Make available test under India-USA treaty excludes commercial information payments from fees for included services tax

Under the India-USA tax treaty, consultancy receipts are taxable as fees for included services only if they are technical in nature and "make available" technical knowledge, experience, skill, know-how, processes, or a technical plan or design to the recipient. Mere provision of commercial or geographical information does not satisfy Article 12(4)(b) where no independent use of technical skill is enabled. On the stated facts, the receipts did not qualify as fees for included services and were not taxable in India; in the absence of a permanent establishment, they were also not taxable as business profits under Article 7.

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Issues: Whether the payments received from the Indian branch office constituted fees for included services under Article 12(4)(b) of the India-USA tax treaty and were therefore taxable in India.

Analysis: Article 12(4) of the treaty covers only technical or consultancy services that are either ancillary and subsidiary to royalties or that make available technical knowledge, experience, skill, know-how, processes, or a technical plan or design. The decisive test is not the mere rendering of consultancy services, but whether the recipient is enabled to apply the technology or technical skill independently. The Memorandum of Understanding to the treaty clarifies that consultancy services which are not technical in nature do not qualify as included services. On the facts, the services consisted of supplying geographical and commercial information inputs, and the material showed no transfer of technical know-how or enabling of independent technical application.

Conclusion: The receipts did not fall within Article 12(4)(b) and were not taxable in India as fees for included services. In the absence of a permanent establishment, they were also not taxable as business profits under Article 7.

Final Conclusion: The additions were unsustainable and relief was granted to the assessee companies.

Ratio Decidendi: Consultancy services are taxable as fees for included services only when they are technical in nature and make available technical knowledge or skill to the recipient; the supply of commercial information without such transfer does not satisfy Article 12(4)(b).

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