The Delhi High Court has clarified that for Article 13 of the India-UK DTAA, the “make available” condition is a necessary ingredient for treating consideration as fees for technical services / fees for included services. Mere rendering of centralized support, managerial, technical, marketing or administrative services, or mere guidance/supervision by a foreign parent/group entity, does not by itself satisfy this condition unless technical knowledge, experience, skill, know-how or scientific/technical capability is actually transferred to the Indian recipient so that it is made available to that recipient.
The Court held that mere percolation of some advantage, exposure or skill to employees of the Indian entity, or the existence of an “enduring benefit” in a loose sense, is not enough. What is required is evidence that the technical aspects and skills themselves were shared or transferred by necessary intendment. In the absence of such evidence, the receipts cannot be taxed as FTS under Article 13.
Where the Tribunal, as the final fact-finding authority, has concluded on the facts that no technical knowledge or know-how was made available, and no perversity is shown, no substantial question of law arises under Section 260A on that issue, added the Court.
The Division Bench comprising Justice Dinesh Mehta and Justice Vinod Kumar observed that the transactions and agreement contained the quintessentials of a commercial agreement between two companies, whether situated in different countries or in the same country. It further observed that ultimate control and supervision, including marketing and scientific know-how, remained with the parent company, and that merely because some skill or expertise may be developed by the Indian counterpart in the course of receiving and executing instructions, it cannot be said that the technical skill or scientific know-how had been made available to the Indian counterpart.
The Bench expressly noted that, insofar as technical skill and developmental skill were concerned, they did not appear to have been shared with the Indian counterpart. It also observed that having an Indian counterpart is a basic business requirement for a foreign company operating in India, and that even if some advantage or skill percolates to the employees of the Indian counterpart, that by itself cannot be treated as an enduring benefit to the Indian company itself.
The Bench held that unless the technical aspects and skills are transferred to and are provided by necessary intendment or “made available” to the Indian counterpart, the consideration cannot be treated as fee for technical services. It specifically recorded that there was no evidence to show that scientific or technical know-how had in fact been made available to PBIL, and that the basic ingredient of “make available” is a necessary condition for treating the services as FTS.
Briefly, the respondent/assessee is a UK-incorporated and UK tax resident company engaged in providing education-related management, support, learning technology and consultancy services to group entities. Its Indian group entity, People Combine Business Initiative Private Limited (PBIL), was engaged in providing services to five Indian schools run by Indian societies. During the relevant year, the assessee had two relevant streams of receipts noted in the order: first, licence fees received from certain Indian educational societies for access to NAE IP products, which were offered to tax; and second, Rs. 28.64 crores received from PBIL under a service agreement for centralized administrative services such as information technology, human resources, and marketing and communication.
The assessee did not offer the cross-charge receipts of Rs. 28.64 crores to tax in India, relying on Section 90(2) of the Act read with Article 13(4)(c) of the India-UK DTAA, on the basis that these were routine managerial activities which neither allowed PBIL to enjoy any right, property or information nor made available any technical knowledge, experience, skill, know-how or processes to PBIL.
The Assessing Officer proposed to treat the cross-charge receipts as taxable FTS under Section 9 of the Act and Article 13 of the India-UK DTAA, holding that the services were technical in nature, provided enduring benefit to PBIL, enhanced PBIL’s knowledge/experience/skill, and transferred experience and knowledge so that PBIL may not require future assistance, thereby satisfying the “make available” test. A draft assessment order under Section 144C was issued; objections were filed by the assessee; and the DRP passed an adverse order.
On appeal, the ITAT analysed the nature of the transactions and the intra-group service agreement and held that there was no imparting of technical knowledge or enduring benefit to PBIL, and therefore the condition of “make available” was not satisfied. On that basis, the Tribunal held that the services did not amount to fees for technical services under Article 13 of the India-UK DTAA.
Appearances:
Advocates Ruchir Bhatia, Anant Mann and P. Gupta, for the Appellant
Advocates Dr. Shashwat Bajpai and Mayank Chaturvedi, for the Respondent
