Service permanent establishment and royalty attribution followed earlier-year precedent, with section 234B interest held not leviable.

Earlier-year precedent in the assessee's own case was followed on identical facts: services rendered in India through personnel were treated as giving rise to a service permanent establishment under the DTAA, and the PE was held to exist. The royalty and income-attribution questions were not finally decided on merits; they were remitted to the Assessing Officer for fresh computation in line with the prior year's directions and the applicable attribution mechanism. Interest under section 234B was held not leviable, while the remaining interest grounds under sections 234A, 234C and 234D were treated as consequential and did not survive independently.

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Issues: (i) Whether the assessee had a service permanent establishment in India under Article 5(2)(k) of the DTAA. (ii) Whether the royalty income was effectively connected with the alleged permanent establishment and whether the income attributable to Indian operations required fresh determination. (iii) Whether interest under section 234B of the Income-tax Act, 1961 was leviable and whether the remaining interest grounds survived.

Issue (i): Whether the assessee had a service permanent establishment in India under Article 5(2)(k) of the DTAA.

Analysis: The issue was treated as covered by the earlier year in the assessee's own case. Following that precedent, the service activities rendered by personnel coming within the contractual arrangement were held to satisfy the conditions for a service permanent establishment. The reasoning proceeded on the basis that the relevant services were furnished in India through personnel covered by the treaty provision and continued for the requisite period.

Conclusion: The service permanent establishment in India was held to exist, against the assessee.

Issue (ii): Whether the royalty income was effectively connected with the alleged permanent establishment and whether the income attributable to Indian operations required fresh determination.

Analysis: The royalty and attribution issues were also treated as identical to the preceding year. The earlier order had drawn a distinction between royalty for transfer of intellectual property rights and the services rendered by different categories of personnel, and had held that the assessment had to be made in accordance with the directions already given for the earlier year. Applying that approach, the matter was not finally determined on merits in this year but was sent back for computation in conformity with the prior directions, including the attribution mechanism under the applicable rules.

Conclusion: The royalty and attribution issues were remanded to the Assessing Officer for fresh determination, in part favour of the assessee.

Issue (iii): Whether interest under section 234B of the Income-tax Act, 1961 was leviable and whether the remaining interest grounds survived.

Analysis: The levy of interest under section 234B was covered by the earlier year and was accepted in favour of the assessee. The remaining grounds relating to interest under sections 234A, 234C and 234D were treated as consequential in nature.

Conclusion: Interest under section 234B was held not leviable against the assessee, and the remaining interest grounds did not survive independently.

Final Conclusion: The appeal succeeded only to a limited extent, with the permanent establishment issue decided against the assessee, the royalty and attribution issues remitted for reconsideration, and the interest issue partly decided in the assessee's favour.

Ratio Decidendi: Where the relevant controversy is already governed by the assessee's own earlier year decision, the later year must follow that precedent on identical facts, while matters requiring computation of taxable income may be remitted for fresh determination in accordance with the earlier directions.

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