Treaty taxation of technical service receipts follows business profits rules where no PE exists, barring Indian taxability.

Receipts from technical services rendered to Indian group entities were treated as business profits under Article 7 of the India-Thailand DTAA, because the treaty contained no specific article for fees for technical services and such income could not be forced into the residuary article merely for being technical in character. Taxation in India required a permanent establishment and attribution to that establishment; in the absence of a permanent establishment, the income was not taxable in India under Article 22 or section 9(1)(vii), and the addition could not be sustained.

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Issues: Whether the receipts from technical services rendered to Indian group entities were taxable in India as fees for technical services under domestic law and Article 22 of the India-Thailand DTAA, or were assessable as business profits under Article 7 of the DTAA in the absence of a permanent establishment in India.

Analysis: The assessee established that the receipts arose from services rendered in the normal course of its business and placed on record documentary material showing the nature of its activities and the agreements under which the services were provided. The Tribunal held that where a treaty does not contain a specific article for fees for technical services, such receipts cannot be forced into the residuary article merely because they are technical in character. Income having the character of business profits must first be examined under Article 7, and it can be taxed in India only if the non-resident has a permanent establishment in India and the income is attributable to that establishment. The assessment based on web-portal material and on the premise that the services were not the assessee's primary business was found insufficient.

Conclusion: The receipts were held taxable, if at all, as business profits under Article 7 and not under Article 22 or section 9(1)(vii) of the Act; in the absence of a permanent establishment in India, the addition could not survive.

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