Centralized services fee treated as business income, not fees for included services, where no permanent establishment existed in India.

Centralized services fee received under the India-US DTAA was analysed as part of an integrated business arrangement for advertising, publicity, marketing, sales promotion and hotel reservations. The services were held not to qualify as fees for included services because they were neither ancillary nor subsidiary to the licence arrangement under Article 12(4)(a), and the make-available condition for technical services was not satisfied. The fee was therefore treated as business income rather than royalty or technical services income. In the absence of a permanent establishment in India, the amount was not taxable in India.

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Issues: Whether the centralized services fee received by the assessee under the India-US DTAA was taxable as fees for included services or fees for technical services, or whether it constituted business income not chargeable to tax in India in the absence of a permanent establishment.

Analysis: The services were found to form part of an integrated business arrangement directed principally toward advertising, publicity, marketing, sales promotion and reservations for the hotel business. The arrangement was held not to satisfy the requirements of fees for included services, since the services were neither ancillary nor subsidiary to the license arrangement in the manner required by Article 12(4)(a), and the make available condition relevant to technical services was also not met. The fee was treated as consideration for business operations rather than as royalty or technical services income, and the binding earlier decisions in the assessee's own case and the group concern's case were followed.

Conclusion: The centralized services fee was not taxable as fees for included services or fees for technical services under the DTAA or section 9 of the Income-tax Act, 1961, but was business income; in the absence of a permanent establishment in India, it was not taxable.

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