PE attribution and embedded software royalty issues were decided by consistent precedent, with computational errors remanded for verification.

The Tribunal considered whether the assessee had a fixed place, installation, service or dependent agent PE in India and whether offshore supply profits could be attributed to that PE, and it followed the consistent view taken in the assessee's earlier years, sustaining PE existence and attribution on the same factual matrix. It also held that the portion of receipts referable to software embedded in the equipment was not taxable as royalty, following the assessee's own precedent on identical facts. Alleged computational mistakes in the assessment were sent back to the Assessing Officer for verification after hearing the assessee.

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Issues: (i) Whether the assessee had a fixed place PE, installation PE, service PE or dependent agent PE in India, and whether profits from offshore supply could be attributed to such alleged PE; (ii) Whether the portion of receipts allocated to software embedded in the equipment was taxable as royalty; (iii) Whether the computational mistakes pointed out in the assessment required verification and correction.

Issue (i): Whether the assessee had a fixed place PE, installation PE, service PE or dependent agent PE in India, and whether profits from offshore supply could be attributed to such alleged PE.

Analysis: The assessee's challenge on PE and attribution was considered in the light of the consistent view taken in its own earlier assessment years. The Tribunal noted that the material facts were unchanged, that the existence of PE had already been upheld in prior years on the basis of the Indian subsidiary's involvement, and that the same reasoning had been followed in later years as well. The plea that earlier orders did not consider the assessee's submissions was rejected. The Tribunal also accepted the consistent approach that once the Indian entity had been remunerated at arm's length, the earlier attribution methodology adopted in the assessee's case had been sustained in precedent.

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

Issue (ii): Whether the portion of receipts allocated to software embedded in the equipment was taxable as royalty.

Analysis: The Tribunal found that this question had already been decided in the assessee's favour in earlier years and that the factual matrix remained the same. Following the coordinate Bench view and the settled treatment of embedded software receipts in the assessee's own case, the software component could not be brought to tax as royalty.

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

Issue (iii): Whether the computational mistakes pointed out in the assessment required verification and correction.

Analysis: The Tribunal directed the Assessing Officer to examine the assessee's claim regarding computational errors by verifying the record and after granting an opportunity of hearing.

Conclusion: The issue was remanded for verification and fresh consideration.

Final Conclusion: The assessment survived on the PE and attribution issues, the software royalty addition was deleted, and the computational aspect was sent back for verification, resulting in only partial relief to the assessee.

Ratio Decidendi: In a case governed by consistent earlier decisions on identical facts, PE existence and profit attribution may be sustained by judicial discipline, while receipts from embedded software not characterized as royalty in the assessee's own precedent cannot be taxed as royalty.

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