This article analyses a landmark decision by the Authority of Advance Ruling (AAR), In Re: Morgan Stanley and Co. Inc., which addresses the taxation of the business process outsourcing (BPO) arm of a foreign entity in India. Although the AAR concluded that the Indian BPO arm of Morgan Stanley US is not a permanent establishment and therefore, the foreign company is not liable to tax in India, the decision has been appealed by both the taxpayer and the tax authorities