Technical assistance under a know-how arrangement was taxable as fees for included services, not business profits from a permanent establishment.

Technical assistance under a know-how arrangement was treated as fees for included services rather than business profits attributable to a permanent establishment in India. The services were limited to implementation of know-how and supervision to ensure that plant and equipment were erected according to the supplier's specifications; this did not amount to supervision of a building, construction, installation or assembly project for permanent establishment purposes. Reading the treaty business-profits and fees-for-included-services provisions together, the exclusion in the business-profits article operated where no permanent establishment existed in India. On those facts, the concessional 10% deduction applied and the higher 30% rate was not applicable.

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Issues: Whether the amounts remitted for technical assistance under the know-how arrangement were taxable at 10% as fees for included services or at 30% on the footing that the foreign enterprise had a permanent establishment in India.

Analysis: The payment related only to technical assistance for implementation of know-how and supervision to ensure that the plant and equipment were erected in accordance with the supplier's specifications. The arrangement did not amount to supervision of a building site, construction site, installation project, or assembly project within the meaning of the permanent establishment clause. The treaty provisions governing business profits and fees for included services were read together, and the exclusion in the business-profits article was treated as controlling where the payment was for included services and no permanent establishment existed in India. On the facts found, the foreign enterprise had no permanent establishment in India.

Conclusion: The higher rate of 30% was not applicable, and deduction at 10% was correct; the departmental appeal failed.

Ratio Decidendi: Technical assistance and supervisory services confined to ensuring proper erection and implementation of supplied plant, without a permanent establishment in India, are taxable as treaty-covered fees for included services at the applicable concessional rate and not at the rate applicable to business profits attributable to a permanent establishment.

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