Facts of the Case

The appeals were filed by the Revenue against a common order dated 28.05.2019 passed by the Income Tax Appellate Tribunal (ITAT), New Delhi concerning Assessment Years 2004-05, 2006-07, 2007-08, and 2009-10 (excluding AY 2005-06).

The dispute pertained to the attribution of global profits to the Indian Permanent Establishment (PE) of Rolls Royce PLC.

The ITAT allowed the assessee’s appeal by restricting the attribution of profits to 35% of global profits, instead of 75% as contended by the Revenue. 

Issues Involved

  1. Whether the ITAT was justified in restricting attribution of profits to 35% of global profits to the Indian PE.
  2. Whether a higher attribution of 75% of global profits was warranted in law.
  3. Whether the issue was already settled by binding precedent of the Delhi High Court.

Petitioner’s Arguments (Revenue)

  • The Revenue challenged the ITAT’s order and sought higher attribution of profits (75%) to the Indian PE.
  • It was contended that the extent of business operations in India justified a greater share of global profits being taxed in India.

Respondent’s Arguments (Assessee – Rolls Royce PLC)

  • The assessee relied upon earlier binding precedent of the Delhi High Court.
  • It was argued that profit attribution at 35% had already been judicially determined and consistently followed.
  • Any enhancement beyond 35% would be contrary to settled law. 

Court’s Findings / Order

  • The Delhi High Court observed that the issue was squarely covered by its earlier judgment in:
    Rolls Royce PLC v. Director of Income Tax, International Taxation (2011) 339 ITR 147.
  • The Court held that:
    • Attribution of profits at 35% is appropriate and settled.
    • There is no reason to take a different view from the earlier binding precedent.
  • Final Order:
    All appeals filed by the Revenue were dismissed.

 

Important Clarification

  • The Court reaffirmed that judicial consistency must be maintained when an issue is already settled by precedent.
  • Profit attribution to a PE cannot be arbitrarily enhanced once determined by higher judicial authority.
  • The ruling strengthens the principle that precedent governs tax attribution disputes involving multinational enterprises.


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

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