Supreme Court rules on permanent establishment issues and attribution of profits in oursourcing industry

In the recent landmark judgment of DIT (International Taxation), Mumbai v. Morgan Stanley and Co. delivered on 9 July 2007, the Supreme Court of India scrutinized the tax regime applicable to the outsourcing industry. The judgment deals with the circumstances when the permanent establishment of the non-resident entity comes into existence in India, the differences between stewardship and deputation and the issue of further attribution of profits to a permanent establishment beyond the arm's length price paid by the non-resident entity. This article analyses the background, reasoning and impact of the judgment and provides an overview of the treatment in India of issues relevant for the outsourcing industry.