# ASSISTANT DIRECTOR OF INCOME TAX-I, NEW DELHI v. MIS. E-FUNDS IT SOLUTION INC - **Citation:** [2017] 10 S.C.R. 157 - **Court:** Supreme Court of India - **Decided:** 2017-10-24 - **Case number:** Civil Appeal No. 6082 of 2015 - **Bench:** R. F. Nariman, Sanjay Kishan Kaul - **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/assistant-director-of-income-tax-i-new-delhi-v-mis-e-funds-it-solution-inc-31429 - **Pages:** 42 ## Headnote Income Tax Act, 1961: Business _income of companies incorporated in US - Taxability B of - Permanent establishment (PE) - The Income Tax Act, in C particular s.90 thereof, does not speak of the concept of a PE - This is a creation only of the DTAA - By virtue of Art. 7( 1) of the DTAA, the business income _of companies which are incorporated in the US will be taxable only in the US, unless it is found that they were PEs in India, in which event their business income, to the extent D to which it is attributable to such PEs, would be taxable in India - There must exist a fixed place of business in India, which is at the disposal of the US companies, through which they carry on "their own business - ln the instant case, there is no specific finding in the assessment order or the appellate orders that applying the said tests, any fixed place of business was put at the disposal of these E companies - No part of the main business and revenue earning activity of the two American companies was carried on through a fixed business place in India which has been put at their disposal - The Indian company only renders support services which enable the assessees in tum to render services to their clients abroad - F This outsourcing of work to India would not give rise to a fixed place PE - Insofar as a service PE is concerned, the requirement of Art.5(2)(1) of the DTAA is that an enterprise must furnish services "within India" through employees or other personnel - None of the customers of the assessees are located in India or have received any services in India - Therefore, the assessing officer, CIT (Appeals) G and the lTAT essentially adopted a fundamentally erroneous approach in saying that they were contracting with a 100% subsidiary and were outsourcing business to such subsidiary, which resulted in the creation of a PE - Intelference wit!! the judgmellt of H 157 158 SUPREME COURT REPORTS f2017] 10 S.C.R. A High Court not called for - Double Taxation Avoidance Agreement of 1990 - Arts.5, 7. Foreign assessee - Burden to prove PE - Held: The burden of proving the fact that a foreign assessee has a PE in India and must, therefore, suffer tax from the business generated from such B PE is initially on the Revenue. c Permanent establishment (PE) - Meaning of - Distinct types of PEs - Discussed - Double Taxation Avoidance Agreement of 1990 - Art.5. Dismissing the appeals, the Court HELD: 1. Article 5 of the DTAA provides for three distinct types of PEs. They are business PE under Articles 5(1) and 5(2)(a) to 5(2)(k); service PE under Article 5(2)(1) aPd agency PE under Article 5( 4). Specific and detailed criteria arc set out in the said provisions in order to fulfill the conditions of these PEs existing D in India. The burden of proving the fact that a foreign assessee has a PE in India and must, therefore, suffer tax from the business generated from such PE is initially on the Revenue. Under Article 5(1), a PE means a fixed place of business through which the business of an enterprise is wholly or partly carried on. [Paras E 10, 11] [174-D-E, F] F 2. Reiiance placed by the Rcvenu.e on the United States Securities and Exehange Commission Form lOK Report, as correctly pointed out by the High Court, is also misplaced. It is clear that the report speaks of the e-Funds group of companies worldwide as a whole, which is evident not only from going through the said report, but also from the consolidated financial statements appended to the report, which show the assets of the group worldwicJe. This report would ~how that no part of the main business and ·revenue earning activity of the two American companies is carried on through a· fixed business place in India G which has been put at their disposal. It is clear that the Indian company only renders support services which enable the assessees in turn to render services to their clients abroad. This outsourcing of work to India would not give rise to a fixed place PE and the High Court judgment is ## Text _Characters 0–39,945 of 93,772. This is a partial read: ask again with offset=39945 for what follows._ [2017] 10 S.C.R. 157 ASSISTANT DIRECTOR OF INCOME TAX-I, NEW DELHI A v. MIS. E-FUNDS IT SOLUTION INC. (Civil Appeal No. 6082 of 2015) OCTOBER 24, 2017 [R. F. NARIMAN AND SANJAY KISHAN KAUL, JJ.] Income Tax Act, 1961: Business _income of companies incorporated in US - Taxability B of - Permanent establishment (PE) - The Income Tax Act, in C particular s.90 thereof, does not speak of the concept of a PE - This is