Permanent establishment and make available test determine taxation of project receipts as business profits, not royalty.

A foreign enterprise was found to have a fixed place permanent establishment in India because it had space at its disposal at the project venue, including storage and working space, and carried on continuous on-site operations for preparation, execution, maintenance and dismantling. The lighting and searchlight receipts were held not to be royalty or fees for included services because the customer received the turnkey output, not the underlying know-how or technical knowledge on a make available basis. As the permanent establishment existed, the project income was taxable in India as business profits attributable to that PE under the treaty and also fell within section 9(1)(i).

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Issues: (i) Whether the applicant had a permanent establishment in India under Article 5 of the India-Belgium DTAA. (ii) Whether the consideration for lighting and searchlight services was taxable as royalty or fees for included services under the treaty. (iii) Whether, in the absence of treaty protection on those heads, the receipts were taxable in India as business profits under Article 7 and section 9(1)(i) of the Income-tax Act, 1961.

Issue (i): Whether the applicant had a permanent establishment in India under Article 5 of the India-Belgium DTAA.

Analysis: The agreement and surrounding facts showed that the applicant had space at its disposal at the venue, including lockable storage and on-site working space, together with continuing presence for preparatory, operational, maintenance, dismantling, subcontracting and insurance-related activities. The nature of the project required continuous on-site execution and the place was sufficiently identifiable and under the applicant's control for the business being carried on. The duration of presence was to be assessed in light of the nature of the project and was sufficient for a fixed place PE.

Conclusion: The applicant had a permanent establishment in India.

Issue (ii): Whether the consideration for lighting and searchlight services was taxable as royalty or fees for included services under the treaty.

Analysis: The receipts were for the final product and services delivered under the turnkey arrangement, not for granting the payer the right to use the applicant's underlying know-how, process, design or intellectual input. The recipient did not acquire technical knowledge, experience, skill or processes enabling it to apply the technology independently in future. Although the services were technical in nature, the treaty was read with the India-Portugal Convention's make available standard, which restricted Article 12. On that basis, the payment did not fall within royalty or fees for included services.

Conclusion: The consideration was not taxable as royalty or fees for included services.

Issue (iii): Whether, in the absence of treaty protection on those heads, the receipts were taxable in India as business profits under Article 7 and section 9(1)(i) of the Income-tax Act, 1961.

Analysis: Since the applicant had a permanent establishment in India, the income arising from the Indian project was attributable to that PE and was taxable as business profits under Article 7. Independently, the income also arose from a business connection and source in India within section 9(1)(i). The treaty exclusion from Article 12 did not prevent taxation under Article 7 where the PE existed.

Conclusion: The receipts were taxable in India as business profits attributable to the permanent establishment.

Final Conclusion: The advance ruling held that the applicant's India-related receipts were chargeable to tax in India through a permanent establishment, but not as royalty or fees for included services; the taxable character was business profits.

Ratio Decidendi: Where a foreign enterprise has a fixed place at its disposal and carries on project-linked operations through that place, the income is attributable to a permanent establishment and is taxable as business profits, while treaty royalty or technical-fee character does not arise unless the payer acquires the underlying know-how or technology on a make available basis.

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