Service permanent establishment and treaty fees for technical services were applied, while royalty connection and interest liability were rejected.

Service permanent establishment was found to exist in India because the secondee and service arrangement continued in substance, but royalty from intellectual property rights was not effectively connected with that establishment since the post-grant services did not create or make available the rights. Receipts from central cost recharges and structural tests were treated as fees for technical services under the treaty as ancillary and subsidiary to the licensed rights and involving make-available of services. Salary reimbursement relating to seconded employees was remanded for fresh verification and Indian attribution, with double taxation to be avoided. Interest under section 234B was held not leviable where the income had already been offered in return.

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Issues: (i) Whether the assessee had a service permanent establishment in India; (ii) whether royalty receipts were effectively connected with the service permanent establishment; (iii) whether receipts from central cost recharges and structural tests were taxable as fees for technical services under the treaty; (iv) whether reimbursement of salary and other expenses relating to seconded employees required fresh verification and attribution in India; and (v) whether interest under section 234B was leviable.

Issue (i): Whether the assessee had a service permanent establishment in India.

Analysis: The arrangement for seconded employees and rendering of services in India continued in substance under the later tripartite arrangement, and the routing of royalty through another group entity did not alter the underlying service structure. The earlier coordinate bench finding on similar facts was followed.

Conclusion: The assessee had a service permanent establishment in India, and the issue was decided against the assessee.

Issue (ii): Whether royalty receipts were effectively connected with the service permanent establishment.

Analysis: The royalty arose from the grant of intellectual property rights, while the service permanent establishment was concerned with post-grant services. On the facts, the service permanent establishment had no role in creating or making available the intellectual property rights, and the royalty was not shown to be effectively connected with that establishment.

Conclusion: The royalty receipts were not effectively connected with the service permanent establishment, and the issue was decided in favour of the assessee.

Issue (iii): Whether receipts from central cost recharges and structural tests were taxable as fees for technical services under the treaty.

Analysis: The receipts were held to be ancillary and subsidiary to the enjoyment of the licensed rights and were treated as falling within the treaty definition of fees for technical services. The reasoning also treated the services as having been made available in the treaty sense.

Conclusion: The receipts were taxable as fees for technical services, and the issue was decided against the assessee.

Issue (iv): Whether reimbursement of salary and other expenses relating to seconded employees required fresh verification and attribution in India.

Analysis: The claim of mere reimbursement was not sufficiently supported by documentary material, so the matter was restored for verification. The Assessing Officer was also directed to avoid double taxation while determining attribution in line with the connected assessment.

Conclusion: The issue was restored for fresh verification and attribution, and the disposal was in the nature of statistical relief.

Issue (v): Whether interest under section 234B was leviable.

Analysis: The earlier coordinate bench view applied, under which no interest liability arose where the assessee had already offered the relevant income in its return and the dispute concerned the mode of taxation rather than concealment of income.

Conclusion: Interest under section 234B was not leviable, and the issue was decided in favour of the assessee.

Final Conclusion: The appeal succeeded only in part, with relief granted on royalty connection and section 234B interest, while the service permanent establishment and fees-for-technical-services issues were decided against the assessee and the remaining issues were remanded or treated as statistical relief.

Ratio Decidendi: Royalty derived from intellectual property rights is not effectively connected with a service permanent establishment merely because services are rendered separately, while treaty fees for technical services may include receipts ancillary and subsidiary to licensed rights where the substance of the arrangement shows such receipts are part of the same commercial stream.

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