Permanent establishment and offshore supply receipts were not taxable in India absent treaty-based proof and Indian chargeability.

The revenue must establish a permanent establishment in India through treaty-based analysis and reasoned findings; a bald assumption under Article 5 is insufficient, so the PE finding could not stand. Offshore supply of goods and standard software completed outside India, with consideration also received outside India, is not taxable in India merely because the purchaser is an Indian entity; the receipts were therefore outside Indian tax charge. The additions based on assumed PE existence and attribution of profits to India were set aside, granting relief on the substantive tax issues.

---

---

Issues: (i) whether the assessee had a permanent establishment in India under Article 5 of the India-UK Double Taxation Avoidance Agreement; (ii) whether receipts from offshore supply of goods and standard software were taxable in India.

Issue (i): whether the assessee had a permanent establishment in India under Article 5 of the India-UK Double Taxation Avoidance Agreement.

Analysis: The Assessing Officer bore the burden of establishing the existence of a permanent establishment or deemed permanent establishment in India. The assessment order recorded only a bald assumption that the assessee had a deemed permanent establishment under Article 5, without identifying the alleged PE, examining the treaty conditions, or giving any reasoning to show how the requirements of Article 5 were satisfied.

Conclusion: The assessee did not have a permanent establishment proved against it in India, and the contrary finding of the Assessing Officer could not be sustained.

Issue (ii): whether receipts from offshore supply of goods and standard software were taxable in India.

Analysis: The offshore supplies were effected outside India and the related payments were also received outside India. Where the transfer of property in the goods and the receipt of consideration both take place outside India, such receipts do not acquire chargeability in India merely because the purchaser is an Indian entity.

Conclusion: The receipts from offshore supply of goods and standard software were not taxable in India.

Final Conclusion: The additions based on the assumed existence of a PE and the attribution of profits to India were set aside, resulting in relief to the assessee on the substantive tax issues.

Ratio Decidendi: A foreign enterprise cannot be taxed in India on offshore supply receipts unless the revenue establishes, with reasons and treaty-based analysis, both the existence of a taxable nexus through a permanent establishment and the chargeability of the relevant receipts in India.

---