a creation only of the DTAA - By virtue of Art. 7( 1) of the DTAA, the business income _of companies which are incorporated in the US will be taxable only in the US, unless it is found that they were PEs in India, in which event their business income, to the extent D to which it is attributable to such PEs, would be taxable in India - There must exist a fixed place of business in India, which is at the disposal of the US companies, through which they carry on "their own business - ln the instant case, there is no specific finding in the assessment order or the appellate orders that applying the said tests, any fixed place of business was put at the disposal of these E companies - No part of the main business and revenue earning activity of the two American companies was carried on through a fixed business place in India which has been put at their disposal - The Indian company only renders support services which enable the assessees in tum to render services to their clients abroad - F This outsourcing of work to India would not give rise to a fixed place PE - Insofar as a service PE is concerned, the requirement of Art.5(2)(1) of the DTAA is that an enterprise must furnish services "within India" through employees or other personnel - None of the customers of the assessees are located in India or have received any services in India - Therefore, the assessing officer, CIT (Appeals) G and the lTAT essentially adopted a fundamentally erroneous approach in saying that they were contracting with a 100% subsidiary and were outsourcing business to such subsidiary, which resulted in the creation of a PE - Intelference wit!! the judgmellt of H 157 158 SUPREME COURT REPORTS f2017] 10 S.C.R. A High Court not called for - Double Taxation Avoidance Agreement of 1990 - Arts.5, 7. Foreign assessee - Burden to prove PE - Held: The burden of proving the fact that a foreign assessee has a PE in India and must, therefore, suffer tax from the business generated from such B PE is initially on the Revenue. c Permanent establishment (PE) - Meaning of - Distinct types of PEs - Discussed - Double Taxation Avoidance Agreement of 1990 - Art.5. Dismissing the appeals, the Court HELD: 1. Article 5 of the DTAA provides for three distinct types of PEs. They are business PE under Articles 5(1) and 5(2)(a) to 5(2)(k); service PE under Article 5(2)(1) aPd agency PE under Article 5( 4). Specific and detailed criteria arc set out in the said provisions in order to fulfill the conditions of these PEs existing D in India. The burden of proving the fact that a foreign assessee has a PE in India and must, therefore, suffer tax from the business generated from such PE is initially on the Revenue. Under Article 5(1), a PE means a fixed place of business through which the business of an enterprise is wholly or partly carried on. [Paras E 10, 11] [174-D-E, F] F 2. Reiiance placed by the Rcvenu.e on the United States Securities and Exehange Commission Form lOK Report, as correctly pointed out by the High Court, is also misplaced. It is clear that the report speaks of the e-Funds group of companies worldwide as a whole, which is evident not only from going through the said report, but also from the consolidated financial statements appended to the report, which show the assets of the group worldwicJe. This report would ~how that no part of the main business and ·revenue earning activity of the two American companies is carried on through a· fixed business place in India G which has been put at their disposal. It is clear that the Indian company only renders support services which enable the assessees in turn to render services to their clients abroad. This outsourcing of work to India would not give rise to a fixed place PE and the High Court judgment is, therefore, correct on this H score. [Paras 14, 16] [181-D-E; 187-D-E] ASSISTANT DIRECTOR OF INCOME TAX-I, NEW DELHI v. 159 MIS. E-FUNDS IT SOLUTION INC. 3. Insofar as a service PE is eoncerned, the requirement A of Article 5(2)(1) of the DTAA is that an enterprise must furnish services "within India" through employees or other personnel. None of the customers of the assessees are located in India or have received any services in India. All its customers receive services only in locations outside India. Only auxiliary operations B that facilitate such services are carried out in India. It is clear that as the very first part of Article 5(2)(1) is not attracted, the question of going to any other part of the said Article does not arise. It is perhaps for this reason that the assessing officer did not give any finding on this score. [Paras 17, 18, 20][187-F; 189D; 191-E-F] C 4. It was never the case of Revenue that e-Funds India was authorized to or exercised any authority to conclude contracts on behalf of the us company, nor was any factual foundation laid to attract any of the said clauses contained in Article 5(4) of the DTAA. As the arm's length principle has been satisfied in the D present case, no further profits would be attributable even if there exists a PE in India. [Paras 21, 22] [191-G; 193-B-C] 5. A perusal of Paragraph 1.3.1 of the OECD Manual and Best Practice No.3 would show that a competent authority should engage in discussion with the other competent authority in a principled, fair and objective manner, with each case being decided on its own merits. It was also specifically observed that where .an agreement is not otherwise achievable, then both parties should look for appropriate opportunities for compromise in order to eliminate double taxation on the facts of the case, even though a principled approach is important. The Attorney General also relied upon Best Practice No.1 of the said OECD Manual, which requires the publication of mutual agreements reached that may apply to a general category of taxpayers which would then improve guidance for the future. Best Practice No.1 has no application on the facts of the present case, as the agreement reached applies only to the respondent companies, and not to any general category of taxpayers. It is clear, therefore, that reliance placed upon Article 3.6 of the OECD Manual was correct. It is very clear, therefore, that such agreement cannot be considered as a precedent for subsequent years, and the High Court's conclusion E F G H 160 SUPREME COURT REPORTS ['.W 17] I 0 S.C.R. A on this aspect is also correct. [Para 27] [197-E-G] Formula One World Championship Ltd. v. Commissioner of Income Tax, lnternationai Taxation-], Delhi and others 2017 (6) JT 276 : 2017 (5) SCALE 228; D!T v. Morgan Stanley (2007) 7 SCC 1 : [2007] 8 SCR 52 - B referred to. Bollinger v. Commissioner, 108 S.Ct. 1173 - referred to. C 2017 (6) JT 276 Case Law Reference referred to Para3 [2007] 8 SCR 52 referred to Para 3 CIVIL APPELLATE JURISDICTION : Civil Appeal No. 6082 of2015. From the Judgment and Order dated 05 .02.2014 of the High Court D of Delhi at New Delhi in I. T. A. No. 1201 of 2011 WITH C.A.Nos.6087,6102,6084,6100,6094,6083,6096,6089,6104, 6088,6091,6103,6093,6085,6090,6095,6099,6092,6101,60970f 2015 E C. A. No. 2962 of2016 C. A. No. 16958 of 2017 K. K. Veuugcpal, AG, K. Radhakrishnan, Y. P. Adhyaru, Sr. Ad vs., D. L. Chidananda, Ms. Niranjana Singh, Rupesh Kumar, Arijit Prasad, Parvesh Thakur, Rohit Bhat, Ms. Charanya L., Ms. Anil Katiyar, Ad vs. F for the Appellant. G S. Ganesh, Arvind P. Datar, Sr. Advs., S. Kumaran, Anand Sukumar, Bhupesh Kumar Pathak, Ms. Mecra Mathur, Ajay Vohra, Bhargav? V. Desai, Akshat Malpani. Advs. for the Respondents . . . The Judgment of the Court was delivered by R. F. NARIMAN, J. Leave granted. 1. These appeals are from a judgment of the Delhi High Court · disposing off several appeals and cross appeals. They relate to two American Companies· which are the assessees in the present case, H namely, e-Funds Corporation, USA (relating to assessment years 2000- ASSISTANT DIRECTOR OF INCOME TAX-I, NEW DELHI v. 161 · MIS. E-FUNDS IT SOLUTION INC. [R. F. NARIMAN, J.] 01 to 2002-03 and 2004-05 to 2007-08) and e-Funds IT Solutions Group A Inc., USA (relating to assessment years 2b00-01 to 2002-03 and 200506 to 2007-08). The appeals from the Income Tax Appellate Tribunal (!TAT) by the assessees were allowed by the High Court, whereas crossappeals by the department were rejected. After framing several substantial questions of law, the High Court narrated the undisputed facts as follows: "6. Undisputed facts in brief may be first noticed. The assessees are companies incorporated in United States of America (USA, B for short) and were residents of the said country. They were assessed and have paid taxes on their global income in USA. eFund Corp. was the holding company having almost I OO'Yo shares C in IDLX Corporation, another company incorporated in USA. IDLX Corporation held almost l 00% shares in IDLX International BV, incorporated in Netherlands and later in turn held almost 100% shares in IDLX Holding BV, which was a subsidiary again incorporated in Netherlands. IDLX Holding BV was almost a D I 00% shareholder of e-Funds International India Private Limited, a company incorporated and resident of India (e-Fund. International India Private Limited has been described as 'eFund India'). IDLX International BV was also the parent/holding company having almost 100% shares in e-Fund Inc., which as noticed above, was a company incorporated in USA. 7. Both e-Fund Inc. and e-Fund Corp. have entered into international transactions withe-Fund India. The details of these transactions have to be examined in depth and have to be referred below. e-Fund India being a domestic company and resident in India was taxed on the income earned in India as well as its global income in accordance with the provisions of the Act. The international transactions between the asses.sees and e-Fund India E F and the income of e-Fund India, it is accepted, were made subject matter of arms length pricing