Permanent establishment and new issues on appeal: preparatory office exclusion and section 44BB challenge could not be raised for the first time.

A non-resident's Mumbai office was treated as a preparatory or auxiliary fixed place of business, so it did not constitute a permanent establishment under Article 5(4)(e); income arising outside India was therefore not attributable to that office. The Revenue also could not raise, for the first time in a section 260A appeal, a challenge to the section 44BB presumptive income computation by disputing deduction of subcontractor payments, because the issue had not been raised before the Tribunal and no substantial question of law arose from the Tribunal's order. The High Court accordingly left the assessee's favourable findings undisturbed.

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Issues: (i) Whether the Mumbai office of the non-resident assessee constituted a permanent establishment and whether income arising outside India was attributable to it. (ii) Whether the Revenue could, for the first time in an appeal under section 260A, challenge the computation of presumptive income under section 44BB by contending that subcontractor payments ought not to have been deducted.

Issue (i): Whether the Mumbai office of the non-resident assessee constituted a permanent establishment and whether income arising outside India was attributable to it.

Analysis: The findings of the Commissioner (Appeals) that the Mumbai office was not carrying on the business of the assessee and was only a preparatory or auxiliary office were never put in issue before the Tribunal. The Tribunal, therefore, was not called upon to re-examine those factual findings. Article 5(4)(e) of the treaty expressly excludes a fixed place of business used only for preparatory or auxiliary activities from the scope of permanent establishment. Since the factual foundation supporting that exclusion was not challenged before the Tribunal, the question whether Article 5(3) had a wider effect did not arise for decision in this appeal.

Conclusion: The income arising outside India was not attributable to the Mumbai office, and the Revenue's challenge on permanent establishment failed.

Issue (ii): Whether the Revenue could, for the first time in an appeal under section 260A, challenge the computation of presumptive income under section 44BB by contending that subcontractor payments ought not to have been deducted.

Analysis: The assessment order had attained finality so far as the Revenue was concerned, no revision under section 263 had been exercised, and the point never formed part of the grounds before the Commissioner (Appeals) or the Tribunal. An appeal under section 260A lies only on a substantial question of law arising from the Tribunal's order, and the statute does not permit the Revenue to reopen a matter that was never put in issue before the Tribunal. The contention was also not a fit case for first-time examination at the stage of second appeal, since the statutory scheme confines the High Court to issues arising from the Tribunal's decision.

Conclusion: The Revenue could not raise the section 44BB computation point for the first time in the High Court.

Final Conclusion: The appeal raised no entertainable substantial question of law, and the dismissal left undisturbed the findings in favour of the assessee on both the permanent establishment issue and the section 44BB computation issue.

Ratio Decidendi: A question not raised before the Tribunal, and not decided by it, cannot ordinarily be introduced for the first time in an appeal under section 260A, especially where the impugned factual findings have attained finality and the treaty itself excludes preparatory or auxiliary fixed places of business from the concept of permanent establishment.

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