In order to determine the taxability of business income of foreign enterprises operating in India, it is important to determine the existence of a Permanent Establishment (‘PE’). Article 5(1) of the DTAA provides that for the purpose of this convention the term ‘Permanent Establishment’ means a fixed place of business through which the business of an enterprise is wholly or partly carried on.
According to Article 5(2), the term PE includes
- Permanent establishment means a fixed place of business through which the business of an enterprises is wholly or partly carried on.
- Every DTAA has a specific clause, which will deal with an explanation of permanent establishment for the purpose of such DTAA.
- Business Income of a non-resident will not be taxed in India, unless such non-resident has a permanent establishment in India.
- Taxability of income under business connection and permanent establishment is explained here below: