While in principle it is correct that if a fair price is paid by the assessee to the agent for the activities of the assessee in India through the DAPE and the said price is taxed in India at the hands of the agent, then no question of taxing the assessee again would arise, this is subject to a Transfer Pricing Analysis being undertaken u/s 92. The facts showed that the manner in which the commission/ remuneration had been fixed was usually not done between independent parties in an uncontrolled transaction. The assessee was in a position to dictate terms to the agent and so it could not be said that the commission was at “arms length” within the meaning of Article 7 (2) of the DTAA. The Transfer Pricing analysis to determine the “arms length” price has to be done by taking the “Functions, Assets used and Risk involved” (FAR). As this has not been done, the assessee’s argument on “arms length” price is not acceptable (Morgan Stanley 292 ITR 416 (SC) & Set Satellite (Singapore) 307 ITR 205 (Bom) distinguished)

In Universal Plast Ltd 237 ITR 454 (SC) tests were laid down as to when income from property is assessable as “business profits” and as “income from house property”. Applying these tests, the rental income has to be assessed as “business profits” because (i) all assets of the business were not rented out by the assessee and it continued the main business of dealing in scientific apparatus etc, (ii) the property was being used for the Regional Office and was let out by way of exploitation of business assets for making profit, (iii) the assessee had not sold away the properties or abandoned its business activities. The transaction was a “commercial venture” taken in order to exploit business assets and for receiving higher income from commercial assets

The mere fact that a person is an agent or is to be treated as an agent u/s 163 and is assessable as “representative assessee” does not automatically mean that he is liable to pay taxes on behalf of the non-resident. U/s 161, a representative assessee is liable only “as regards the income in respect of which he is a representative assessee“. This means that there must be some connection or concern between the representative assessee and the income. On facts, even assuming that Genpact India was the “agent” and so “representative assessee” of General Electric, there was no connection between Genpact India and the capital gains alleged to have arisen to General Electric (from the sale of shares of Genpact India). Consequently, the s. 163 proceedings seeking to assess Genpact India for the capital gains of General Electric were without jurisdiction