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Mr. Chopra, learned Counsel representing the Commissioner, contends that MSAS obtained registration with the Software Technology Park of India for its business units at Mumbai and Bangalore and claimed exemption on the ground of exporting software under Section 10A of the Act. MSAS provides services--research support, quantitative modelling and account reconciliation to the applicant and its associated enterprises. MSAS performs essential and significant activities of the Morgan Stanley, which are crucial and critical for the business being carried on by the applicant as well as the other group companies, the development of computer software including customized electronic data or product or computer programme are also of critical relevance for the applicant and the group. It is on the basis of the material research support, data analysis, etc. that the applicant formulates its business strategy and ensures, inter alia, that profits in the share portfolio and fixed income portfolio of customers are increased MSAS would necessarily have business interface on an ongoing basis with vendors of information in the market and have regular contacts with various sources in India for getting the required data and information and other industry specifics for preparing its research reports, review, etc. and thus develop in India a network of contacts and sources relating to relevant industry, etc. Therefore, the functions performed by MSAS are essential core-functions for the enterprise and cannot be described preparatory and auxiliary in nature. By virtue of the agreement--Clause (A) to (F) under the caption "introduction"--MSAS would render service wholly and exclusively to the applicant and its group. The agreement also provides that MSAS is subject to detailed instructions and control with respect to conduct of the business which shows that MSAS is a dependent agent. There is unlimited access of the customers to the premises of MSAS and other business premises to the employees of bank division, auditors and security division. On giving notice and even without notice, the representative of the applicant/Morgan group may undertake investigation as directed by the customers. Clauses 9.2 and 9.3 show that there is unrestricted access to the premises of MSAS and this shows that MSAS is working for and on behalf of the applicant and is a mere projection of the applicant and the group. By virtue of Clause 12 if MSAS ceased to be a member of Morgan Stanley group, it would result in termination of agreement which would amount to extinction of business of MSAS. Confidentiality clause--Clause 19--disables the supplier from disclosing the information contained in the software products, etc. to any party except Morgan group but it would be open to that group to share the information with others. MSAS is also kept free from the business risk. Clause 16.3 and Clause 19 would also disclose that MSAS has no independent existence. In effect, MSAS is merely the projection of the applicant on the soil of India and, therefore, the PE under para 1 of Article 5 of the treaty. The service agreement between MSAS and the applicant and Morgan group, submits Mr. Chopra, clearly indicates that services are to be rendered by MSAS as economically and legally dependent agent to the Morgan Stanley customers exclusively, strictly following Morgan Stanley procedures, policies and practices. The applicant along with other Morgan Stanley entities would be in a position to exert a decisive influence on the business of the MSAS who would be working under direct control and supervision and subject to the instructions of Morgan Stanley group. The applicant and the other two Morgan Stanley entities provide customers material which include hardware, intellectual property rights, software or data licenses. There is, thus, no independent existence of business of MSAS except as dependent agent of the applicant. The applicant and the other Morgan Stanley entities would depute staff to MSAS which would work for more than 90 days in a year and thus exercise direct control and supervision over the activities of MSAS, which would constitute service PE in India under Article 5(2)(1) of the Treaty. Though Clause 21.5 says that the agreement does not make one party the agent of the other party, what is material is the substance of the agreement which clearly shows that MSAS is merely a dependent agent. Further, the contention that MSAS does not have any authority to conclude any contract on behalf of the applicant as such the requirement of para (4) of Article 5 is not fulfilled, ignores the commercial reality of the situation and all these facts show that MSAS is not an independent agent. Thus, MSAS is PE under Article 5(1), 5(2)(1) as well as Article 5(4) of the Treaty.

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3. xxxxx

4. xxxxx To enable MSAS to provide these services, it is agreed between the parties that the applicant will send staff to MSAS (India) for stewardship activities and other similar activities and also on deputation in the employment of MSAS. The Morgan group agreed to pay to MSAS the actual sum of all costs together with an appropriate mark up mutually agreed between them.

We have carefully gone through the business activities of the applicant, the agreement and the support services provided by MSAS outlined above and considered the submissions of Mr. Desai and Mr. Chopra. We are of the view that it is not for this Authority to pronounce upon the validity of the agreement of service. We proceed on the footing that it is a valid agreement in law. MSAS develops computer software including customized electronic data or product or computer programs which are of critical relevance for the various divisions of the applicant like equity research, fixed income division, equity financing service division and investment banking division, etc. It would be providing research report, data analysis and industry specific analysis, company specific analysis earning models of companies as an on-going process so as to help various divisions of the applicant to formulate their business strategies and ensure inter alia that profits in the share portfolio per cent and fixed income portfolio of the customers are enhanced and further that diverse business operations in the various divisions of the applicant embracing the entire gamut of financial services are carried out with optimum results. MSAS uses the logo and brand name of Morgan Stanley. The agreement stipulates that MSAS would be provided with customer material including hardware, intellectual property rights, software or data licenses and procurement and connectivity, etc. and that products developed by MSAS, described as 'deliverables' would be the exclusive property of the Morgan Stanley group. Clause 12, inter alia, postulates that if MSAS ceases to be member of Morgan group, it would result in termination of the agreement; Clause 14 of the agreement lays down that MSAS will assign all rights, titles and interests including intellectual property rights and ownership rights in the deliverables to the Morgan Stanley group. MSAS will be using brand name, trade name as well as computer hardware of the Morgan Stanley and whatever is produced or developed by it, is passed on to Morgan Stanley group and it would have no right or interest in the said products. The staff deputed to the MSAS would be on the payroll of the applicant and the remuneration paid by it will be reimbursed by the MSAS. Out of total remuneration of Rs. 4,94,02,704 paid to employees, reimbursement to associate company for deputed staff aggregates to Rs. 2,42,20,631; performance appraisal, promotion and discipline etc. would be carried out in consultation with the applicant.. Clause (4) of the agreement expressly stipulates that MSAS shall comply with all performance standards as specified by Morgan Group and that it shall comply with all reasonable directions or instructions of the group. Operation manual would be prepared and updated in conformity with the policy, procedures and practices of the Morgan group. Clause 7 enjoins upon MSAS to submit reports or other information concerning the services that the group may require. It further enjoins MSAS to attend all meetings convened for reviewing the services at the appointed time, place and agenda fixed by the group. By virtue of Clause 8, MSAS is required to maintain complete record which would be subject to audit and investigation by the applicant. The persons authorized by the Morgan Group are provided unrestricted access to the business premises of the MSAS for audit and investigation. While Clause 19 of the agreement disables MSAS from disclosing the information contained in the software products to any party except the Morgan group which has the liberty to share the information with any member of the Morgan group. All this would show that the applicant would be in a position to exercise close control and supervision on the working of MSAS. Further these features in the agreement vividly bring out that the business of MSAS is inextricably linked with the business of the applicant and other two entities of the Morgan Stanley group so as to make activities of MSAS projection of Morgan Group.