The issue in appeal lies in a rather narrow compass of material facts. The assessee, a foreign institutional investor, is a company incorporated in, and fiscally domiciled in, the Kingdom of Spain. The assessee had filed a return of income, disclosing taxable income of Rs. 1,745, on 15.11.2013. During the course of ensuing scrutiny assessment proceedings, the Assessing Officer noticed that the assessee had earned a profit of Rs. 12,60,01,800 on account of transactions in foreign exchange but claimed the same as exempt under article 14 of theDouble Taxation Avoidance Agreement entered into between India and Spain [(1994) 214 ITR (St.) 197; Indo Spanish tax treaty,in short]. The case of the assessee, in brief, is that since these gains are in the nature of arbitrage, and entered into in accordance with the RBI regulations, to hedge against the investments and payments of margin money for derivative transactions, which are capital assets, and the gains arising from these transactions are capital gains. Without prejudice to this line of argument, it was also contended that in case these transactions are not treated as capital gains, these gains are at best business gains which cannot be brought to tax in India, as the assessee admittedly did not have any permanent establishment (PE) in India.