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Issues: Whether fabrication charges received for refurbishing bushings were taxable as fees for technical services under section 9(1)(vii) of the Income-tax Act, 1961 and Article 12 of the India-Singapore DTAA.
Analysis: The fabrication activity was carried out in Singapore and there was no permanent establishment in India. The controversy turned on whether the receipts could be brought within Article 12(4)(a) as services ancillary and subsidiary to payments described in Article 12(3). The Court followed the assessee's own earlier years and held that Article 9 could not be used to recharacterise the transaction by treating payments made to another group entity as if they were payments to the assessee. The distinct legal identity of the group entities had to be respected, and the treaty language could not be rewritten to extend Article 12(4)(a) to payments made to an associated enterprise instead of to the assessee.
Conclusion: The fabrication charges were not taxable as fees for technical services and the addition was deleted in favour of the assessee.
Ratio Decidendi: Article 12(4)(a) of the India-Singapore DTAA cannot be invoked unless the assessee itself receives a payment described in Article 12(3), and Article 9 cannot be used to recharacterise separate transactions between distinct legal entities.
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