Permanent establishment requirement under the DTAA limits Indian taxability of a non-resident US enterprise's receipts.

Section 44BB deems 10% of qualifying receipts to be taxable profits, but a taxpayer seeking assessment on lower actual profit must maintain books of account and satisfy the audit requirements under sections 44AA(2) and 44AB. On the treaty issue, Article 7 of the DTAA was applied on the basis that a US enterprise is taxable in India only if it has a permanent establishment in India. The receipts were held not taxable in the absence of a permanent establishment, and the Revenue's appeals failed.

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Issues: Whether the receipts of a non-resident US enterprise were taxable under section 44BB of the Income-tax Act, 1961 in the absence of books of account and audit report and whether, under Article 7 of the DTAA, taxability could arise without a permanent establishment in India.

Analysis: Section 44BB creates a statutory deeming fiction under which 10% of the remuneration received by an assessee of the prescribed nature is treated as profits chargeable under the head profits and gains of business or profession. If the assessee contends that its actual profit was lower, it must maintain books of account and comply with the audit requirement under sections 44AA(2) and 44AB. On the treaty aspect, Article 7 of the DTAA was treated as requiring a permanent establishment in India for a US enterprise to be taxable in India. The Court also followed its earlier decision on the same assessee, where relief had been granted because there was no finding of a permanent establishment in India.

Conclusion: The receipts were not liable to be taxed in the absence of a permanent establishment in India under Article 7 of the DTAA, and the appeals were rejected against the Revenue.

Ratio Decidendi: A non-resident US enterprise cannot be taxed in India under Article 7 of the DTAA unless it has a permanent establishment in India, even where section 44BB is otherwise attracted.

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