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Issues: Whether the receipts received under the Master Services Agreement from the Indian payer were taxable as royalty or fees for included services, or were business profits not taxable in India in the absence of a permanent establishment.
Analysis: The receipts for both assessment years arose under the same Master Services Agreement already considered in earlier years. The Tribunal followed its own prior decisions on the identical agreement and identical payer relationship, and held that the consideration was not in the nature of royalty or fees for included services under the India-USA DTAA. The receipts were treated as business profits, and in the absence of a permanent establishment in India, they could not be brought to tax in India. The challenge to the application of Rule 10 and the allocation of receipts on a 90:10 basis therefore did not survive on merits. Ancillary grounds relating to short credit of tax deducted at source and interest were left to verification or were treated as consequential, while the penalty ground was premature.
Conclusion: The receipts were not taxable in India as royalty or fees for included services, but constituted business profits not chargeable in the absence of a permanent establishment. The substantive additions were deleted in favour of the assessee.
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