Fees for technical services are taxable on a gross basis, and reimbursement language does not avoid withholding or taxability.

Payments for managerial, technical, engineering and related services were treated as consideration for fees for technical services, not a mere reimbursement of costs, even where charged at actual cost without mark-up; the payer was therefore required to withhold tax under section 195(1) at the lower of the Act or treaty rate. In computing income from such fees under section 44D read with section 115A, no implied option could be read in to adopt net-basis taxation or claim deductions under sections 28 to 44C, because section 44D is a special foreign-company provision that mandates gross-basis computation and cannot be expanded by analogy to a different presumptive-taxation context.

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Issues: (i) Whether the amounts payable to the non-resident company for services rendered in the United States were merely reimbursement of costs or were taxable fees for technical services, requiring deduction of tax at source under section 195(1). (ii) Whether, in computing income from fees for technical services under section 44D read with section 115A, an option could be read in to tax only the net income by applying the principle of presumptive taxation considered in Union of India v. A. Sanayasi Rao.

Issue (i): Whether the amounts payable to the non-resident company for services rendered in the United States were merely reimbursement of costs or were taxable fees for technical services, requiring deduction of tax at source under section 195(1).

Analysis: The agreement provided for managerial, technical, engineering and related services, and the payments were consideration for those services rather than a pure reimbursement. The fact that the charges were stated to cover only actual costs and no mark-up did not alter the character of the receipt as income in the hands of the recipient. The payment also fell within the treaty provision dealing with fees for technical services, and the payer was therefore obliged to comply with withholding tax provisions.

Conclusion: The payment was taxable in India and tax was required to be withheld under section 195(1), at the appropriate rate under the Act or the Treaty, whichever was lower, in favour of Revenue.

Issue (ii): Whether, in computing income from fees for technical services under section 44D read with section 115A, an option could be read in to tax only the net income by applying the principle of presumptive taxation considered in Union of India v. A. Sanayasi Rao.

Analysis: Section 44D is a special provision for foreign companies and excludes deductions under sections 28 to 44C in computing income by way of royalty or fees for technical services. The reasoning applied to section 44AC in Sanayasi Rao did not govern section 44D, because that case dealt with a different statutory setting and did not justify reading an optional net-computation mechanism into a provision that expressly mandates gross-basis taxation. The Tribunal also noted that it could not rewrite the statute by reading down a provision on constitutional grounds.

Conclusion: No option could be read into section 44D to allow net-basis computation, and the assessee was not entitled to deduct expenses under sections 28 to 44C, in favour of Revenue.

Final Conclusion: The ruling affirmed taxability of the service fees in India, upheld the withholding obligation, and rejected the attempt to compute the income on a net basis under the presumptive-taxation analogy.

Ratio Decidendi: A special charging/computation provision for foreign companies that expressly bars deductions cannot be supplemented by an implied option to compute income on a net basis merely because a different presumptive-taxation provision was read down in a distinct constitutional context.

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