Clinical trial service remittance treated as non-taxable business profit, not royalty or fees for technical services, with no TDS

Remittance for clinical trial-related services was characterised as payment for procurement and onward transmission of commercial information, with the recipient acting only as a conduit to its principal. The services did not confer technical know-how on the assessee and did not make available technical knowledge, experience or skill, so the payment was not royalty under section 9(1)(vi) of the Income-tax Act or the India-Sri Lanka DTAA. In the absence of royalty or fees for technical services character, and since the service provider had no permanent establishment in India, the business profits were not taxable in India and tax was not required to be deducted at source under section 195.

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Issues: Whether the remittance made to the Sri Lankan service provider for clinical trial-related services was in the nature of royalty or fees for technical services, and whether tax was required to be deducted at source under section 195.

Analysis: The payment was held to be for procurement and onward transmission of commercial information arising from clinical trial services, with the assessee acting only as a conduit to transmit the information to its principal. The services did not confer technical know-how on the assessee, nor did they amount to making available technical knowledge, experience or skill to the recipient. On that basis, the receipt was not treated as royalty under section 9(1)(vi) of the Income-tax Act, 1961 or under the India-Sri Lanka DTAA. In the absence of a taxable royalty or fee for technical services character, and since the service provider had no permanent establishment in India, the business profits were not taxable in India.

Conclusion: The remittance was not taxable in India as royalty or fees for technical services, and no tax was required to be deducted at source under section 195.

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