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11.8. The revenue as accepted by the CIT (A) at USD 138.9 million and if the methodology as adopted by the AO is followed it would result in a loss in the hands of the alleged PE.

ITA nos. 1443/D/12, 5243/D/11 & 1376/D/12 50 Convergys Customer Management Group Inc. 11.9. In view of the CBDT Circular No. 5 of 2004 as well as the judgment of the Supreme Court in Morgan Stanley (292 ITR 416), the Bombay High Court in Set Satellite (Singapore) Pte Ltd. (307 ITR 205), jurisdictional High Court in Rolls Royce Singapore Pvt. Ltd. (202 Taxman 45) (Del.), Director of Income Tax vs. BBC Worldwide Ltd. (203 Taxman 554) (Del.) and the OECD Guidelines, this issue is to be examined. An overall attribution of Profits to the Permanent Establishment is a transfer pricing issue and no further profits can be attributed to a PE once an arm's length price has been determined for the Indian associated enterprise, which subsumes the functions, assets and risk profile of the alleged PE. In this case 81% revenue has been transferred to the India Subsidiary in the assessment year 2006-07. For the assessment year 2008-09 this percentage comes to 90%.

(a) that permanent establishment; (b) sales in the other State of goods or merchandise of the same or similar kind as those sold.

through that permanent establishment ; or (c) other business activities carried on in the other State of the same or similar kind as those effected through that permanent establishment.

2. Subject to the provisions of paragraph 3, where an enterprise of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein, there shall in each Contracting State be attributed to that permanent establishment the profits which it might be ITA nos. 1443/D/12, 5243/D/11 & 1376/D/12 54 Convergys Customer Management Group Inc. expected to make if it were a distinct and independent enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly at arm's length with the enterprise of which it is a permanent establishment and other enterprises controlling, controlled by or subject to the same common control as that enterprise. In any case where the correct amount of profits attributable to a permanent establishment is incapable of determination or the determination thereof presents exceptional difficulties, the profits attributable to the permanent establishment may be estimated on a reasonable basis. The estimate adopted shall, however, be such that the result shall be in accordance with the principles contained in this Article.