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3. For the purpose of carrying out its business in India, the assessee has entered into agreements appointing agents in India. There are four types of agents-the Department of Posts, commercial banks, non-banking financial companies and tour operators. Generally the appointment of the agents is for a period of 5 years in the beginning and can be extended any number of times for periods of one year at a time. The agents are remunerated at 30 per cent in the case of the Department of Posts and 25 per cent in the case of others, of the money handed over by the agent in India. The percentage may be reduced if the assessee assumes responsibility for advertising and promotion of the services in India or establishes a customer service centre to handle telephonic queries. One other feature of the agreement is that the money is to be first paid out by the agent in India and thereafter he will be reimbursed the same together with the commission due to him. The commission is called the "base compensation" in the agreement. The agreements, specimen copies of which have been filed in the paper book, are elaborate and provide for various contingencies. One more noticeable feature of the agreement is that the agent has been given the power to appoint sub-agents/representatives. However, it is the responsibility of the agents to pay the sub-agents. The assessee can ask the agent to terminate the services of a sub-agent if it is found that the sub-agent is acting in a manner prejudicial to the interests of the assessee. There are the usual clauses providing for security and confidentiality and reserving the intellectual property rights of both the parties in the trade names, trademarks, copyrights, etc. belonging to them. There is a clause which enjoins the agent to maintain records of all the transactions of money transfer routed through him.

(d) As regards the finding of the Departmental authorities that the agents were "dependent agents" within the meaning of Article 7.4 of the treaty, it was pointed out that the terms of the agreement did not provide for any authority to the agents to conclude contracts on behalf of the assessee and that even as a matter of fact there was not a single instance in which an agent or representative concluded any contract for the assessee. The assessee no doubt authorized the agents to appoint sub-agents but that was only for the purpose of enabling the agent to carry on his part of the transaction and that the assessee had no say or control in the matter of appointing the sub-agents. It was not the obligation of the assessee to remunerate the sub-agent, if one were to be appointed by the agent. Even the termination of the services of the sub-agent was not a matter within the control of the assessee. Thus the agents were not dependent on the assessee in the matter of appointment, termination or remunerating the sub-agents.

(g) There is no evidence to show that the agents had as a matter of fact the authority to conclude contracts on behalf of the assessee, nor is there any evidence to show that the agent was habitually exercising such authority as required in Article 5.4 of the treaty. Therefore, they are not dependent agents. It was argued that the mere grant of power to appoint sub-agents does not amount to grant of authority to conclude contracts nor does it amount to habitual exercise of the authority to conclude contracts. Further, the authority to conclude contracts refers to the contracts entered into by the assessee in relation to its business, which is absent in the present case. The appointment of sub-agents is not on behalf of the foreign enterprise. The sub-agents are not accountable to the foreign enterprise; they are not remunerated by the foreign enterprise. The approval granted by the RBI clarified in para 4 that the sub-agents are not to deal with the assessee directly.

39. In line with the above, we have to examine the facts of the case to find out first whether the agents have the authority to conclude contracts (on behalf of the assessee). There is no express authority given to them in the agreement and our attention was not drawn to any clause therein to that effect. All that the IT authorities have stated is that (a) that the agents carry out in India the commitment given by the assessee to the remitter of the money abroad and (b) that the agents have the power to appoint sub-agents to do their work. From these facts, taken singly or together, it cannot be inferred that the agents either have the authority to conclude the contracts or have habitually exercised the authority without any protest from the assessee. In para 33 of the commentary referred to in the preceding paragraph, under the heading "Authority to conclude contracts", it has been stated: "the authority to conclude contracts must cover contracts relating to operations which constitute the business proper of the enterprise. It would be irrelevant, for instance, if the person had authority to engage employees for the enterprise to assist that person's activity...." This paragraph has been quoted approvingly by the AAR in TVM Ltd. v. CIT (supra) (p. 244 of the report). Thus the fact that the agents (in the present case) have the authority to appoint sub-agents does not mean that they (agents) have the authority to conclude contracts. The terras of appointment of sub-agents given at p. 22 of the paper book as attachment to the contract of agency with Kamataka Bank Ltd. lists the duties and responsibilities of the sub-agents regarding money transfer service requirements, advertising and promotion, exclusivity, locations and hours of operations, payment for the service, delivery standards, maintenance of records, security and confidentiality, accounting, use of software, indemnity, conditions of termination, etc. Nowhere in the sub-agency agreement has any authority to conclude contracts has been given to them. In fact, when the agents themselves have no such authority under their agreement, they cannot delegate the same to their sub-agents (delegatus non potest delegaie).