Director of Income Tax v. Morgan Stanley & Co. Inc.

Holding

A captive Indian back-office service provider does not constitute a PE of its US parent under the US-India tax treaty where transactions are at arm's length and the captive performs only back-office support functions.

Facts

Morgan Stanley's captive Indian subsidiary performed equity research and other back-office services for the US parent.

Reasoning

The Supreme Court considered the dependent-agent PE and service-PE arguments and held no PE was constituted on the facts. The case is leading authority on Indian PE analysis for back-office and captive-services arrangements.