Treaty definition of fees for technical services controls deduction limits; domestic section 44D cannot override absent article 12 coverage.

Receipts from strategy consulting services under the India-Singapore DTAA were not fees for technical services because they did not satisfy the treaty's "make available" requirement in article 12. As article 12 was not attracted, the gross-basis restriction in section 44D could not be applied merely because the receipts might fall within the domestic definition in Explanation 2 to section 9(1)(vii). Business profits had therefore to be computed under article 7(3), allowing deductions subject to the source State's tax law limitations applicable to such profits. The Revenue's attempt to deny deductions on a section 44D basis was rejected.

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Issues: Whether the limitation on deduction of expenses under section 44D of the Income-tax Act, 1961 applies to receipts which are not fees for technical services under the India-Singapore DTAA, but which may fall within Explanation 2 to section 9(1)(vii) of the Act.

Analysis: The relevant profits were required to be computed under article 7(3) of the DTAA, which permits deductions subject to the limitations of the source State's tax laws. The expression "fees for technical services" in the treaty had to be understood in the context of article 12, read as a whole, and not by importing the domestic definition in isolation. The consultancy services in question were strategy consulting services and did not satisfy the treaty definition of fees for technical services, particularly the requirement that the services make available technical knowledge, experience, skill, know-how or processes. Since article 12 was not attracted, the gross-basis restriction in section 44D, which applies only to income by way of royalties or fees for technical services, could not be invoked merely because the receipts might otherwise fit the domestic law definition.

Conclusion: Section 44D did not apply, and the Revenue's challenge to the deletion of the limitation on expenses failed.

Ratio Decidendi: Where a receipt is not fees for technical services under the applicable treaty, the domestic gross-basis restriction for such income cannot be imported through article 7(3) to deny deductions while computing business profits attributable to a permanent establishment.

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