Pure reimbursement and lack of permanent establishment prevented taxation of testing charges and presumptive profit attribution.

Pure reimbursement of laboratory testing charges was not fees for technical services because the recipient merely acted as a conduit and rendered no independent technical service; the addition was deleted. A permanent establishment in India was not established on the record, as the alleged nexus rested on assumption rather than evidence and no fixed place of business or other treaty-recognised presence in India was shown. In the absence of a permanent establishment, attribution of profits on a presumptive basis could not stand; that finding was set aside.

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Issues: (i) Whether reimbursement of testing charges of Rs. 1,36,660 was taxable as fees for technical services. (ii) Whether the assessee had a permanent establishment in India and whether profit could be attributed on presumptive basis.

Issue (i): Whether reimbursement of testing charges of Rs. 1,36,660 was taxable as fees for technical services.

Analysis: The documentary material showed that the amount was a pure reimbursement of laboratory testing charges paid by the assessee on behalf of the Indian entity. The assessee had not rendered any independent technical service, nor had it added value to the laboratory report. The nature of the receipt was therefore not converted into income chargeable as fees for technical services merely because the payment related to testing.

Conclusion: The addition of Rs. 1,36,660 as fees for technical services was not sustainable and was deleted in favour of the assessee.

Issue (ii): Whether the assessee had a permanent establishment in India and whether profit could be attributed on presumptive basis.

Analysis: The finding of a permanent establishment was based on assumption rather than evidence. The record contained invoices and bill of lading showing supplies on a principal-to-principal basis and receipts outside India. No branch, project office, liaison office, warehouse, employee, or other fixed place of business in India was shown. Mere existence of an Indian subsidiary and business dealings with Indian customers did not by itself establish a permanent establishment. Once no permanent establishment was proved, attribution of profits on a presumptive basis could not survive.

Conclusion: The finding of permanent establishment and the consequential attribution of profit were set aside in favour of the assessee.

Final Conclusion: The tax authorities' additions on both the reimbursement issue and the permanent establishment attribution issue were deleted, and the assessee succeeded in the appeal.

Ratio Decidendi: A reimbursement remains outside the ambit of fees for technical services where the recipient merely acts as a conduit and does not render an independent technical service, and a permanent establishment cannot be inferred from the mere existence of a subsidiary without evidence of a fixed place of business or other treaty-recognised nexus in India.

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