Facts of the Case

The present appeals were filed by the Revenue against a common order dated 28.05.2019 passed by the ITAT, New Delhi Bench, concerning Assessment Years 2004-05, 2006-07, 2007-08, and 2009-10.

The dispute centered around the extent of profit attribution to the Indian Permanent Establishment of Rolls Royce PLC. The ITAT had allowed the assessee’s appeal by holding that only 35% of the global profits should be attributed to the Indian PE, instead of 75% as contended by the Revenue.

 Issues Involved

  1. Whether the ITAT was correct in restricting the attribution of global profits to 35% for the Indian PE.
  2. Whether the Revenue was justified in seeking attribution at 75% of global profits.
  3. Whether the issue was already covered by prior judicial precedent.

Petitioner’s Arguments (Revenue)


  • The Revenue contended that a higher percentage of global profits, i.e., 75%, should be attributed to the Indian PE.
  • It challenged the ITAT’s findings reducing the attribution to 35%.

 Respondent’s Arguments (Assessee – Rolls Royce PLC)


  • The assessee relied on earlier judicial precedents of the Delhi High Court.
  • It argued that the issue of attribution had already been settled in its favor, limiting attribution to 35% of global profits.

 

Court’s Findings / Order

The Delhi High Court observed that the issue was squarely covered by its earlier decision in:
Rolls Royce PLC vs Director of Income Tax, International Taxation (2011) 339 ITR 147.

The Court held:

  • There was no reason to take a different view from the earlier judgment.
  • The ITAT’s decision attributing 35% of global profits to the Indian PE was correct.

Final Order

  • The appeals filed by the Revenue were dismissed.

 

Important Clarification

  • The Court reaffirmed that profit attribution to a Permanent Establishment must follow settled judicial principles.
  • Once an issue is covered by binding precedent, consistency must be maintained unless distinguishing facts exist.
  • This judgment strengthens the principle of judicial discipline and certainty in international taxation matters.

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2020:DHC:3917-DB/VSA19022020ITA1102020_163703.pdf

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