"The concept of Permanent Establishment is one of the most important concepts in determining the tax implications of cross border transactions". Explain the significance thereof, when such transactions are governed by Do

Implication of Permanent Establishment 'PE' under DTAA Double Taxation Avoidance Agreement 'DTAA' generally contain an article providing that business income is taxable in the country of residence unless the enterprise has a permanent establishment in the country of source, and such income can be attributed to the permanent establishment. As per section 92F(iiia) of the Income-tax Act, 1961, the term 'Permanent Establishment' includes a fixed place of business through which the business of the enterprise is wholly or partly carried on. Accordingly, to constitute a permanent establishment, there must be a place of business which is fixed and the business of the enterprise must be carried out wholly or partly through this place. Section 9(1)(i) of the Income Tax Act, 1961 requires existence of business connection for deeming business income to accrue or arise in India. DTAAs however provide that business income is taxable only if there is a permanent establishment. Cases covered by DTAAs, where there is no permanent establishment in India, business income cannot be brought to tax due to existence of business connection as per section 9(1)(i). However, in the cases not covered by DTAAs, business income attributable to business connection is taxable. As per section 9 of the Income Tax Act, 1961, there is a "business connection", certain business income will be deemed to accrue or arise in India, and hence become taxable. However, where there is a DTAA, in the absence of PE in India, even such business income may not get taxed.