adjudication by the Transfer Pricing Officer (TPO, for short) and the Assessing Officer (AO, for G short) in the returns of income filed bye-Fund India. We are not primarily concerned with the merits of the computation of income declared and assessed in the hands of e-Fund India in the present appeals, though the factum that e-Fund India was assessed to tax on its global income as per law or on arms length pricing in H 162 A B c D E F SUPREME COURT REPORTS . [2017] 10 S.C.R. relation to associated transactions and the basis of the said computation of income earned bye-Fund India, as noticed below, is a relevant and an important. fact. Revenue has not disputed the said legal position. It is the contention of the Revenue that income of the two assessees were attributable to India because the two assessees had PE in India and should be taxed in India, irrespective of whether the said assessees had paid taxes in USA. Income earned and taxed in the hands of e-Fund India was different from the income attributable to the two assessees. Thus the balance or differential amount, i.e., income attributable to the two assessees, which was not included in income earned and taxed in the hands of e-Fund India, should be taxed in India. 8. As a principle what is stated and submitted by the Revenue cannot be contested and in fact not contested by the assessees as it is a principle applicable to international taxation. A foreign or a non-resident company can be taxed in the country where it has a subsidiary, which is also a PE on the income attributable to the said PE, even ifthe subsidiary (in the present case of e-Fund India) is being taxed in the said.country. The principle being that subsidiary being an independent and a distinct entity is taxed for its income, whereas the foreign entity, i.e., holding company is taxed for the income earned by the said independent entity attributable to the PE in the country where subsidiary is situated. The income of the subsidiary is not taxed in the hands of the non-resident principal and vice-versa. Thus, there is no double taxation in the hands of the holding company as income of the subsidiary is not taxed as income of foreign holding assessee. The principle is that a subsidiary constitutes an independent legal entity for the purpose of taxation." 2. The assessing authority decided that the assessees had a permanent establishment (hereinafter referred to as PE) as they had a fixed place where they carried on their own business in Delhi, and that, G consequently, Article 5 of the India U.S. Double Taxation Avoidance Agreement of 1990 (hereinafter referred to as DTAA) was attracted. Consequently, the assessees were liable to pay tax in respect of what they earned from the aforesaid fixed place PE in India. The CIT (Appeals) dismissed the appeals of the assessees holding that Article 5 was attracted, not only because there was a fixed place where the H ASSISTANT DIRECTOR OF INCOME TAX-I, NEW DELHI v. 163 MIS. E-FUNDS IT SOLUTION INC. [R. F. NARIMAN, J.] assessees carried on their business, but also because they were "service A PEs" and "agency PEs" under Article 5. In an appeal to the ITAT, the ITAT held that the CIT (Appeals) was right in holding that a "fixed place PE" and "service PE" had been made out under Article 5, but said nothing about the "agency PE" as that was not argued by the Revenue before the ITAT. However, the ITAT, on a calculation formula different B from that of the CIT (Appeals), arrived at a nil figure of income for all the relevant assessment years. The appeal of the assessees to the High Court proved successful and the High Court, by an elaborate judgment, has set aside the findings of all the authorities referred to above, and further dismissed the cross-appeals of the Revenue. Consequently, the Revenue is before us in these appeals. C 3. ·The learned Attorney General, Shri K.K. Venugopal, has argued before us that, under Article 5(1) of the DTAA, a fixed place PE-has been made out on the facts of these cases, ana relie~ heavily upon the United States Securities and Exchange Commission Form 1 OK of eFunds Corp. dated 31" March, 2003. According to the learned Attorney D General: • Most of the employees are in India (In fact, the High Court records that 40% of the employees of the entire group are in India). • eFunds Corp has call centers and software development centers only in India. • eFunds Corp is essentially doing marketing work only and its contracts with clients ·are assigned, or sub-contracted to eFunds India. • The master services agreement between the American and the Indian entity gives complete control to the American entity in regard to personnel employed by the Indian entity. E F • It is only through the proprietary database and software of eFunds Corp, that eFunds India carries out its functions for eFunds Corp (The High Court records that the software, intangible data etc is G provided free of cost and then states that