Income attribution under tax treaty cannot rely on a mechanical ratio without specific findings and must be reconsidered.

Attribution of India income to a foreign enterprise under the India-USA tax treaty could not rest on a mechanical adoption of an earlier 15% ratio without specific findings on the issues argued. The Tribunal had proceeded in the assessee's cross-appeal on the basis of figures furnished by the assessee and the permanent establishment context under Article 5, but it was required to record independent reasons after hearing both sides. In the absence of such findings, the attribution exercise was unsustainable and the matter was remitted for fresh consideration.

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Issues: Whether the Tribunal was justified in attributing 15% of the assessee's India income by mechanically following an earlier decision without recording specific findings, and whether the matter required reconsideration.

Analysis: The assessee's business was examined in the context of its alleged permanent establishment under Article 5 of the India-USA tax treaty, and the assessment had been made on the basis of figures furnished by the assessee. The Tribunal, while dealing with the cross-appeal, applied the 15% attribution ratio from an earlier case. The Court found that the Revenue's challenge was limited to this mechanical adherence to the earlier ratio, and that the Tribunal ought not to have disturbed the assessment without returning specific findings on the questions urged after hearing both sides.

Conclusion: The Tribunal's attribution exercise could not be sustained in the absence of specific findings, and the matter was remitted for fresh consideration.

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