Service permanent establishment and royalty attribution under treaty upheld in part, with remand for fresh computation.

The Tribunal followed its earlier orders on identical facts and upheld the existence of a service permanent establishment in India under the treaty. It also held that the royalty component was not effectively connected with that permanent establishment, so income attribution had to be recomputed in line with the earlier year's treaty-based directions, and the matter was remanded to the Assessing Officer for fresh determination. On interest, section 234B was held not leviable on the Tribunal's earlier view, while the remaining interest provisions were treated as consequential. The appeal succeeded only in part.

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Issues: (i) whether the assessee had a service permanent establishment in India; (ii) whether the royalty income was effectively connected with the alleged service permanent establishment and whether the income was to be attributed in accordance with the treaty framework; and (iii) whether interest under sections 234A, 234B, 234C and 234D was leviable.

Issue (i): whether the assessee had a service permanent establishment in India

Analysis: The issue was treated as covered by the Tribunal's earlier orders in the assessee's own case for preceding assessment years. The same contractual arrangement and the same basis for invoking Article 5(2)(k) of the India UK DTAA had already been examined, and the earlier finding that the services were rendered through personnel falling within the treaty provision was followed.

Conclusion: The existence of a service permanent establishment in India was upheld against the assessee.

Issue (ii): whether the royalty income was effectively connected with the alleged service permanent establishment and whether the income was to be attributed in accordance with the treaty framework

Analysis: The Tribunal found the issue to be identical to the one decided in the assessee's earlier years. The earlier order had distinguished between the royalty for transfer of intellectual property rights simpliciter and the services rendered by the relevant category of employees, and had held that the royalty portion was not effectively connected with the service permanent establishment. Since the present year involved similar facts, the matter was remitted for computation of income in accordance with the directions already issued for the earlier year, including the treaty-based attribution framework.

Conclusion: The issue was set aside and remanded to the Assessing Officer for fresh determination of income in line with the earlier directions.

Issue (iii): whether interest under sections 234A, 234B, 234C and 234D was leviable

Analysis: The Tribunal followed its earlier view that interest under section 234B was not leviable in the circumstances considered in the assessee's own case. As to the remaining interest provisions, the Tribunal treated the levy as consequential.

Conclusion: Interest under section 234B was decided in favour of the assessee, and the remaining interest issues were treated as consequential.

Final Conclusion: The appeal succeeded only in part, with one issue decided against the assessee, one issue remanded for fresh computation, and the interest issue partly decided in the assessee's favour.

Ratio Decidendi: Where an earlier decision in the assessee's own case has already resolved the same treaty and attribution questions on identical facts, the later year should follow that precedent, and royalty not effectively connected with the service permanent establishment is to be excluded from attribution on that basis.

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