Business connection and permanent establishment in India sustained, attributing offshore supply profits to Indian tax jurisdiction.

Indian operations integral to negotiations, installation, supervision, and commissioning were treated as establishing business connection and multiple forms of permanent establishment in India, so offshore supply income including embedded software was assessed as business income attributable to the Indian presence, and not as isolated offshore sales or royalty. The Tribunal also held that, for a non-resident where tax was deductible at source, advance tax liability did not arise to that extent; consequently, interest under section 234B was not chargeable up to assessment year 2012-13 and was otherwise chargeable according to law thereafter. The additions were sustained, with limited relief only on interest for earlier years.

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Issues: (i) Whether the assessee had business connection and permanent establishment in India, and whether the offshore supply income was taxable in India as business profits or royalty. (ii) Whether interest under section 234B of the Income-tax Act, 1961 was leviable.

Issue (i): Whether the assessee had business connection and permanent establishment in India, and whether the offshore supply income was taxable in India as business profits or royalty.

Analysis: The assessee's Indian subsidiary and its personnel were found to be involved in negotiations, bid submissions, installation support, supervision, and commissioning activities in India. The agreements and contemporaneous materials showed that the supply of equipment was not an isolated offshore sale, but part of an integrated commercial arrangement in which installation and commissioning in India were integral to the transaction. On the facts, the control and participation of the Indian presence and visiting personnel established a fixed place presence, installation-related presence, service presence, and dependent agency presence. The Tribunal also followed its earlier findings in the assessee's own case on attribution, holding that the supply of equipment including embedded software was to be assessed as business income connected with the Indian presence.

Conclusion: The issue was decided against the assessee and in favour of the Revenue.

Issue (ii): Whether interest under section 234B of the Income-tax Act, 1961 was leviable.

Analysis: The assessee was a non-resident, and the tax on amounts payable to it was deductible at source. In such a situation, advance tax liability was not attracted to the extent tax was deductible at source, and the levy of interest had to follow the statutory scheme applicable to the relevant assessment years.

Conclusion: The issue was decided partly in favour of the assessee and partly in favour of the Revenue, with interest under section 234B not to be charged up to assessment year 2012-13 and chargeable thereafter according to law.

Final Conclusion: The appeals were dismissed, with the additions sustained on the principal tax issues and only limited relief granted on the levy of interest for the earlier assessment years.

Ratio Decidendi: Where the Indian operations are integral to negotiations, installation, supervision, and commissioning of the foreign enterprise's supplies, the foreign enterprise can be held to have business connection and permanent establishments in India, and the resulting profits may be attributed to Indian tax jurisdiction.

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