Referral commission outside India is not fees for technical services and is not taxable without attribution to an Indian permanent establishment

Referral commission earned by a foreign branch for introducing an Indian client was not fees for technical services because the payment was consideration for referral activity, not for managerial, technical or consultancy services. The activity was performed outside India, the overseas branch had no permanent establishment in India, and the Indian branch played no role in the referral. On those facts, the receipt was not attributable to an Indian permanent establishment and fell within the treaty rules on business profits, so it was not taxable in India.

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Issues: Whether the referral fee received by the foreign branch was taxable in India as fees for technical services, and whether it was attributable to a permanent establishment in India so as to be taxable under the treaty.

Analysis: The receipt arose from referring an Indian client to the Indian company, and the payment was a share of commission rather than consideration for rendering managerial, technical, or consultancy services. On the facts, the activity of referral was performed outside India, the overseas branch had no permanent establishment in India, and the Indian branch had no role in the referral activity. In these circumstances, the receipt could not be brought within the deeming provisions for fees for technical services or treated as income attributable to an Indian permanent establishment. The treaty provisions governing business profits therefore applied to exclude taxation in India.

Conclusion: The referral fee was not fees for technical services and was not attributable to any permanent establishment in India; it was not taxable in India.

Ratio Decidendi: A referral commission earned for introducing a client, absent rendering of technical, managerial, or consultancy services and absent attribution to an Indian permanent establishment, is not taxable in India as fees for technical services.

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