Indian business connection and permanent establishment established, but attributed income was fully absorbed by allowable expenses.

The article discusses attribution of income from Indian operations in a treaty and domestic tax context. It notes that the Tribunal treated business connection and permanent establishment in India as established, following earlier predecessor cases on the same factual matrix, and rejected the assessee's jurisdictional objection. It also applies the settled attribution approach that 15% of gross booking fees was attributable to India and, after allowing India-related expenses, no further taxable income survived. The practical effect was that Indian tax exposure was exhausted at the attribution stage even though the Indian presence objections failed.

---

---

Issues: (i) whether the assessee had a business connection and a permanent establishment in India under the treaty and the Act; (ii) whether the income attributable to the Indian operations had to be computed at 15% of gross booking fees so as to result in nil taxable income after allowing the India-related expenses.

Issue (i): whether the assessee had a business connection and a permanent establishment in India under the treaty and the Act.

Analysis: The assessee's business model, the role of the Indian distributor, and the earlier orders in the assessee's predecessor cases were examined. The reasoning accepted that the issues of business connection and permanent establishment had already been decided against the assessee in the predecessor litigation and that the present case followed the same factual matrix. On that basis, the Indian business presence was treated as established.

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

Issue (ii): whether the income attributable to the Indian operations had to be computed at 15% of gross booking fees so as to result in nil taxable income after allowing the India-related expenses.

Analysis: The earlier judicial findings on attribution were applied. The Tribunal relied on the settled approach that only 15% of gross booking fees was attributable to India and that, after allowing the expenses incurred in connection with the Indian operations, the attributable income stood exhausted. The consequence was that no further income survived for taxation in India.

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

Final Conclusion: The appeal succeeded only in part, with the attribution exercise leading to no taxable income surviving in India, while the permanent establishment and business connection objections were not accepted.

Ratio Decidendi: Where the income attributable to Indian operations is fully absorbed by the allowable India-related expenses, no taxable income remains in India despite the existence of an Indian business connection or permanent establishment.

---