Permanent establishment under DTAA: income of the Malaysian branch taxed only in Malaysia, while reopening challenge failed.

A Malaysian branch registered and operating as an independent establishment was treated as a permanent establishment under the India-Malaysia DTAA, so income attributable to assets and activities outside India was held taxable only in Malaysia and not in India. The challenge to reopening under section 148 was also rejected because no substantive objection was pressed and the reassessment finding was found detailed and justified. The assessments were therefore left undisturbed on the reopening issue.

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Issues: (i) Whether the Malaysian branch of the assessee-company constituted a permanent establishment in Malaysia, and whether the income attributable to that branch was taxable in India. (ii) Whether the reopening of assessment under section 148 was liable to be interfered with.

Issue (i): Whether the Malaysian branch of the assessee-company constituted a permanent establishment in Malaysia, and whether the income attributable to that branch was taxable in India.

Analysis: The Tribunal followed its earlier decision in the assessee's own case and held that the Malaysian branch was registered and operating in Malaysia as an independent establishment, managing foreign investments and properties there. The income in question arose from assets situated outside India and was governed by the India-Malaysia DTAA. On that basis, the branch was treated as a permanent establishment in Malaysia and the income attributable to it was regarded as taxable only in Malaysia.

Conclusion: The issue was decided in favour of the assessee. The income of the Malaysian branch was held not taxable in India under the DTAA.

Issue (ii): Whether the reopening of assessment under section 148 was liable to be interfered with.

Analysis: The assessee did not press any substantive argument against the reopening, and the appellate finding on reopening was found to be detailed and justified. No infirmity was found in the reassessment action on the material before the Tribunal.

Conclusion: The issue was decided against the assessee. The reopening of assessment was upheld.

Final Conclusion: The Revenue's appeals failed because the Malaysian branch was held to be a permanent establishment and its income was protected by the DTAA, while the assessee's challenge to reopening also failed, leaving the assessments undisturbed only on the reopening point.

Ratio Decidendi: Where a foreign branch constitutes a permanent establishment under the applicable DTAA, income attributable to that branch is taxable in the source state and not in India.

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