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Issues involved:
1. Interpretation of the term "permanent establishment" under the Convention for Avoidance of Double Taxation. 2. Assessment of income for non-resident foreign company. 3. Application of Instruction No. 1767 for profit computation. 4. Determination of profits from Indian operations. Issue 1: Interpretation of the term "permanent establishment" under the Convention for Avoidance of Double Taxation: The case involved a non-resident foreign company claiming it did not have a "permanent establishment" in India based on the Convention for Avoidance of Double Taxation. The Income-tax Appellate Tribunal analyzed the definition of "permanent establishment" under the Convention, which includes specific locations like a place of management, branch, office, factory, workshop, or mine. The Tribunal also considered a provision stating that a building site or construction project would be a "permanent establishment" if it continued for more than nine months. The Tribunal concluded that specific provisions override general ones, emphasizing that a building site or project lasting less than nine months may not constitute a "permanent establishment." Issue 2: Assessment of income for non-resident foreign company: The company, involved in a project with Oil and Natural Gas Commission, filed returns declaring "nil" income, claiming no "permanent establishment" in India. However, tax authorities assessed the company's income based on a percentage of receipts from outside India activities. The Commissioner of Income-tax reduced the income percentages, but the Income-tax Appellate Tribunal further adjusted the figures. The Tribunal upheld that no income accrued to the company in India for activities carried out in Korea, but applied a rate to calculate profits from Indian operations. Issue 3: Application of Instruction No. 1767 for profit computation: The Tribunal considered Instruction No. 1767 as a guideline for profit computation but emphasized that computation should align with relevant provisions of the Act. It rejected the argument of zero profit on Indian operations, stating that the instruction serves as a guideline rather than a strict rule. The Tribunal determined profits from Indian operations by applying a specific rate, highlighting that a specific provision overrides a general one. Issue 4: Determination of profits from Indian operations: The Tribunal concluded that profits from Indian operations should be calculated by applying a 3% rate. It emphasized that a specific provision should take precedence over a general one. The Tribunal found no substantial question of law in the appeals and dismissed them, affirming the orders passed. The High Court agreed with the Tribunal's decision, stating no interference was necessary, and dismissed the appeals without costs. This comprehensive analysis delves into the key legal issues addressed in the judgment, encompassing the interpretation of "permanent establishment," assessment of income for a non-resident company, the application of profit computation guidelines, and the determination of profits from Indian operations.
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