The assessee, a non-resident engaged in manufacture and supply of telecommunication equipment, had set up a liaison office in India and thereafter incorporated a wholly-owned subsidiary to undertake installation activities under independent contracts. The Assessing Officer held that the assessee had a permanent establishment in India and attributed profits from offshore supply, software licensing and interest income. While the Tribunal initially applied the test of “virtual projection” to hold that the subsidiary constituted a permanent establishment, the High Court, in the second round, affirmed the Tribunal’s ultimate conclusion that neither the liaison office nor the subsidiary constituted a fixed place or dependent agent permanent establishment. The Court held that the existence of a permanent establishment must be founded on objective, evidence-based standards under Article 5 of the DTAA, such as disposal of premises, control, authority to conclude contracts or functional integration, and cannot rest on perception, surmise or theory. Mere ownership or control of a subsidiary does not, by itself, create a permanent establishment, as expressly clarified by Article 5(8) of the DTAA. The Revenue failed to establish that the subsidiary acted on behalf of the assessee or had authority to bind it, and the subsidiary’s income was independently taxed at arm’s length. The Court further held that interest on delayed receipts from supply of equipment and software was taxable as interest income, while receipts from supply of software were neither royalty nor fees for technical services under the Act or the India-Finland DTAA. Accordingly, the appeals of the Revenue were dismissed.  (AY.1997-98 to 2007-08)