this is irrelevant). • The Corporate office of eFunds India houses an 'International Division' comprising the President's office and a sales team servicing EFI and eFumb group entities in the·United Kingdom, South East Asia, Australia and Venezuela. The President's office primarily H 164 SUPREME COURT REPORTS [2017] IO S.C.R. A oversees operations of eFunds India and eFunds group entities overseas. The sales team undertakes marketing efforts for affiliate entities also. • The CIT(A) has referred to the Transfer Pricing Report which says that eFunds India provides management support and marketing B support services to eFunds Corp group companies outside India. Regarding supervision of personnel rendering the services, the TP Report states as follows: "The President's office manages the operations of eFunds India and eFunds group entities in UK and Australia and c accordingly, employees of these entities report to the President. The President's overall reporting is to EFC. Though the personnel rendering marketing services are employees of EFT, they report to overseas gmup entities to the extent that they are engaged in rendering services to D such entities." Applying the above facts, it is submitted that the assessees satisfy the requirements of a fixed place PE. The Supreme Court in the recent judgment in Formula One World Championship Ltd. v. Commissioner of Income Tax, International Taxation-3, Delhi and E others, (2017) SCC Online SC 474 has held that "it universally accepted that for ascertaining whether there is a fixed place or not, PE must have three characteristics: stability, productivity and dependence. Further, fixed place of business connotes existence of a physical location which is at the disposal of the enterprise through which the business is carried on." It was further held that "the physically located premises have to be F 'at the disposal' of the enterprise" and that "the place will be treated as 'at the disposal' of the enterprise when the enterprise has right to use the said place and has control thereupon. Consequently, he argued that physically located premises are "at the disposal" of the assessees with the degree of permanence required, namely, the entire year. In addition, G he argued that the High Court was in error in holding that the place of management PE under Article 5(2)(a) was prima facie made out, but since the said provision had not been invoked and requires factual determination, Revenue's argument was dismissed on this score. Further, under Article 5(2)(1) of the DTAA, he argued that a service PE is clearly made out on facts because: H ASSISTANT DIRECTOR OF INCOME TAX-I, NEW DELHI v. 165 MIS. E-FUNDS IT SOLUTION INC. [R. F. NARIMAN, J.] • As per the consolidated Annual Report of eFunds Corp, most of A the employees an~ in India. eFunds Corp has call centers and software development centers only ih India. • eFunds Corp is essentially doing marketing work only and its contracts with clients are assigned, or sub-contracted to eFunds India. B •Regarding supervision of personnel rendering the services, the TP Report states as follows: "The President's office manages the operations of eFunds India and eFunds group entities in UK and Australia and accordingly, employees of these entities report to the C President. The President's overall reporting is to EFC. Though the personnel rendering marketing services are employees of EFT, they report to overseas group entities to the extent that they are engaged in rendering services to such entities." - • The Master sub-contractor agreement bP;tween eFunds Corp and eFunds India discussed in the CIT(A)'s order provides in clause 1.1 (a) as follows: D "Subcontractors personnel assigned to work with eFunds. E TT or Customers located in the United States shall be directed by eFunds TT or by Subcontractors supervisor acting at the direction of eFunds TT. ln the event Subcontractors personnel are assigned to perform such services in India, the Subcontractor shall supervise such work, acting at the direction of eFunds TT. eFunds TT shall be the sole judge of F pe1formance and capability of each of subcontractors personnel and may request the removal of one or more of Subcontractors personnel from a project covered by any statement of work as follows." • It is submitted that the personnel engaged in providing these G services were ostensibly the employees of eFunds India but were de facto working under the control ana supervision of eFunds Corp. In this regard, reference was made to Para 17 of the judgment in DIT v. Morgan Stanley (2007) 7 SCC 1, where the Court held: H 166 A B c SUPREME COURT REPORTS [2017] 10 S.C.R. "17 ..... .It is important to note that where the activities of the multinational enterprise entails it being responsible for the work of deputationists and the employees continue to be on the payroll of the multinational enterprise or they continue to have their lien on their jobs with tire