Treaty-based business profits treatment excludes fees for technical services and blocks domestic gross-taxation limits.

Where a Singapore resident operated through a permanent establishment in India and earned receipts from collection and dissemination of market information, the income was treated under the India-Singapore DTAA as business profits rather than fees for technical services. On that treaty-based characterization, the domestic gross-taxation regime and the restrictions in section 44D read with section 115A could not be applied. The proper basis of assessment was attribution of business profits to the permanent establishment under Article 7(3) of the DTAA, subject to the treaty's limitations.

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Issues: Whether the receipts of the foreign enterprise from its Indian branch were taxable as fees for technical services under the Income-tax Act, 1961 and whether the limitations in section 44D and taxation under section 115A could be applied, or whether the receipts were taxable as business profits under the India-Singapore DTAA.

Analysis: The assessee was a Singapore resident carrying on activities through a permanent establishment in India. The receipts arose from collection and dissemination of market information and were examined in the light of the treaty provisions governing business profits and fees for technical services. The issue was materially identical to an earlier coordinate bench decision dealing with a Singapore-based enterprise carrying on similar activities through a permanent establishment. Applying that reasoning, the treaty governed the taxation of the income where the receipts were not taxable as fees for technical services under the DTAA. In that situation, the domestic provisions for gross taxation and restriction of deductions under section 44D, read with section 115A, could not be pressed into service against the assessee. The proper mode of assessment was attribution of business profits under Article 7(3) of the DTAA, subject only to the limitations applicable under that Article.

Conclusion: The income was to be assessed as business profits under Article 7(3) of the DTAA and not as fees for technical services under section 9(1)(vii) of the Income-tax Act, 1961. The Revenue's appeal failed.

Ratio Decidendi: Where an assessee is covered by an applicable tax treaty and the receipt does not fall within fees for technical services under that treaty, the domestic provisions for gross taxation and corresponding deduction restrictions cannot be imposed, and the income must be taxed as business profits attributable to the permanent establishment under the treaty.

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