Business connection for technical service fees: foreign company's India-based personnel and training work made the income taxable in India.

A non-resident's technical service fee was treated as income accruing or arising in India where the contract required its personnel to come to India to assist in setting up, supervising and operating the plant and to train Indian staff. The Court applied the settled test of business connection under section 42(1), requiring a real and intimate relation and continuity between the foreign business and the local activity, and held that the services rendered in India formed part of the income-earning activity. On that basis, the fee was not divisible as suggested by the assessee and was taxable in India as Indian-source income through a business connection.

---

---

Issues: Whether the technical service fee received by a non-resident foreign company under the agreement with the Indian company accrued or arose in India, and whether the amount was taxable in India on the footing of a business connection.

Analysis: The agreement was not confined to the supply of technical know-how by post or the furnishing of written information outside India. It also obliged the foreign company to send technical personnel to India to assist in starting, supervising, and operating the plant and to train Indian personnel. Those activities were held to constitute services rendered in India and an activity in the taxable territories contributing to the earning of income. The Court applied the settled meaning of business connection under section 42(1), requiring a real and intimate relation with activity in the taxable territories and a continuity between the non-resident's business and the local activity. On that footing, the receipt was not divisible in the manner suggested by the assessee, and the entire fee was treated as accruing through or from the business connection in India, though the assessment could operate only to the extent of the 75 per cent. already directed by the Commissioner.

Conclusion: The technical service fee was held to have accrued or arisen in India through a business connection, and the answer was against the assessee.

Final Conclusion: The reference was answered in favour of the Revenue on the taxing reach of the service fee, and the assessee was held liable in respect of the amount treated as Indian-source income.

Ratio Decidendi: Where a non-resident's contractual obligations include sending technical personnel to India and training personnel there, the resulting remuneration may be treated as income accruing through or from a business connection in India under section 42(1) of the Indian Income-tax Act, 1922.

---