Treaty taxation of service receipts depends on make-available, PE attribution, and non-royalty character of connectivity reimbursements.

Under the India-UK treaty, marketing and management service receipts were not fees for technical services unless the services made technical knowledge, skill, experience or processes available so the recipient could perform them independently; only the India-linked services were attributable to the service permanent establishment as business profits. Reimbursement of lease line charges was not royalty because no equipment was placed at the payer's disposal and no technical information was imparted. Interest under sections 234B and 234C was not chargeable where tax was deductible at source on the non-resident's income. Reimbursement for employees' foreign visits required factual verification. Consideration for assignment of customer contracts executed outside India was not taxable in India or attributable to the permanent establishment.

---

---

Issues: (i) Whether receipts for marketing and management services were taxable in India as fees for technical services or as business profits attributable to a service permanent establishment; (ii) whether reimbursement of lease line charges constituted royalty; (iii) whether interest under sections 234B and 234C was chargeable; (iv) whether reimbursement of expenses incurred for employees' visits abroad was taxable; and (v) whether consideration received on assignment of customer contracts was taxable in India.

Issue (i): Whether receipts for marketing and management services were taxable in India as fees for technical services or as business profits attributable to a service permanent establishment.

Analysis: The services were examined against the treaty standard requiring technical knowledge, skill, experience or processes to be made available to the recipient. On the facts, the services were of the same character as those earlier considered in connected proceedings, and they did not enable the recipient to perform the services independently without recourse to the service provider. The receipts for services rendered outside India were therefore not taxable as fees for technical services. The amount received for services rendered in India was attributable to the service permanent establishment and taxable as business profits under the treaty.

Conclusion: The receipts of Rs. 24,33,62,066/- were not taxable in India as fees for technical services and were not attributable to the permanent establishment, while the amount of Rs. 87,53,248/- was taxable as business profits attributable to the service permanent establishment.

Issue (ii): Whether reimbursement of lease line charges constituted royalty.

Analysis: The connectivity arrangement merely facilitated telecommunications. No industrial, commercial or scientific equipment was placed at the disposal of the payer, no right to use such equipment arose, and no technical or commercial information was imparted. A reimbursement without markup was not income in the nature of royalty.

Conclusion: The reimbursement of lease line charges was not royalty and was not taxable in India.

Issue (iii): Whether interest under sections 234B and 234C was chargeable.

Analysis: Where tax is deductible at source from the entire income of a non-resident, advance tax liability does not arise and interest for default in advance tax payment cannot be levied.

Conclusion: The levy of interest under sections 234B and 234C was not sustainable.

Issue (iv): Whether reimbursement of expenses incurred for employees' visits abroad was taxable.

Analysis: The exact nature of the expenditure and the services underlying the reimbursement required factual verification before deciding taxability. The matter was therefore sent back for fresh examination.

Conclusion: The issue was remanded for fresh adjudication.

Issue (v): Whether consideration received on assignment of customer contracts was taxable in India.

Analysis: The contracts were executed outside India and constituted capital assets situated outside India. The transfer consideration was received outside India, and the service permanent establishment had no nexus with the acquisition or assignment of those contracts. The amount was neither income deemed to accrue or arise in India nor income attributable to the permanent establishment.

Conclusion: The addition on account of assignment of customer contracts was deleted.

Final Conclusion: The Revenue's appeal failed in full, while the assessee succeeded on the substantive challenge to the transfer of contract receipts and obtained remand on the reimbursement issue.

Ratio Decidendi: Under the India-UK treaty, services are taxable as technical services only if the recipient is enabled to perform them independently without recourse to the provider, and receipts from activities or assets lacking a nexus with the Indian permanent establishment cannot be attributed to that permanent establishment.

---