Attribution of profits to Indian operations may be exhausted by the Indian agent's commission, leaving no further taxable income.

Income attributable to Indian operations must be computed on a profits basis, limited to the portion of business activity reasonably connected with India. Where only a minor part of a non-resident's CRS activity was performed in India, the attributable profits were assessed by reference to functions performed, assets used and risks undertaken. The Tribunal's attribution of 15 per cent of booking revenue, yielding an amount lower than the Indian agent's allowable commission, meant that the attributed profits were fully absorbed by that commission. On that basis, no further income remained taxable in India beyond the amount already allowed as an expense.

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Issues: Whether the income attributable to Indian operations had to be computed on a profits basis and whether, after allowing the Indian agent's commission, any further income remained taxable in India.

Analysis: The Court accepted the Tribunal's approach that the first exercise was to identify the income attributable to operations in India and then determine the profits chargeable in India. The Tribunal had found that only a minor part of the overall CRS activity was carried out in India, that 15 per cent of the booking revenue could reasonably be attributed to India on the basis of functions performed, assets used and risks undertaken, and that this attributed amount was only Euro 0.45 per booking. The Tribunal had further found that the commission paid to the Indian agent was Euro 1 per booking and had already been allowed as an expense. On that basis, and applying the CBDT circular and the principle that the assessment is limited to profits attributable to Indian activities, no further taxable income survived in India.

Conclusion: The attribution was to profits and not merely revenue, and since the attributable amount was fully absorbed by the commission paid to the Indian agent, no income remained taxable in India.

Ratio Decidendi: Where only part of a non-resident's business operations are carried out in India, taxable income is confined to the profits reasonably attributable to those Indian operations, and if the attributable profits are fully extinguished by the allowable agent's commission, no further income can be brought to tax in India.

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