1          Introduction

Many overseas multinational corporations conduct business in India through a permanent establishment – for instance, through a branch office or a project office. They also conduct ‘transactions’ inter se the permanent establishment, the head office, and/ or other permanent establishments (within the same legal entity) in two or more jurisdictions. [As such, as discussed hereafter, there cannot be a valid “transaction” within the same legal entity, for instance between head office and a permanent establishment.]

The above-mentioned ‘transactions’ cannot give rise to implications under the Indian Income Tax Act, 1961. In this article, we would examine key judicial developments that have settled the position.

Examination of tax implications under the relevant domestic tax law should be the starting point in any analysis of tax implications of a commercial arrangement or a transaction. Examination of an applicable tax treaty becomes necessary only if tax liability exists under the domestic tax law. Therefore, in this first part of the mini-series, the discussion is restricted to only the domestic tax law. We would look at the implications under tax treaties, particularly Art. 7(2), in the next part.