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Issues: (i) Whether there was a business connection in India within the meaning of the relevant provisions so as to tax the foreign assessee on the technical fees received from the Indian company; (ii) Whether 75% of the engineering fees could be treated as income accruing in India.
Issue (i): Whether there was a business connection in India within the meaning of the relevant provisions so as to tax the foreign assessee on the technical fees received from the Indian company.
Analysis: The questions had to be answered in the light of the binding Supreme Court decision in the similar know-how arrangement involving the same legal issue. That decision held that furnishing technical information from outside India was a service rendered outside India, that use of the information in India was not decisive, and that the activities of the foreign company's personnel in India did not amount to carrying on business in India. Even if some connection existed between the fees and the Indian company's affairs, no part of the relevant activity or operation was carried on by the foreign company in India.
Conclusion: The issue was answered against the Revenue and in favour of the assessee.
Issue (ii): Whether 75% of the engineering fees could be treated as income accruing in India.
Analysis: In view of the Supreme Court ruling, the fees received by the foreign company did not accrue or arise in India, nor could they be deemed to have so accrued or arisen. Consequently, no part of the technical fees was liable to be brought to tax in India on the basis adopted by the Revenue.
Conclusion: The issue was answered against the Revenue and in favour of the assessee.
Final Conclusion: The reference was disposed of by applying the binding Supreme Court position, resulting in the questions being answered in favour of the assessee and against the Revenue.
Ratio Decidendi: Technical fees received by a non-resident for furnishing information from outside India do not accrue or arise in India merely because the information is used in India or because there is some business connection with the Indian payer, where no relevant activity or operation is carried on by the foreign company in India.
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