Project-linked engineering and supervision receipts were treated as business income, not fees for technical services, under domestic law and treaty rules.

Receipts from the NH-45 project were treated as business income rather than fees for technical services because the contract involved implementation, supervision, review, material approval and engineering support integral to a construction or like project. The designation used in TDS certificates or the return was not determinative; the true nature of the services controlled, and Explanation 2 to section 9(1)(vii) excluded such project-linked consideration from fees for technical services. On that basis, section 44D did not apply. The treaty position also supported this result because the payments did not satisfy the "make available" requirement under Article 12, and business income attributable to a permanent establishment was to be computed on a net basis under Article 7.

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Issues: Whether the receipts from the NH-45 project were taxable as fees for technical services under section 44D, or were excluded from that character and assessable as business income under the normal provisions of the Act and the India-USA DTAA.

Analysis: The relevant inquiry was the true nature of the services rendered under the project contract. The designation of the receipts in TDS certificates or in the return of income was not determinative. The scope of work showed that the assessee was engaged in services connected with implementation, supervision, review, approval of materials, engineering support, and other activities integrally connected with a construction or like project. Such receipts fell within the exclusion in Explanation 2 to section 9(1)(vii) of the Income-tax Act, 1961, which excludes consideration for any construction, assembly, mining or like project undertaken by the recipient from the definition of fees for technical services. Once the receipt was not fees for technical services under the domestic definition, section 44D could not be invoked. The treaty analysis also supported the assessee because the payments did not satisfy the 'make available' requirement under Article 12, and where business is carried on through a permanent establishment, Article 7 contemplates computation on a net basis. The later insertion of section 44DA was also noted as harmonising the domestic law with the treaty position. The consistent acceptance of the same activity as business income in earlier years reinforced the conclusion.

Conclusion: The receipts from the NH-45 project were not taxable as fees for technical services under section 44D and were taxable as business income under the normal provisions, with the benefit of the treaty computation mechanism.

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