Permanent establishment and attributable profits rule the tax treatment of royalty, services and interest under the treaty.

Transfer pricing-style treaty taxation turned on whether the Indian subsidiary constituted a permanent establishment and whether any income was attributable to it. The Tribunal followed its earlier view in the assessee's own case and held that no permanent establishment was shown on the relevant receipts; even on an assumed PE basis, the Revenue failed to establish attributable profits. As a result, the higher domestic taxation approach for royalty and technical service income was not warranted, and the India-Germany treaty rate applied to the receipts.

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Issues: Whether the assessee had a permanent establishment in India and whether the receipts from support services, royalty and interest could be taxed under the domestic provisions instead of being taxed under the India-Germany tax treaty.

Analysis: The dispute was covered by earlier orders in the assessee's own case. The Tribunal followed its earlier view that the Indian subsidiary did not constitute a permanent establishment for the relevant receipts, and that even if a PE were assumed, no income was shown to be attributable to that PE on the facts of the case. In the absence of attributable profits, the domestic provisions for taxing royalty and technical service income at a higher gross rate did not apply. The treaty rate remained applicable, and the Revenue had not shown any change in facts to depart from the settled view.

Conclusion: The receipts were taxable under the treaty at 10%, and the higher domestic taxation approach under sections 115A and 44DA was not warranted. The Revenue's appeal was rejected and the assessee's appeals were allowed.

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