Design, engineering and technical training receipts were held taxable as fees for technical services under the Income-tax Act.

Tailor-made design, engineering, documentation and technical training receipts under the contracts were treated as fees for technical services because the agreements separately identified engineering charges and the services were rendered in connection with plant supply and erection rather than as part of a construction, assembly, mining or like project undertaken by the recipient itself. The exclusion in Explanation 2 to Section 9(1)(vii) did not apply, as supervisory and engineering services connected with such activities remain within the statutory definition. Technical training abroad for the purchaser's personnel was also held taxable as separate consideration for equipping staff to operate and maintain the plants after commissioning. Both sets of receipts were accordingly taxable as fees for technical services.

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Issues: (i) Whether the amounts received towards design, engineering and related documentation services under the contracts were assessable as fees for technical services. (ii) Whether the amounts received towards training of the purchaser's personnel abroad were assessable as fees for technical services.

Issue (i): Whether the amounts received towards design, engineering and related documentation services under the contracts were assessable as fees for technical services.

Analysis: The receipts were held to arise from tailor-made design and engineering services, drawings, documents and technical assistance supplied under the contracts. The agreements separately identified the engineering charges, and the services were not treated as mere incidental supply of equipment. The exclusion in Explanation 2 to Section 9(1)(vii) of the Income-tax Act, 1961 applies to consideration for construction, assembly, mining or a like project undertaken by the recipient itself, not to supervisory or engineering services rendered in connection with such activities. The services therefore fell within the statutory definition of fees for technical services and were not taken out of charge merely because they related to plant erection or equipment supply.

Conclusion: The engineering and design receipts were taxable as fees for technical services, against the assessee.

Issue (ii): Whether the amounts received towards training of the purchaser's personnel abroad were assessable as fees for technical services.

Analysis: The training clause required the assessee to arrange technical training abroad for the purchaser's personnel for the operation and maintenance of the plants. The payments were separate lumpsum consideration for technical training and not reimbursement of expenses. Such training constituted technical service rendered to equip the purchaser's personnel for running the mills after commissioning and did not fall outside Section 9(1)(vii) of the Income-tax Act, 1961.

Conclusion: The training receipts were taxable as fees for technical services, against the assessee.

Final Conclusion: The Revenue succeeded on the taxability of both the engineering-related receipts and the training receipts, and the assessee's challenge to their assessment failed.

Ratio Decidendi: Consideration for tailor-made design, engineering, documentation and technical training, even when connected with plant supply or erection, is chargeable as fees for technical services unless the recipient itself undertakes construction, assembly, mining or a like project.

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