Reassessment upheld, drawings and designs receipts deleted, and supervisory income remitted for verification under contract completion method.

Reassessment was sustained despite a minor discrepancy in the recorded escapement figure because the reopening remained grounded in alleged income escaping assessment. Receipts for drawings and designs supplied to Indian customers were not upheld as taxable as fee for technical services on the facts and contract terms, so the addition was deleted. Supervisory receipts required verification because taxation depended on the contract completion method and whether the income had already been offered in the year of completion; the matter was remitted for limited factual inquiry.

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Issues: (i) whether the reassessment was vitiated by alleged defects in the recorded reasons and the stated amount of escapement; (ii) whether receipts for drawings and designs supplied to Indian customers were taxable in India as fee for technical services or business profits; (iii) whether supervisory receipts could be taxed in the year under appeal as fee for technical services or whether the matter required verification in view of the contract completion method and the treaty threshold for a permanent establishment.

Issue (i): whether the reassessment was vitiated by alleged defects in the recorded reasons and the stated amount of escapement.

Analysis: The reassessment was founded on the AO's belief that receipts not offered to tax had escaped assessment. A minor factual discrepancy in the recorded figure was held not to invalidate the reopening because the amount in the reasons and the amount brought to tax were substantially the same, and the basis for reopening remained the escapement of income.

Conclusion: The reassessment was upheld against the assessee.

Issue (ii): whether receipts for drawings and designs supplied to Indian customers were taxable in India as fee for technical services or business profits.

Analysis: The receipts for drawings and designs were examined in the context of the contract terms and the prior view taken in the assessee's own similar matters. The Tribunal treated the issue as governed by the earlier view that such receipts, on the facts presented, were not exigible to tax as FTS/royalty in the manner adopted by the authorities below, and the addition could not be sustained.

Conclusion: The addition on account of drawings and designs was deleted in favour of the assessee.

Issue (iii): whether supervisory receipts could be taxed in the year under appeal as fee for technical services or whether the matter required verification in view of the contract completion method and the treaty threshold for a permanent establishment.

Analysis: The supervisory activity was found to be for a period below the treaty threshold, and the assessee asserted that it followed the contract completion method, under which the relevant receipts were offered in the year of completion. The Tribunal considered this factual position material and found that the correct year of taxation depended on verification of whether the receipts had already been brought to tax in the year of completion. The issue therefore required a limited factual inquiry rather than final sustenance of the enhancement.

Conclusion: The supervisory-receipt issue was remitted for verification, with relief granted subject to that factual determination.

Final Conclusion: The assessee obtained relief on the substantive taxability dispute relating to drawings and designs, the Revenue's appeal failed, and the supervisory-receipt controversy was sent back for limited verification, resulting in a mixed but predominantly assessee-favourable outcome.

Ratio Decidendi: A receipt cannot be taxed as fee for technical services where the relevant contractual and treaty facts show that the amount is not independently chargeable in the manner adopted by the lower authorities, and where a contract-completion accounting approach is pleaded, the correct year of taxation must be verified before making a further addition.

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