Foreign company contests Indian tax liability on revenue from O.N.G.C. contract. Tribunal's decision reversed.

The appellant, a foreign company, contested the tax liability imposed by the Assessing Officer on 25% of revenue from a contract with O.N.G.C. for activities allegedly outside India. The Appellate Tribunal upheld the decision, focusing on taxing revenue under the contract within the Indian tax network. The lack of guidance in the Agreement for attributing income to specific tax identities led to the appeal. The Tribunal's arbitrary decision without evidence of revenue attribution to the Indian permanent establishment resulted in the appeal being allowed, setting aside the tax liability imposition.

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Issues involved: Assessment of tax liability on a foreign company for income received under a contract involving activities both inside and outside India, interpretation of tax identity and permanent establishment as per the Agreement for avoidance of double taxation.

Summary:
1. The appellant, a foreign company, filed its income tax return for the Assessment Year 2007-08 showing nil income due to claimed losses from a contract with O.N.G.C. Assessing Officer disallowed deductions and imposed tax on 25% of revenue allegedly for outside India activities. Appellate Tribunal upheld the decision, leading to the present appeal.

2. The appeal focused on taxing 25% of revenue under the contract for allegedly outside India activities within the Indian tax network, separate from the disallowed deductions issue.

3. The Agreement with the Republic of Korea does not specify the mechanism to apportion tax liability for entities with tax identities in multiple countries.

4. Article 7 of the Agreement recognizes tax identities of enterprises in different Contracting States and attributes profits to permanent establishments in each State.

5. Paragraph 2 of Article 7 outlines the attribution of profits to a permanent establishment as if it were a separate enterprise.

6. The Agreement lacks guidance on attributing income to specific tax identities unless profits are generated between different tax entities.

7. The appellant claimed revenue from within and outside India activities without generating revenue between its Indian and Korean tax identities.

8. The appellant, a resident of Korea, acknowledged tax identity in India by filing returns, raising questions on the tax obligations under the Agreement.

9. The Tribunal's decision to tax 25% of revenue without evidence of attribution to the Indian permanent establishment was deemed arbitrary. The appeal was allowed, setting aside the tax liability imposition.

Separate Judgment: The judgment was delivered by Barin Ghosh and U.C. Dhyani, JJ.

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