Routine repair payments to a non-resident were business profits, not fees for technical services, so no withholding tax arose.

Routine repair and replacement work performed by a non-resident vendor for defective ship parts was treated as a works contract and not as technical consultancy or managerial services. Because the foreign personnel stayed in India only briefly, no permanent establishment was found, and no technical knowledge was made available, the receipts were characterised as business profits under Article 7 of the treaty rather than fees for technical services under section 9(1)(vii) or Article 12. On those facts, no withholding obligation arose under section 195, and the conclusion that the assessee was in default under sections 201(1) and 201(1A) was unsustainable.

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Issues: Whether the amounts remitted to the non-resident Norway company for replacement and repair of defective parts were in the nature of fees for technical services or business receipts under the treaty, and consequently whether the assessee was liable to deduct tax at source and could be treated as an assessee in default under sections 201(1) and 201(1A).

Analysis: The payments were made for repair and replacement work in connection with defective parts of ships. The personnel of the foreign vendor stayed in India only for 29 days, there was no permanent establishment in India, and the work was treated as a works contract involving routine repairs rather than technical consultancy or managerial services. On those facts, the income fell within the scope of business profits under Article 7 of the treaty and not within fees for technical services under section 9(1)(vii) or Article 12. Since the foreign recipient had no taxable presence in India on the facts found, no liability to withhold tax arose under section 195.

Conclusion: The payments were not chargeable as fees for technical services, the assessee was not required to deduct tax at source, and the finding that the assessee was in default under sections 201(1) and 201(1A) was unsustainable.

Ratio Decidendi: Routine repair or replacement work carried out by a non-resident, without deputation of technical personnel to render consultancy or make technical knowledge available, does not amount to fees for technical services and is assessable as business profits where the treaty so provides.

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