Reassessment without fresh material and treaty PE tests failed, so reopening and profit attribution could not stand.

Reassessment beyond four years requires failure by the assessee to make full and true disclosure of material facts, and it cannot rest on the same material already examined in the original assessment. Where no fresh tangible material exists, reopening is invalid. On PE attribution, a business connection in India is not enough under the treaty: fixed place, liaison office, software and dependent agent tests must independently satisfy Article 5. Here the agents used their own premises, the liaison office performed only preparatory or auxiliary functions, and the agents were independent and lacked authority to conclude contracts. No permanent establishment existed in India, and no profits were attributable to Indian operations.

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Issues: (i) Whether reassessment proceedings could be sustained where the reopening was based on the same material as the original completed assessment and no fresh material was shown; (ii) Whether the assessee had a permanent establishment in India, including a fixed place PE, liaison office PE, software PE or dependent agent PE, and whether any profits were attributable to Indian operations.

Issue (i): Whether reassessment proceedings could be sustained where the reopening was based on the same material as the original completed assessment and no fresh material was shown.

Analysis: The reassessment was initiated beyond four years from the end of the relevant assessment year after an assessment under section 143(3) had already been made. In that situation, the first proviso to section 147 required failure by the assessee to disclose fully and truly all material facts necessary for assessment. The recorded reasons and the appellate findings showed that the reopening rested on the same material that had already been considered in the earlier assessment, and no new tangible material was brought on record. The assessee had disclosed the relevant facts in the return and notes, and the absence of any fresh material meant the reopening was an attempt to revive an assessment that had already been invalidated.

Conclusion: The reassessment proceedings were not valid in law and were quashed in favour of the assessee.

Issue (ii): Whether the assessee had a permanent establishment in India, including a fixed place PE, liaison office PE, software PE or dependent agent PE, and whether any profits were attributable to Indian operations.

Analysis: On the identical facts already examined in the assessee's own case for earlier years, the Tribunal found that the business connection under section 9(1) existed, but the treaty test under Article 5 of the Indo-US DTAA was not satisfied. The agents operated from their own premises, there was no fixed place of business of the assessee in India, the liaison office carried only preparatory or auxiliary activities, and the software use by agents did not amount to a PE. The agents were found to be independent agents, and they did not habitually exercise authority to conclude contracts on behalf of the assessee. In the absence of a permanent establishment, Article 7 could not be invoked to attribute business profits to India.

Conclusion: The assessee did not have a permanent establishment in India, and no profits were attributable to Indian operations, in favour of the assessee.

Final Conclusion: The reassessment failed on jurisdictional grounds, and on merits the Revenue's PE and profit attribution grounds also failed, so both appeals were dismissed.

Ratio Decidendi: Reassessment beyond four years cannot be sustained without fresh material and without failure of full and true disclosure, and a non-resident's business connection in India does not by itself create a treaty permanent establishment unless the Article 5 conditions are independently satisfied.

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