mu.ltinational enterprise. a service PE can emerge." • Furthermore, the AO in the Assessment Order has observed that eFunds Corp has seconded two employees to eFunds India and these employees worked as Sr. Director-Technical Services and Country Head-Business Development. The activities of the seconded employees go beyond mere 'stewardship activities' in terms of Morgan Stanley. • The tem1 'Other Personnel' has to be seen in the context of the facts of this case which show that eFunds India was not an independent subsidiary. D Further, he also argued that a dependent agent PE was made out under Articles 5(4) and 5(5), there being a concurrent finding of facts of the CIT (Appeals) and !TAT in this regard. Also, according to the learned Attorney General, since the assessees failed to furnish information when sought for, an adverse inference was sought to be drawn against them E and that, therefore, it is clear that once this inference is drawn, the burden shifts on to the assessees, which they will then have failed to discharge. 4. The learned Attorney General also relied heavily upon an admission made under the mutual agreement procedure (MAP) under Article 27 of the DTAA, in which, for the assessment year 2003-04 qua e-Funds Corp., and assessment years 2003-04 and 2004-05 qua e-Funds F IT Solution Inc., the assessees have admitted that income tax will be attributable "to the Indian PEs" based on a certain ratio and that, therefore, it is clear that this admission would continue to bind the assessees in all subsequent years as there was no change in the factual position. G H 5. As against this, Shri S. Ganesh, learned senior counsel for the respondents, has argued that the tests for whether there is a fixed place PE have now been settled by the judgment of this Court in Formula One (supra), and that it is clear that for a fixed place PE, it must be necessary that the said fixed place must be "at the disposal" of the assessees, which means that the assessees must have a right to use the ASSISTANT DIRECTOR OF INCOME TAX-I, NEW DELHI v. 167 MIS. E-FUNDS IT SOLUTION INC. [R. F. NARIMAN, J.] premises for the purpose of their own business, which has not been A made out in the facts of this case. He further argued that, on the facts of this case, both the US companies as well as the Indian company pay income tax, and the Transfer Pricing Officer by his order dated 22•d February, 2006, has specifically held that whatever is paid under various agreements between the US companies and the Indian company are on B arm's length pricing and that, this being the case, even if a fixed place PE is found, once arm's length price is paid, the US companies go out of the dragnet oflndian taxation. He also adverted to Article 5(6) to state that the mere fact that a 100% subsidiary may be carrying on business in India does not by itself means that the holding company would have a PE in India. Further, according to learned counsel, so far as the service C PE is concerned, even the assessing officer did not find that such a PE existed. According to him, under Article 5(2)(1), it is necessary that the foreign enterprises must provide services to customers who are in India, which is not Revenue's case as all their custoniers exist only outside India. Further, according to the learned counsel, the entire personnel D engaged in the Indian operations are employed only by the Indian company and the fact that the US companies may indirectly control such employees is only for purposes of protecting their own interest. Ultimately, there are four businesses that the assessees are engaged in, namely, ATM Management Services, Electronic Payment Management, . Decision Support and Risk Management.and Global Outsourcing and Professional Services. Since all these businesses are carried on outside India and the property through which these businesses are carried out, namely ATM networks, software solutions and other hardware networks and information technology infrastructure were all located outside India, the activities of e-Funds India are independent business activities on which, as has been noticed by the High Court, independent profits are made and income assessed to tax under the Income Tax Act. According to the learned counsel, "agency PE" was never argued before the assessing officer and even before the ITAT. Therefore, no factual foundation for the same has been laid. Equally, according to the learned counsel, the settlement procedure availed for the assessment years in question cannot be said to be binding for subsequent years as they were without prejudice to the assessees' contention that they have no PE in India. He also relied upon the OECD Commentary, paragraph 3.6 in particular, to demonstrate that the so-called admissions made and relied upon by the three authorities below were correctly overturned by the E F G H 168 A B c SUPREME COURT REPORTS [2017) IO S.C.R. High Court. Learned counsel also stated that