Business profits for permanent establishment, not fee for technical services, govern composite on-site mining support receipts under the DTAA.

Receipts from composite technical and evaluation services performed through a project office and admitted permanent establishment in India were taxable as business profits attributable to the PE under Article 7 of the DTAA, not as fee for technical services under section 9(1)(vii). Because the assessee elected DTAA treatment, the special gross-basis regime for foreign companies under sections 44D and 115A did not apply. The income therefore had to be computed on net basis under the regular provisions applicable to the PE as an independent enterprise, with ordinary deductions available under the Act.

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Issues: Whether the receipts from technical and evaluation services rendered through a project office and permanent establishment in India were taxable as fee for technical services under the Income-tax Act or as business profits under the DTAA, and whether the special gross-basis provisions for foreign companies applied.

Analysis: The contract was not limited to isolated technical advice but comprised a composite on-site activity involving geological mapping, drilling, testing, resource modelling, feasibility studies and allied work connected with mining operations. The assessee had a project office in India and an admitted permanent establishment, so the income was taxable in India; once the assessee elected to be governed by the DTAA, Article 7 governed the taxation of business profits attributable to the permanent establishment. In that setting, the receipts were not to be treated as fee for technical services under section 9(1)(vii), and the special provisions for foreign companies under sections 44D and 115A did not apply. The profits were therefore required to be computed under the regular provisions applicable to the permanent establishment as an independent enterprise, with deductions available according to the ordinary law.

Conclusion: The receipts were assessable as business profits under Article 7 of the DTAA, not as fee for technical services, and the assessee was entitled to tax computation on net basis under the regular provisions of the Act.

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