Permanent-establishment profit attribution must follow global accounts and correct facts, not mechanical gross-receipt adjustments.

Attribution of offshore supply receipts, onshore service receipts and alleged permanent-establishment profits could not stand where the factual basis was misconceived. The tribunal found that the draft and final assessment proceeded on inconsistent assumptions: the offshore contract value was treated as fully attributable despite the assessee following the cash system and receiving only part of it, and part of the onshore receipts was attributed despite the record showing that the Indian joint venture partner had offered that amount to tax and stated it alone executed the onshore contract. It held that profit attribution to a permanent establishment must be tested against global profit figures, not mechanically against gross receipts, and remanded the matter for fresh adjudication.

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Issues: Whether the assessment order sustaining taxability of offshore supply receipts and onshore service receipts, and the attribution of profits to the alleged permanent establishment, required interference and remand for fresh consideration.

Analysis: The assessment proceeded on the basis that the offshore supply and onshore service receipts were to be attributed in a manner different from the factual position recorded in the draft assessment order. The appellate tribunal found that the DRP's directions proceeded on a misconceived factual premise by treating the entire offshore contract value as relevant for attribution despite the assessee following cash system of accounting and having received only a part of that amount during the year. It also found inconsistency in attributing a portion of the onshore receipts to the assessee despite the record showing that the Indian joint venture partner had offered that amount to tax and had undertaken that it alone executed the onshore contract. The tribunal further held that attribution to the alleged permanent establishment had to be examined with reference to global profit figures and not by a mechanical application to gross receipts.

Conclusion: The impugned assessment order was set aside and the matter was remanded to the Assessing Officer for fresh adjudication of taxability and profit attribution in accordance with the factual record and the global accounts, after granting reasonable opportunity to the assessee.

Final Conclusion: The appeal succeeded to the extent of remand, and the tax additions were left open for reconsideration.

Ratio Decidendi: Where attribution of income to a permanent establishment is founded on misconceived facts or incomplete consideration of the assessee's global accounts, the assessment cannot stand and must be re-determined on a proper factual and profit-attribution basis.

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