Treaty characterisation of service receipts: business profits article applies, and residual income article cannot create Indian taxability.

Service receipts from general, administrative, business planning, coordination and engineering work performed for an Indian subsidiary were treated as business income under the India-Thailand treaty. In the absence of a specific fees for technical services article, such receipts do not move to the residual income article merely because the recipient has no permanent establishment in India. The residual article applies only to income not otherwise dealt with by another treaty article. On that basis, the receipts fell within the business profits article and were not taxable in India without a permanent establishment.

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Issues: Whether receipts for services rendered by a Thai resident company, in the absence of a specific fees for technical services article in the India-Thailand tax treaty, were taxable under the residual income article or as business income under the business profits article.

Analysis: The receipts arose from general, administrative, business planning, coordination and engineering services rendered to the Indian subsidiary, and were therefore in substance consideration for services forming part of the assessee's business activity. In the absence of a specific treaty article governing fees for technical services, income that is otherwise business income does not shift to the residual article merely because the assessee has no permanent establishment in India. The residual article applies only to income not expressly dealt with by any other article of the treaty. Support was drawn from the treaty framework and the cited precedents, which treated similar service income as falling within the business profits article rather than the residual article.

Conclusion: The receipts were held to fall under the business profits article and not under the residual income article, and in the absence of a permanent establishment in India they were not taxable in India. The Revenue's appeal failed.

Final Conclusion: The treaty characterization adopted by the first appellate authority was upheld, resulting in deletion of the proposed Indian taxability of the service receipts.

Ratio Decidendi: Where a tax treaty contains no specific article for fees for technical services, service receipts that are in substance business income remain governed by the business profits article and cannot be brought under the residual income article merely because there is no permanent establishment in the source state.

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