Project receipts taxed as business profits, not royalty or technical fees; section 234B interest also held not leviable.

Receipts earned by a consortium member from project execution were treated as business profits attributable to its Indian permanent establishment, because the contracts showed only allocation of work within the joint venture and no separate transfer of technical know-how; the attempted characterisation as royalty or fees for technical services was rejected. Transit office facility expenses were not finally allowed on merits and remained dependent on further confirmation of payment evidence. Interest under section 234B was held not chargeable to the non-resident assessee where tax was deductible at source, following binding jurisdictional precedent.

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Issues: (i) whether the amounts received from the projects were royalty or fees for technical services, or business profits attributable to the permanent establishment; (ii) whether transit office facility expenses were allowable; and (iii) whether interest under section 234B of the Income-tax Act, 1961 was chargeable.

Issue (i): whether the amounts received from the projects were royalty or fees for technical services, or business profits attributable to the permanent establishment.

Analysis: The receipts arose from the assessee's participation in consortium/joint venture projects, with the contracts showing allocation of work among the members. The amount characterised as royalty was found to be part of the assessee's share from execution of the projects, not consideration for a separate transfer of technical know-how. Since the assessee had a permanent establishment in India, the income earned through the projects was attributable to that permanent establishment and the attempted bifurcation into royalty and technical service fees was rejected.

Conclusion: The receipts were held to be business profits attributable to the permanent establishment and not royalty or fees for technical services.

Issue (ii): whether transit office facility expenses were allowable.

Analysis: The claim for transit facility expenses was disallowed below because no confirmation from the Russian Embassy had been filed to substantiate the payment. The assessee was granted one further opportunity to furnish the confirmation, and the ground was treated as allowed only for statistical purposes.

Conclusion: The issue was not finally allowed on merits and was left to be supported by further confirmation.

Issue (iii): whether interest under section 234B of the Income-tax Act, 1961 was chargeable.

Analysis: The issue was governed by the jurisdictional High Court view that where tax was deductible at source, no interest under section 234B could be levied on the non-resident assessee. The Tribunal followed that binding precedent and rejected the Revenue's objection.

Conclusion: Interest under section 234B was held to be not chargeable.

Final Conclusion: The assessee succeeded on the principal characterization issue and on section 234B interest, while the transit expense claim was left open for substantiation. Overall, the assessee's appeals were allowed only to a limited extent and the Revenue's appeals failed.

Ratio Decidendi: Income received by a consortium member from execution of project work, where no separate transfer of technical know-how is shown and the assessee has a permanent establishment in India, is taxable as business profits attributable to that permanent establishment and not as royalty or fees for technical services; interest under section 234B is not leviable where tax was deductible at source on the relevant payments.

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