The assessee was not rendering simple technical or consultancy services but was rendering specific activities through the PE. Accordingly, Article 12 of the DTAA was not applicable. Income attributable to a PE is assessable under Article 7 of the DTAA. Under Article 7(2), the PE is deemed to be a wholly independent enterprise and under Article 7(3) deduction in accordance with the subject to the law relating to the tax in India is allowable. Since Article 7 of the DTAA comes into play, s. 9(1)(vii) is not applicable. Since Article 7 (2) of the DTAA specifies that the PE in India is to be treated as a wholly independent enterprise in India, ss. 44D and 115A will not apply in so far as they relate to foreign companies.

As per the law laid down in Sudhir Mehta 265 ITR 548 (Bom), where an order is passed as per the prevailing law, a retrospective amendment which comes into force after the date of the passing of the order does not show any mistake in the order.

On merits, under the Act, when a non-resident has operations in India through a presence in India, such presence is to be treated as a “permanent establishment” (“PE”) in India. The PE is to be treated as hypothetically independent of the non-resident . The assets of the PE are also to be recognized as such and the profit or gains on sale of assets of the PE have to be treated as profits of the PE. The gains or losses on sale of PE assets have to be treated as “accruing or arising in India” irrespective of whether the assets were sold in India or outside India. The income can also be deemed to have accrued or arisen in India u/s 9(1)(i) as the rig was part of a “business connection” and “an asset or source of income” in India (principles laid down in Hyundai Heavy Industries 291 ITR 482 followed)

The external comparables selected by the assessee were from a public data base and the assessee has followed a detailed search process and made an analysis considering the various factors of selecting the external comparables as required under Transfer Pricing Regulations and Guidelines. Therefore, the transfer pricing study of the assessee and ALP determined on the basis of such study simply cannot be rejected without any cogent reasons. Unless proper method is followed, comparables are chosen and selected after doing a proper FAR study as well as adjustments are made to the extent possible it is unfair to summarily reject the transfer pricing analysis made by the assessee

The department has the option u/s 166 to assess either the non-resident principal or the representative assessee. Once the choice is made and the income is brought to tax in the hands of the principal, the same income cannot be again assessed u/s 163 in the hands of a representative assessee (Saipem UK 298 ITR (AT) 113 (Mum) followed). Consequently, the assessment order on the agent had to be annulled

The warrant of authorization u/s 132 was issued in the name of “K. M. Shah Charitable Trust, Mansukhbhai K. Shah“. This cannot be regarded as a warrant of authorization issued in the name of assessee in his individual capacity. The search cannot be regarded as conducted against the assessee in his individual capacity. The assessee’s name appears in the warrant and panchnama as the Managing Trustee of the Trust and not in his individual capacity. When a warrant is issued in joint names, an assessment in individual capacity/status is invalid (Vandana Verma (All) followed). Consequently, the s. 153A proceedings were invalid

The argument of the Revenue that there is a “Dependent Agent PE” under Article 5(4)(b) is also not correct. The rationale of a Dependent Agent PE is that the foreign enterprise carries on business through a dependent agent, who is integrated into the principal’s business to a substantial extent. However, on facts, as Jet Airways was neither the dependent agent of the assessee and nor was the assessee carrying on business through Jet Airways, there was no PE under Article 5(4)(b)

The argument that in using the words “in the Contracting State“, Article 12(4) incorporates the “place of performance test” and negates the “source rule” and that services rendered offshore are not taxable is not acceptable for two reasons. Firstly, because the expression “provision for services” is wider than the term “provision for rendering of services” and covers services rendered in the one State but used in the other State. Secondly, because the interpretation will render Article 12(6) redundant. A literal interpretation to a tax treaty which renders a treaty provision unworkable should be avoided. (Principles of treaty interpretation reiterated)

S. 50C does not apply to all capital assets but only to “land or building”. A tenancy right is not “land or building” (It is “rights” in building). Consequently, s. 50C has no application and the capital gains have to be computed on the basis of the actual consideration and not the stamp duty value