Composite cross-border service payments may be apportioned between royalty or technical fees and business receipts under treaty analysis.

Composite cross-border payments for value added services may be split between treaty-covered royalty or fees for technical services and independent business receipts where the service bundle contains both kinds of elements. The text explains that some components, such as use of commercial experience and equipment, can fall within royalty/technical service treatment, while operational elements like continuity of supply, consistency checks, key account management and similar support functions may remain business services. In the absence of a demonstrated permanent establishment in India, a fact-based apportionment of the payment was treated as reasonable and consistent with the India-UK treaty analysis.

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Issues: Whether the payment made for value added services to the Diamond Trading Company was wholly taxable as royalty or fees for technical services, or whether only a part could be so characterised and the balance treated as business receipts.

Analysis: The payment was examined in the context of the service components, the India-UK treaty definition of fees for technical services, and the absence of any demonstrated permanent establishment in India. The Tribunal followed its earlier decision on identical facts and accepted the view that some elements of the value added services involved use of the foreign entity's commercial experience and equipment, while other elements such as continuity of supply, intention to offer, consistency of boxes, SoC integrity, and key account management were in the nature of business services. On that basis, the apportionment made by the first appellate authority was found reasonable and no distinguishing feature was shown to warrant interference.

Conclusion: The revenue's challenge to the apportionment failed and the assessee succeeded in retaining the relief granted by the first appellate authority.

Final Conclusion: The assessment of the service payment was upheld only to the extent already sustained below, and the revenue's appeal did not succeed.

Ratio Decidendi: Where composite cross-border service payments contain both treaty-covered technical/royalty elements and independent business-service elements, and no permanent establishment is shown, a reasonable apportionment supported by facts may be sustained.

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