Permanent establishment must be proven year by year before profits can be attributed under the treaty.

The existence of a permanent establishment in India must be established independently for each assessment year on the facts of that year, and the Revenue bears the burden of proof under the applicable treaty. Where the departmental authorities relied only on findings from an earlier year, without fresh independent evidence or rebuttal of the assessee's material, the alleged permanent establishment could not be sustained. As no permanent establishment existed for the year under consideration, no profits could be attributed to it and the addition made on that basis was deleted.

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Issues: Whether the assessee had a permanent establishment in India for the relevant assessment year and, if not, whether any profits could be attributed to the alleged permanent establishment.

Analysis: The assessment and DRP orders proceeded on the basis of findings recorded in an earlier assessment year. The material on record showed that the relevant facts for the year under consideration were identical in pattern only insofar as the departmental authorities relied on past orders, but no fresh independent factual finding or contrary material was brought to rebut the assessee's claim. The question whether a permanent establishment exists has to be determined on a year-to-year basis under the applicable treaty provisions, and the Revenue carries the burden to establish its existence. Since the departmental authorities failed to controvert the assessee's evidence or demonstrate that the factual basis for the earlier finding continued in the relevant year, the alleged permanent establishment could not be sustained.

Conclusion: The assessee did not have a permanent establishment in India for the year under consideration, and no profit could be attributed to a non-existent permanent establishment.

Final Conclusion: The addition made on account of attribution of profits to the alleged Indian permanent establishment was deleted, and the assessee's appeal succeeded.

Ratio Decidendi: The existence of a permanent establishment must be established independently for each assessment year on the facts of that year, and profits cannot be attributed unless the Revenue first proves that such a permanent establishment exists.

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