Management charges for plant construction and commissioning were held taxable in India under the treaty exclusion for industrial or commercial profits.

Payments for construction supervision, erection, pre-commissioning, commissioning, bid evaluation, work-order preparation, coordination, and practical training were treated as management charges rather than mere technical or consultancy services. On reading the agreement as a whole, the tribunal held that the recipient undertook control and handling of project activities and assumed responsibility for completion of the plant, so the fees fell within the treaty exclusion from industrial or commercial profits and were taxable in India. The argument based on consistent treatment in earlier years failed because each assessment year is a separate unit and there is no res judicata in income-tax proceedings.

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Issues: Whether the amounts paid for supervision of construction and erection, pre-commissioning and commissioning, and arranging practical experience for personnel were management charges taxable in India, or merely technical/consultancy services exempt from tax under the treaty.

Analysis: The agreement, read as a whole, showed that the assessee was not confined to supplying know-how or technical advice. It undertook construction management, supervision of civil works, erection, installation, pre-commissioning, commissioning, bid evaluation, preparation of work orders, coordination of activities, and responsibility for completion of the plant. The expression "management" was construed in its ordinary and contextual sense as handling and control of activities and affairs. On that construction, the disputed fees were attributable to management services and therefore fell within the treaty exclusion from industrial or commercial profits. The plea based on the treatment of earlier years was rejected because each assessment year is a separate unit and there is no res judicata in income-tax proceedings.

Conclusion: The payments were rightly treated as management charges exigible to tax in India; the assessee's appeal failed and the Revenue's appeal succeeded.

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