Permanent Establishment attribution fails where arm's-length transactions were accepted and hardware consideration was outside the alleged software PE.

Where transactions with the Indian entity were accepted at arm's length, no further income could be attributed to the alleged permanent establishment. The Tribunal followed its earlier co-ordinate bench ruling on identical facts and held that the addition for PE attribution could not stand. It also accepted that hardware-related consideration was not includible where the PE allegation was confined to software distribution activities. The additions were therefore deleted, and the assessee succeeded on the substantive grounds.

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Issues: Whether the additions made on account of the alleged permanent establishment and attribution of income from software and hardware transactions were sustainable.

Analysis: The appeal was decided on the footing that the factual matrix and issues were identical to those in the earlier co-ordinate bench order. The Tribunal followed that order, which had held that where the transactions with the Indian entity were accepted at arm's length, nothing further could be attributed to the alleged permanent establishment. It also accepted that the inclusion of hardware-related consideration was not justified where the allegation of permanent establishment was confined to software distribution activities.

Conclusion: The additions were deleted and the assessee succeeded on the substantive grounds.

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