{"question":"Does consignment stock in an Indian warehouse create a PE for a foreign enterprise?","url":"https://lrlabs.ai/q/consignment-stock-warehouse-india-pe","law_as_at":"14 Aug 2026","facts_as_stated":{"agentType":"dependent","concludesContracts":"none","maintainsStock":"yes","deliversFromStock":"yes"},"meta":{"engine":"deterministic","llm_in_path":false,"corridor":"India–USA","latency_ms":0.98,"determinate_screen":true},"answer":{"chips":[{"label":"Agency PE (Dependent Agent) — medium","level":"medium"}],"plain_line":"The position is open. It turns on whether in-State activities contributed to the sale of the goods. If established, the Agency PE (Dependent Agent) exposure rises to high.","paragraph":"The stock limb is open, not established (Article 5(4)(b)): stock and regular delivery are present, but the limb turns on its third conjunct — whether additional in-State activities contributed to the sale. Storage-and-delivery alone does not engage it.","changers":["establishing sale-contributing in-State activities (¶4(b) third conjunct) → Agency PE (Dependent Agent) rises medium → high","the agent's status independent → Agency PE (Dependent Agent) drops medium → low","the agent's contract role concluding contracts → Agency PE (Dependent Agent) rises medium → high","remuneration accepted at arm's length → nothing further attributable (Morgan Stanley, SC 2007) — liability ≈ nil even if a PE exists"],"deciding_facts":[{"fact":"contributes_to_sale","ui_key":"salesContributingActivities","question":"whether in-State activities contributed to the sale of the goods","from_risk":"medium","to_risk":"high"},{"fact":"alp_remuneration","ui_key":"armsLengthRemuneration","question":"is the Indian entity's remuneration accepted as arm's length","from_risk":"open","to_risk":"nil"}],"determinacy":{"mechanical":1,"open":5,"resolved_by_composition":0,"index":0.17},"assembled":"deterministic"},"findings":[{"pe_type":"agency","pe_label":"Agency PE (Dependent Agent)","risk":"medium","unsettled":false,"conclusion":"DAPE_STOCK_OPEN","pinpoint":"Article 5(4)(b)","rationale":"[Article 5(4)(b), India–USA DTAA (1990)] Stock and regular delivery are present; the limb turns on the third conjunct — whether additional in-State activities contributed to the sale. Storage-and-delivery alone does not engage ¶4(b). Judgment residue (for the case-law analysis): the sale-contribution conjunct: order-chasing, customer support, marketing from the stock location.","missing_facts":["dealings_at_arms_length","accepts_orders","holds_out_binding","fostered_belief","contributes_to_sale"],"authorities":[{"citation":"ADIT v. E-Funds IT Solution Inc, (2018) 13 SCC 294 (SC, 24.10.2017)","pinpoint":"para 21","element":"authority_conclude","proposition":"with no case that the Indian entity was authorised to or exercised authority to conclude contracts, and no factual foundation for any Article 5(4) clause, the agency limb fails at the threshold","disposition":"taxpayer"},{"citation":"DIT v. Morgan Stanley & Co Inc, (2007) 292 ITR 416 (SC)","pinpoint":null,"element":"authority_conclude","proposition":"a captive performing support functions without authority to conclude contracts is not a dependent-agent PE","disposition":"taxpayer"},{"citation":"Progress Rail Locomotive Inc v. Dy CIT (IT), (2024) 466 ITR 76 (Delhi HC, 28.05.2024)","pinpoint":"para 111","element":"authority_conclude","proposition":"the DAPE authority limb requires authority to conclude contracts to be conferred AND habitually exercised; with no conferral shown, habituality never arises","disposition":"taxpayer"},{"citation":"Progress Rail Locomotive Inc v. Dy CIT (IT), (2024) 466 ITR 76 (Delhi HC, 28.05.2024)","pinpoint":"para 112","element":"wholly_almost_wholly","proposition":"limb (c) requires the Indian entity to be engaged or created solely — or concerned primarily — with securing orders for the enterprise, and habitually so; a finding to that effect is a precondition","disposition":"taxpayer"}]}],"proof":{"reading":{"id":"IN-US.LIABILITY.PROOF","instrument":"Income-tax Act 1961 · India–USA DTAA (1990)","pinpoint":"s.9(1)(i) read with s.90(2); Articles 5 and 7(1)","regime":"treaty"},"conclusion":{"label":"liability to Indian tax on the US enterprise's business profits (beyond the arm's-length fee)","kind":"PLAIN","status":"CT","line":"liability to Indian tax on the US enterprise's business profits (beyond the arm's-length fee) — CONTESTED — the advanced readings divide on the epistemic view. Burden view: FALSE — proven — every unestablished critical element resolves against the party burdened with it.","grades":{"grade":"arguable","rank":2,"line":"The position is arguable but not free from doubt.","basis":"computed from the proof tree","us_grade":"sub_auth","us_line":"substantial authority at best — arguable, not free from doubt"}},"given":{"assumptions":[{"label":"the enterprise is a US tax resident entitled to the treaty (Article 4)","note":"US residency assumed as stated — verify certificate of incorporation / place of management (Article 4)"},{"label":"a valid Tax Residency Certificate is furnished (s.90(4)) — necessary, no longer sufficient","note":"TRC assumed — s.90(4) makes it the gateway to treaty benefit; obtain Form 10F + TRC for the year. AFTER Tiger Global (2026 INSC 60, para 27): 'a TRC alone is not sufficient to avail the benefits under the DTAA' — the facts may be independently analysed (control and management, liable-to-tax, substance); a TRC is the floor of treaty access, not its ceiling"},{"label":"no Chapter X-A (GAAR) declaration displaces the treaty election (s.90(2A))","note":"Assumed not invoked for this opinion — s.90(2A) makes Chapter X-A apply notwithstanding the beneficial election, so the treaty analysis holds only while no impermissible-avoidance-arrangement declaration is in play. Displaced to VERIFIED by a computed Rule 10U exclusion: aggregate tax benefit ≤ ₹3 crore (Rule 10U(1)(a), s.102(10) — net, all parties, per AY: Circular 7/2017) or income from transfer of investments made before 01.04.2017 (Rule 10U(1)(d), restored by Notif 54/2026 of 31.03.2026 after Tiger Global (2026 INSC 60, para 46) read Rule 10U(2) to dilute the vintage cut-off). A stated s.144BA invocation does NOT resolve this element against liability — it displaces the note's scope; see the defeater gate"}],"facts_as_stated":[{"label":"income arises through a business connection in India — the domestic charge","fact":"bc_agent_route","value":true},{"label":"a person is acting on behalf of the enterprise","fact":"acts_on_behalf","value":true},{"label":"authority to conclude contracts binding the enterprise","fact":"authority_to_conclude","value":false},{"label":"authority to conclude contracts binding the enterprise","fact":"authority_to_conclude","value":false},{"label":"habitually maintains a stock of goods — limb (b)","fact":"maintains_stock","value":true},{"label":"regularly delivers from that stock","fact":"delivers_from_stock","value":true},{"label":"secures orders in the first-mentioned State","fact":"secures_orders","value":false},{"label":"agent of independent status (broker / general commission agent / other)","fact":"agent_independent","value":false}],"interpretive":["Article 24 (Limitation on Benefits) is satisfied — not separately examined in this note. Circular 7/2017: avoidance sufficiently addressed by LOB leaves no occasion to invoke GAAR; but Tiger Global (SC 2026) independently analysed Chapter X-A notwithstanding treaty anti-abuse machinery — the assumption is displaceable, not absolute","the 1989 Exchange of Notes operates as agreed interpretation of Article 5(4)(c) — published in India's official compilation; untested in reported litigation","assessment year within the Income-tax Act 1961 regime (FY 2025-26); the 1961→2025 Act transition is outside this note's scope (Chapter X-A maps to ss.178-184 of the 2025 Act; Rule 10U to Rule 128 of the 2026 Rules)"]},"critical_path":["activities_contributed","alp_remuneration"],"burden_view":{"status":"F2","resolved_by_burden":[{"id":"activities_contributed","burden":"revenue"},{"id":"alp_remuneration","burden":"taxpayer"}]},"defeaters":[{"id":"gaar","label":"Indian GAAR (Chapter X-A, ss.95-102 ITA 1961; ss.178-184 ITA 2025)","authority":"AAR (Income Tax) v Tiger Global International II Holdings, 2026 INSC 60 (SC, 15 Jan 2026)","note":"an impermissible-avoidance-arrangement declaration recharacterises what the treaty form permits — s.90(2A) makes Chapter X-A prevail over the beneficial election; procedure: s.144BA reference to the Pr.CIT and the Approving Panel","computed":false,"gate":{"status":"reserved","excluded_by":null,"conditions":[{"id":"not_in_force","label":"Chapter X-A applies to assessment years beginning on or after 1 April 2018 (s.95(2)) — this assessment year precedes commencement","status":"unknown","detail":"fact 'gaar_pre_commencement' not supplied"},{"id":"threshold","label":"aggregate tax benefit ≤ ₹3 crore — Chapter X-A cannot apply (Rule 10U(1)(a); s.102(10); net basis across all parties, per arrangement per AY — Circular 7/2017)","status":"unknown","detail":"fact 'tax_benefit_cr' not supplied"},{"id":"grandfathered","label":"income from transfer of investments made before 01.04.2017 (Rule 10U(1)(d), as amended by Notif 54/2026 w.e.f. 31.03.2026)","status":"unknown","detail":"fact 'investment_pre_2017' not supplied","caveat":"for benefit years before the 31.03.2026 amendment, Tiger Global (para 46) read Rule 10U(2) to dilute the vintage cut-off where the arrangement's tax benefit arises on or after 01.04.2017; the amendment's reach into earlier years is unresolved"}],"invocation":{"label":"the Revenue invokes Chapter X-A (s.144BA reference)","status":"unknown"},"substantive":{"label":"impermissible avoidance arrangement (s.96(1))","note":"main purpose of obtaining a tax benefit — presumed from a step's main purpose, onus on the taxpayer (s.96(2); Tiger Global para 49) — plus any tainted element: (a) rights or obligations not ordinarily created between persons dealing at arm's length; (b) misuse or abuse of the Act; (c) lack of commercial substance (s.97); (d) means or manner not ordinarily employed for bona fide purposes. Judgmental — never computed by this engine"}}}],"detail_hint":"call with detail='full' for the complete condition tree and written derivation"},"formal":{"formula":"Liab ⟺ Conn ∧ Tr ∧ PE ∧ ¬ALP","residual":"Liab ⟺ Ctb ∧ ¬ALP","closed":false,"open_predicates":[{"sym":"Ctb","id":"activities_contributed","status":"CT","critical":true,"ui_key":"salesContributingActivities"},{"sym":"ALP","id":"alp_remuneration","status":"UK","critical":true,"ui_key":"armsLengthRemuneration"}],"counts":{"conditions":23,"established":6,"assumed":3,"open":2,"immaterial":10,"not_made_out":3,"determined":21}},"exposure_map":[],"overall_risk":"medium"}