Permanent establishment attribution through a liaison office led to reduced profit allocation and partial relief.

A liaison office in India was treated as creating a permanent establishment because the factual record showed the office supported marketing, negotiation and sales functions for the assessee, with no material change from the assessee's earlier case and no basis to treat the office as outside its disposal. On attribution, the Tribunal held that a blanket 75% profit attribution was not sound where the same activity base had been used in relation to another group entity, and it retained the earlier approach of attributing a reduced 35% share instead, with corresponding computation corrections for tax rate and surcharge, resulting in partial relief.

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Issues: Whether the assessee had a permanent establishment in India through the liaison office and, if so, whether the profits attributed to such permanent establishment required reduction.

Analysis: The assessee contended that its Indian liaison office belonged to a different group entity, that the activities of the various group companies were distinct, and that the office was not at its disposal. The record, however, showed that the same factual matrix and survey material had earlier been used to hold that the liaison office constituted a fixed place of business and a dependent agent permanent establishment for the assessee. The Tribunal followed its earlier view in the assessee's own case, noting that there was no material change in facts or business model and that the office in India supported marketing, negotiation and sales functions connected with the assessee's business. On attribution, the Tribunal accepted that the authorities' blanket attribution was not on a sound footing where the same set of activities had also been relied upon in relation to the other group entity. It therefore retained the earlier judicial approach of attributing a reduced portion of profits rather than the higher percentage adopted by the Assessing Officer, with corresponding computation corrections for tax rates and surcharge.

Conclusion: The assessee was held to have a permanent establishment in India, but the profit attribution was restricted to 35% instead of 75%, with ancillary computation corrections, resulting in partial relief to the assessee.

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