Technical fees versus royalty: payments for studies and tests were remanded for treaty and circular reconsideration.

Payments to a Danish company for studies and tests were treated as technical fees, not royalty, because there was no transfer of technical know-how or right to use any property or asset. On the available material, the receipts would ordinarily fall within the foreign enterprise's commercial profits and would not be chargeable in India absent a permanent establishment. The lower authority's characterization was not accepted in full, and the matter was remanded for reconsideration of the relevant double taxation agreement and the Board's clarifications, with a fresh decision after hearing the parties.

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Issues: Whether the amounts paid to the Danish company for carrying out studies and tests were taxable in India as royalty or remuneration for personal services, or whether they constituted commercial profits not chargeable in India in the absence of a permanent establishment.

Analysis: The payments were held to be in the nature of technical fees and not royalty, since there was no transfer of technical know-how or right to use any property or asset of the foreign company. On the materials then available, such receipts would ordinarily fall within commercial profits of the foreign enterprise. The applicability of the relevant double taxation agreement and the Board's circular on the treatment of technical fees required consideration of materials and clarifications not examined by the lower authority.

Conclusion: The characterization adopted by the lower authority was not accepted in full, and the matter was sent back for reconsideration of the Board's clarifications and a fresh decision after hearing the parties.

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