Permanent establishment and business connection absent; offshore supply income of a non-resident was not taxable in India.

Offshore supply income of a non-resident was not taxable in India where the Indian distributor acted on a principal-to-principal basis, had no premises at the assessee's disposal, and lacked authority to conclude contracts; no fixed place PE, agency PE, or business connection was established, so profits were not attributable to India. Interest under sections 234B and 234C was also to be recomputed for a foreign company whose income was subject to deduction at source, and it did not survive as an independent adverse levy on the facts.

---

---

Issues: (i) whether the Indian distributor constituted a fixed place or agency permanent establishment of the non-resident assessee in India, and whether the resulting sales income from offshore supply of cars and related goods was taxable in India as business income accruing through a business connection; (ii) whether interest under sections 234B and 234C was leviable in the circumstances.

Issue (i): whether the Indian distributor constituted a fixed place or agency permanent establishment of the non-resident assessee in India, and whether the resulting sales income from offshore supply of cars and related goods was taxable in India as business income accruing through a business connection.

Analysis: The assessee was a German tax resident and the dispute was governed by section 90(2) of the Income-tax Act, 1961, section 9 of the Income-tax Act, 1961, and Article 5 of the India-Germany DTAA. The Tribunal held that the manufacturing and sale of cars and related goods were completed outside India on a principal-to-principal basis, with delivery and transfer of property outside India, and that the Indian distributor did not have premises at the assessee's disposal, nor authority to conclude contracts, nor any activity that could justify treating it as a dependent agent or as an Indian business connection giving rise to taxable profits. On the same reasoning, the attribution and deduction controversies became academic once the foundational finding on permanent establishment and business connection went in favour of the assessee.

Conclusion: No fixed place PE, agency PE, or business connection in India was established, and the offshore supply income was not taxable in India.

Issue (ii): whether interest under sections 234B and 234C was leviable in the circumstances.

Analysis: The assessee was a foreign company whose income was subject to deduction at source under section 195 of the Income-tax Act, 1961, and the Tribunal directed recomputation in accordance with the settled law applicable to such non-resident cases.

Conclusion: The levy of interest was to be recomputed and, on the facts, did not survive as an independent adverse determination against the assessee.

Final Conclusion: The assessment was set aside to the extent it treated the assessee's offshore sales income as taxable in India on PE or business connection grounds, and consequential relief followed on the ancillary issues.

Ratio Decidendi: Offshore supply income of a non-resident is not taxable in India unless the Revenue establishes a real PE or business connection in India and shows that profits are attributable to activities carried on in India.

---