Treaty-based taxation and auxiliary liaison-office functions did not create a taxable permanent establishment in India.

A DTAA governs taxability where it is inconsistent with the Act, and a non-resident's income is taxable in India only if business is carried on through a permanent establishment. Liaison offices performing supportive tasks such as downloading information, printing cheques and dispatching them were held to be preparatory or auxiliary activities, insufficient to create a permanent establishment or business connection. The High Court also stated that the binding nature of an advance ruling does not exclude writ jurisdiction; judicial review remains available for an error of law apparent on the face of the record or a jurisdictional infirmity. The advance ruling was therefore quashed.

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Issues: (i) Whether the Authority's advance ruling could be challenged in writ jurisdiction despite the binding nature of the ruling under the Income-tax Act; (ii) Whether the petitioner's liaison offices in India created a permanent establishment or business connection so as to make the petitioner's remittance income taxable in India.

Issue (i): Whether the Authority's advance ruling could be challenged in writ jurisdiction despite the binding nature of the ruling under the Income-tax Act.

Analysis: The binding effect of an advance ruling does not oust the constitutional jurisdiction of the High Court. The Authority was treated as a tribunal with trappings of a court, and its ruling remained amenable to judicial review where an error of law apparent on the face of the record or a jurisdictional infirmity was shown. The statutory scheme did not create finality so as to exclude writ jurisdiction.

Conclusion: The writ petition was maintainable and the ruling could be examined in judicial review.

Issue (ii): Whether the petitioner's liaison offices in India created a permanent establishment or business connection so as to make the petitioner's remittance income taxable in India.

Analysis: The liability to tax had to be determined primarily under the applicable DTAA, which overrides the Act to the extent of inconsistency. Under the treaty, profits were taxable in India only if the enterprise carried on business through a permanent establishment in India. The liaison offices performed only supportive functions such as downloading information, printing cheques and dispatching them; these were preparatory or auxiliary activities and did not amount to a permanent establishment. The activities in India also did not directly or indirectly contribute to the earning of profits in a manner sufficient to establish a business connection.

Conclusion: The petitioner did not have a taxable permanent establishment or business connection in India on the facts found.

Final Conclusion: The advance ruling was unsustainable in law and was quashed, leaving the petitioner not liable to tax in India on the basis decided by the Authority.

Ratio Decidendi: Where a double taxation avoidance agreement applies, taxability must be determined under the treaty; supportive or auxiliary liaison-office functions do not, by themselves, constitute a permanent establishment or business connection sufficient to tax the non-resident's foreign earnings in India.

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