the ground of adverse inference was never argued or put before any of the authorities below, and the only place that it could be found is in the assessment order for the year 2003-04, which order became non est as it was substituted by the agreement entered into between the parties ending in withdrawal of appeals before the CIT (Appeals). Thus, according to the learned counsel, the view of the High Court is absolu_tely correct and should not be interfered with. Learned counsel also argued that the cross-appeals of the Revenue were correctly dismissed in that, even though the ITAT decided the case in Jaw against the assessees, yet it found on facts, differing from the calculation formula by the authorities below, that nil tax was payable. This is the only part of the ITAT judgment upheld by the High Court, and should not, therefore, be disturbed in any case. 6. Before we deal with the submissions made on both sides, it is necessary to first set out the statutory backgrounJ. This is contained in Section 90 of the Income Tax Act, before it was amended in 200Q. D Section 90( I) and 90(2) of the Income Tax Act, as it then stood, read as under: E "Section 90. Agreement with foreign countries.- I) The Central Government may enter into an agreement with the Government of any country outside India- ( a) for the granting of relief iri respect of- (i) income on which have been paid both income-tax under this Act and income-tax in that country; or (ii) income-tax chargeable under this Act and under the F corresponding Jaw in force in that country to promote mutual economic relations, trade and investment, or G H (b) for the avoidance of double taxation of income under this Act and under the corresponding law in force in that country, or (c) for exchange of information for the prevention of evasion or avoidance of income-tax chargeable under this Act or under the corresponding law in force in that country, or investigation of cases of such evasion or avoidance, or (d) for recovery of income-tax under this Act and under the corresponding law in force in that country, ASSISTANT DIRECTOR OF INCOME TAX-I, NEW DELHI v. 169 MIS. E-FUNDS IT SOLUTION INC. [R. F. NARIMAN, J.] and may, by notification in the Official Gazette, make such A provisions as may be necessary for implementing the agreement. (2) Where the Central Government has entered into an agreement with the Government of any country outside India under subsection (l) for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to B whom such agreement applies, the provisions of this Act shall apply to the extent they are more .beneficial to that assessee." 7. Under this provision, the India US Double Taxation Avoidance Agreement of 1990 was made. We are directly concerned with Article 5 of the DTAA, which reads as under: c "ARTICLE 5 - Permanent establishment - 1. For the purposes of this Convention, the term "permanent establishment" means a fixed place of business through which the h11siness of an enterprise is wholly or partly carried on. 2. The term "permanent establishment" includes especially: (a) a place of management; (b) a branch; ( c) an office; (d) a factory; (e) a workshop; (t) a mine, an oil or gas well, a quarry, or any other place of extraction of natural resources; (g) a warehouse, in relation to a person providing storage facilities for others; (h) a farm, plantation or other place' where agriculture, forestry, plantation or related activities are carried on; (i) a store or premises used as a sales outlet; U) an installation or structure used for the exploration or exploitation of natural resources, but only if so used for a period of more than 120 days in any twelve-month period; (k) a building site or construction, installation or assembly project D E F G H 170 SUPREME COURT REPORTS [2017] I 0 S.C.R. A or supervisory activities in connection therewith, where such site, project or activities (together with other such sites, projects or activities, if any) continue for a period of more than 120 days in any twelve-month period: (I) the furnishing of services, other than included services as B defined in Article 12 (Royalties and Fees for Included Services), within a Contracting State by an enterprise through employees or other personnel, but only if: (i) activities of that nature continue within that State for a period or periods aggregating more than 90 days within any twelveC month period; or (ii) the services are performed within that State for a related enterprise [within the meaning of paragraph 1 of Article 9 (Associated Enterprises)]. 3. Notwithstanding the preceding provisions of this Article, the D term "permanent establishment" shall be deemed not to include E F any one or more of the following: (a) the use of facilities solely for the purpose of storage, display, or occasional delivery of goods or merchandise belonging to the enterprise; (b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display, or occasional