1. HABIBULLAH & CO. CHARTERED ACCOUNTANTS
© Habibullah & Co. Chartered Accountants, India
35 per cent of net global profits are attributed to Indian PE of a Chinese company in respect
of both hardware and software supplied to Indian customers – Delhi Tribunal
Recently in a latest judgment Income Tax
Appellate Tribunal Delhi bench in the case
of ZTE Corporation, China have decided
that for the purpose of attribution of profits
to Permanent Establishment (PE), the most
important aspect to be kept in mind is level
of PE's participation in economic life of
Source Country.
For this the level of operations carried
out by PE in India is to be considered to
arrive at a reasonable percentage of
profit to be attributed to PE in India.
Thus, where level of operations carried out
by assessee a Chinese Company ZTE
Corporation through its PE in India were
considerable enough to conclude that
almost entire sales functions including
marketing, banking and after sales were
carried out by PE in India, same were to be
considered for arriving at percentage of
profit attributed to PE in India in respect of
both hardware and software supplied by
assessee to Indian customers 35% of net
global profits as per published accounts out
of transactions of assessee with India are
attributed to PE in India in respect of both
hardware and software supplied by
assessee to Indian customer
In the given case since the ZTE
Corporation has not maintained books of
accounts relating to PE in India, the indirect
method prescribed under Rule 10 of the
Income Tax Rules for attribution of profits
was resorted. In this case ITAT observed
that issue of attribution of profits
depends on the facts of the case and is
fully dependent on the level of
operations of the activities carried out in
India.
Our Comments
The matter of a ascertainment of profits
related of PE have always been matter of
debate and dispute between multinational
companies and revenue authorities. Article
7 of the DTAA confirm sharing of revenue
when the PE is confirmed. In this case ITAT
has relied upon Supreme Court ruling in
case of Morgan Stanley.
Therefore given this latest ruling by
ITAT Delhi it shall become important for
foreign companies operating in India to
review their PE status in India and
related profit attribution risk
periodically. With this ruling importance
of having a robust and well-designed
Transfer pricing system has been re-
established.

2. HABIBULLAH & CO. CHARTERED ACCOUNTANTS
© Habibullah & Co. Chartered Accountants, India
About Us
Habibullah & Co. (HCO) is a professional
services firm providing audit, assurance, tax,
financial advisory and consulting services to a
wide range of publicly traded and privately held
companies, guided by core values including
competence, honesty and integrity,
professionalism, dedication, responsibility and
accountability.
At HCO, the interests of our clients are
paramount. Our focus on the mid-market
means we have a real understanding of the
environment in which our clients operate and
are ideally placed to help them grow and
prosper.
Who we are and what we stand for
 Established 1962
 10 Partners
 100 + staff
 6 offices across India
 International Representation through
“Antea- Alliance of Independent Firms”
 Member Firm of The Institute of
Chartered Accountants of India since
1962
 Registered with all major Government
Regulators in India
Our Services
 Accounting and Auditing
 Business Setups in India
 Tax Compliance, Planning and
Management
 Transfer Pricing Advisory
 Business Advisory
Contact Us
For any assistance contact our Managing
Partner for International relations:
CA. Vivek Agarwal
E: vivek@hcoca.com
T: +91-98391-19370
Office in India
New Delhi
Lucknow
Gorakhpur
Patna
Ranchi
Varanasi
Mau
Associates at
Kolkata
Mumbai
Allahabad
Agra
Email
info@hcoca.com
Website
www.hcoca.com
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