Permanent establishment and profit attribution in India upheld where dependent-agent functions and order securing showed core business presence.

A dependent-agent or fixed-place presence in India that habitually secures orders and performs core business functions was treated as sufficient to establish both business connection under Section 9(1)(i) and a permanent establishment under Article 5 of the India-UK DTAA. On attribution, the Tribunal's approach of excluding manufacturing and research and development elements while limiting taxable profits to 35% of global profits was upheld, and no further set-off for research and development expenses was permitted because that element had already been reflected in the apportionment. The reassessment challenge and the coordinate-bench point were not pressed.

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Issues: (i) Whether the reassessment proceedings under Section 147/148 of the Income-tax Act, 1961 were valid and whether the additional question on a coordinate bench taking a contrary view survived. (ii) Whether Rolls Royce India Limited constituted a permanent establishment of the assessee in India and, if so, whether the profits attributable to the Indian operations were to be computed by allowing a further set-off of research and development expenses.

Issue (i): Whether the reassessment proceedings under Section 147/148 of the Income-tax Act, 1961 were valid and whether the additional question on a coordinate bench taking a contrary view survived.

Analysis: The reopening challenge was not pressed at the hearing. The additional question framed on the coordinate-bench issue was also not argued. No substantive adjudication was required on either point.

Conclusion: The challenge to reassessment and the additional question were decided against the assessee as not pressed.

Issue (ii): Whether Rolls Royce India Limited constituted a permanent establishment of the assessee in India and, if so, whether the profits attributable to the Indian operations were to be computed by allowing a further set-off of research and development expenses.

Analysis: On the material on record, the fixed presence and activities of Rolls Royce India Limited were held to establish both business connection under Section 9(1)(i) of the Income-tax Act, 1961 and a permanent establishment under Article 5 of the India-UK DTAA. The dependent-agent features and the habitual securing of orders in India supported the conclusion that the Indian operations were not merely auxiliary. On attribution, the Tribunal had already excluded manufacturing and research and development elements while restricting the taxable attribution to 35% of global profits. A further deduction of research and development expenses was therefore unwarranted, since that element had already been accounted for in the apportionment.

Conclusion: The permanent establishment finding was upheld, and the computation of attributable profits without a further set-off for research and development expenses was upheld against the assessee.

Final Conclusion: The assessee's appeals failed, and the Revenue's appeals on enhancement of attribution also failed, leaving the attribution determined by the Tribunal undisturbed.

Ratio Decidendi: Where the facts show a dependent-agent or fixed-place presence in India that habitually secures orders and carries on core business functions, a permanent establishment and taxable business connection are established; once profit attribution has already excluded the relevant non-Indian functions, the same expense element cannot be deducted again in computing the Indian attributable profits.

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