Business profits and permanent establishment rules kept offshore labour-supply receipts outside Indian tax net under the treaty.

Receipts from supplying skilled labour for offshore projects were treated as business profits under the India-Malaysia DTAA, so they were taxable in India only if attributable to a permanent establishment in India; domestic characterisation as fees for technical services did not override the treaty rule. On the facts, the applicant had no office, branch, fixed place, or other treaty-recognised business presence in India, and its limited role did not amount to supervisory activity creating a permanent establishment. The receipts were therefore outside the Indian tax net under the treaty.

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Issues: (i) Whether the amounts received outside India for supplying skilled labour were taxable in India; (ii) whether the applicant's activities in India constituted a permanent establishment under the India-Malaysia DTAA.

Issue (i): Whether the amounts received outside India for supplying skilled labour were taxable in India.

Analysis: The receipts arose from a business of supplying skilled labour for offshore projects. Even though the consideration could fall within the concept of fees for technical services under domestic law, the governing treaty provision was the business profits article. Under that article, profits of an enterprise of one State are taxable in the other State only to the extent attributable to a permanent establishment situated there, unless otherwise dealt with in a separate treaty article. Since the income was earned in the course of business, it was governed by the treaty framework rather than domestic deeming provisions alone.

Conclusion: The amounts received outside India were not taxable in India in the absence of a taxable permanent establishment connection.

Issue (ii): Whether the applicant's activities in India constituted a permanent establishment under the India-Malaysia DTAA.

Analysis: A permanent establishment requires a fixed place of business or one of the treaty-recognised forms of nexus. On the facts accepted by the Authority, the applicant had no office, branch, recruitment establishment, training unit, welfare arrangement, or other fixed business location in India. The workers were supplied from abroad and supervised by the Indian project operator, and the limited role of the applicant did not amount to supervisory activity creating a permanent establishment. The treaty provision covering supervisory activities for construction, installation, or assembly projects was also inapplicable.

Conclusion: The applicant's activities did not constitute a permanent establishment in India.

Final Conclusion: The receipts were held outside the Indian tax net under the treaty because they were business profits not attributable to any permanent establishment in India.

Ratio Decidendi: Where a non-resident earns business receipts from supplying labour abroad, those receipts are taxable in India under the treaty only if attributable to a permanent establishment in India; domestic characterisation as technical fees does not by itself displace the treaty rule.

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