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.