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2018 (8) TMI 852 - AT - Income TaxDependent Agent Permanent Establishment in India - Article 5 of the India-USA Double Tax Avoidance Agreement ('DTAA') - AO levied tax on the total income of DPIFI (after allowing a deduction of 5% of income for expenses) at the rate of 40% {plus applicable surcharge and cess) visa- vis a rate of 15% on gross basis as per Article 12 of the India-USA DTAA pertaining to Royalty and Fees for Included Services. Held that:- DRP has noted that, Jubilant is neither selling nor storing any goods for or on behalf of the assessee. The master franchisee (Jubilant) has power to appoint its sub-franchisees but the assessee is entitled to only royalty and store opening fees from sub-franchisees also. Approval of the sub-franchisee agreement is only for the limited purpose of protecting assessee's brand image and business interests. Considering the fact that the master franchisee is an independent business enterprise and restrictions placed on it by the assessee are only to safeguard its brand value and ensure proper receipt of royalty income, we are of the opinion that jubilant does not constitute a permanent establishment or agency PE of the assessee. However, the Dispute Resolution Panel noted that since the department had not accepted the decision and filed an appeal before the ITAT, to keep the issue alive and protect the interest of the department, it upheld the Assessing Officer’s action. Since the identical issue has been decided in favour of the assessee by the tribunal in assessee’s own case, respectfully following the same, we set aside the orders of the authorities below and decide the issue in favour of the assessee.
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