assessee. However, ITAT noted that the remuneration being paid at arm’s length and taxability of income embedded in such payment in India is not disputed by Revenue. Thus, ITAT believed nothing turns on existence of PE because, even if there is a PE, no further profits can be attributed to the DAPE. ITAT further added that it is immaterial as to whether the DAPE existed or not, for the simple reason that, as the binding legal position is, the existence of DAPE is wholly tax neutral.
Ruling of the case: –
Thus, Mumbai ITAT held no further profits of assessee (a UK-based company) can be attributed to alleged Dependent Agency PE (DAPE) and taxed in India when payment to the Indian agent is at arm’s length price.