Treaty fees for technical services broadly cover support and consultancy receipts; interest and TDS credit issues were remitted for verification.

Receipts from business application support, end-user services, shared infrastructure, network access, IT support and business consultancy were treated as fees for technical services under Article 12(3)(b) of the India-Sweden DTAA because the treaty definition was read broadly to cover managerial, technical or consultancy services, and the most favoured nation argument and consistency plea were rejected; the receipts were therefore taxable in the hands of the assessee. Levy of interest was remitted to the Assessing Officer for factual verification and fresh decision after hearing the assessee, and non-grant of TDS credit on interest under section 244A was similarly restored for verification and decision according to law.

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Issues: (i) Whether the receipts from services provided to Indian group entities were taxable as fees for technical services under Article 12(3)(b) of the India-Sweden Double Taxation Avoidance Agreement; (ii) Whether levy of interest required verification and fresh decision by the Assessing Officer; (iii) Whether non-grant of TDS credit on interest under section 244A required factual verification.

Issue (i): Whether the receipts from services provided to Indian group entities were taxable as fees for technical services under Article 12(3)(b) of the India-Sweden Double Taxation Avoidance Agreement.

Analysis: The services were found to include business application support, end-user services, shared infrastructure, network access, IT support and business consultancy. The treaty definition of fees for technical services under Article 12(3)(b) was treated as wide enough to include payments for managerial, technical or consultancy services. The plea based on the most favoured nation clause was not accepted in view of the governing Supreme Court ruling. The argument based on consistency was rejected because each assessment year is a separate unit and a mistaken earlier characterisation does not prevent a correct determination in the relevant year.

Conclusion: The receipts were held to be fees for technical services and taxable under Article 12(3)(b) of the India-Sweden Double Taxation Avoidance Agreement, against the assessee.

Issue (ii): Whether levy of interest required verification and fresh decision by the Assessing Officer.

Analysis: The assessee stated that a rectification application was pending, and the matter therefore required factual examination by the Assessing Officer with an opportunity of hearing.

Conclusion: The issue was restored to the Assessing Officer for verification and decision in accordance with law, in favour of the assessee.

Issue (iii): Whether non-grant of TDS credit on interest under section 244A required factual verification.

Analysis: The claim was directed to be factually verified by the Assessing Officer and decided according to law.

Conclusion: The matter was remitted for verification and fresh decision, in favour of the assessee.

Final Conclusion: The appeal succeeded only to the limited extent of remand on the interest and TDS credit issues, while the principal treaty taxability issue was decided against the assessee.

Ratio Decidendi: Where a treaty definition of fees for technical services covers managerial, technical or consultancy services in broad terms, receipts for such services are taxable under the treaty notwithstanding an earlier different characterisation in a prior assessment year, and the rule of consistency cannot override correct determination of the nature of income.

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