Profit attribution for non-resident India operations requires factual verification; section 234B interest is not leviable where tax is withheld at source.

Income attributable to a non-resident's India operations must be confined to the part reasonably attributable to those operations under section 9(1) and Explanation 1, and the factual material for that attribution had not been properly examined. The Tribunal therefore remitted the profit-attribution issue for fresh verification by the Assessing Officer with an opportunity to adduce supporting evidence. On interest, section 234B was held not leviable on the non-resident because the relevant receipts were subject to tax withholding under section 195, so advance tax liability under section 208 did not arise. The interest charge was deleted.

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Issues: (i) Whether the profit attributable to the alleged permanent establishment in India, if any, was correctly determined and whether the matter required fresh examination; (ii) Whether interest under section 234B was leviable on a non-resident assessee whose receipts were subject to tax withholding in India.

Issue (i): Whether the profit attributable to the alleged permanent establishment in India, if any, was correctly determined and whether the matter required fresh examination.

Analysis: The assessee's primary contention on permanent establishment was not pressed, and the dispute narrowed to the quantum of income attributable to the India operations. The Tribunal noted that the agreement indicated remuneration on a cost-plus mark-up basis, but the material necessary to determine the exact profit attributable to the India operations had not been properly examined by the Assessing Officer or the Dispute Resolution Panel. In view of section 9(1) of the Income-tax Act, 1961 and Explanation 1 thereto, only such part of the income as is reasonably attributable to operations carried out in India can be brought to tax where all operations are not carried out in India. The Tribunal therefore found that the assessee's claim required proper verification on facts.

Conclusion: The issue was remitted to the Assessing Officer for fresh adjudication, with opportunity to the assessee to produce supporting material.

Issue (ii): Whether interest under section 234B was leviable on a non-resident assessee whose receipts were subject to tax withholding in India.

Analysis: The assessee was a non-resident, and the liability to deduct tax at source on the relevant payments lay on the payer under section 195 of the Income-tax Act, 1961. In such a case, the assessee was not liable to pay advance tax under section 208, and the levy of interest for default in advance tax could not be sustained. The Tribunal followed the jurisdictional High Court view on the subject.

Conclusion: The interest charged under section 234B was held to be unsustainable and was deleted.

Final Conclusion: The appeal succeeded on the interest issue and the transfer of the attribution issue for reconsideration, resulting in a partial relief to the assessee.

Ratio Decidendi: Where only part of a non-resident's business income is attributable to operations in India, taxability must be confined to the income reasonably attributable to those Indian operations, and section 234B interest is not chargeable on a non-resident where the tax liability is to be discharged through withholding at source.

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