Reimbursement, referral fee and protection fee were held non-taxable where no technical services or make-available test was satisfied.

Pure reimbursement of actual expenses without mark-up is not income chargeable to tax. Referral fee received for merely introducing a client was not fees for technical services, because the activity did not involve managerial, technical or consultancy services, nor any transfer of technical knowledge or know-how. Protection fee linked to a dynamic portfolio methodology was also not taxable as fees for technical services, because the services did not make available technical knowledge, skill, know-how or processes to the Indian recipient and no permanent establishment in India was shown. The additions were deleted and the assessee obtained relief on all substantive grounds.

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Issues: (i) Whether reimbursement of expenses received by the assessee from its group entity was taxable as income; (ii) whether referral fee received for introducing a client to an Indian financial services company was taxable as fees for technical services; (iii) whether protection fee received for services connected with a dynamic portfolio methodology was taxable as fees for technical services.

Issue (i): Whether reimbursement of expenses received by the assessee from its group entity was taxable as income.

Analysis: The reimbursement represented specific actual expenses incurred without any mark-up. The assessee produced supporting invoices and evidence to show that the amounts were cost reimbursements and not consideration for the IT services already assessed separately. A payment which is mere reimbursement of expenditure, without profit element, does not assume the character of income chargeable to tax.

Conclusion: The issue is decided in favour of the assessee. The reimbursement of expenses was not taxable as income.

Issue (ii): Whether referral fee received for introducing a client to an Indian financial services company was taxable as fees for technical services.

Analysis: The referral activity consisted only of introducing a prospective client to the Indian company. It did not involve any managerial, technical or consultancy service, nor any imparting of technical knowledge or know-how. The receipt was therefore not covered by the statutory definition of fees for technical services and could not be deemed to accrue or arise in India on that basis.

Conclusion: The issue is decided in favour of the assessee. The referral fee was not taxable as fees for technical services.

Issue (iii): Whether protection fee received for services connected with a dynamic portfolio methodology was taxable as fees for technical services.

Analysis: The services rendered did not make available technical knowledge, skill, know-how or processes to the Indian recipient. The recipient could not independently use the methodology in future without the assessee's assistance, and the payment therefore did not satisfy the treaty test for technical services. In the absence of a permanent establishment in India, the receipt was also not taxable as business profits.

Conclusion: The issue is decided in favour of the assessee. The protection fee was not taxable in India.

Final Conclusion: The additions sustained by the first appellate authority were deleted and the assessee obtained complete relief on the substantive grounds.

Ratio Decidendi: A payment that is a pure reimbursement of actual expenses is not income, and a receipt is not fees for technical services unless the service is technical or consultancy in nature and, under the treaty test, makes available technical knowledge, skill or know-how to the recipient.

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