Make available test and treaty protocol determine taxability of technical services and the applicable withholding rate.

Payments for preparing material safety data sheets did not constitute fees for included services under the Indo-Swiss Tax Treaty because the services did not make available technical knowledge, experience, skill, know-how, or processes to the recipient; the amount was therefore outside source withholding. Under the Indo-French Tax Treaty, the protocol applied the more favourable rate available under the Indo-US treaty, so fees for technical services remitted in the relevant period were taxable at 15% rather than 20%. The note emphasises that treaty taxation of technical services depends on the make available test and that a protocol may import a lower treaty rate without further governmental action.

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Issues: (i) Whether payment for preparation of material safety data sheets constituted fees for included services under the Indo-Swiss Tax Treaty so as to require deduction of tax at source. (ii) Whether remittance for fees for technical services under the Indo-French Tax Treaty was taxable at 15% or 20% by virtue of the protocol and the Indo-US treaty rate.

Issue (i): Whether payment for preparation of material safety data sheets constituted fees for included services under the Indo-Swiss Tax Treaty so as to require deduction of tax at source.

Analysis: Article 12(4) of the treaty applies only where technical or consultancy services make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or design. The preparation of the material safety data sheets resulted only in delivery of a product to the assessee. There was no material showing transfer of technology or enabling the assessee to independently use the technology in future. The payment therefore did not satisfy the make available requirement.

Conclusion: The payment was not fees for included services under the treaty and no tax was deductible at source on that amount.

Issue (ii): Whether remittance for fees for technical services under the Indo-French Tax Treaty was taxable at 15% or 20% by virtue of the protocol and the Indo-US treaty rate.

Analysis: The protocol under the Indo-French arrangement gave effect to the more favourable rate available under the Indo-US treaty. Under Article 12(2) of the Indo-US Tax Treaty, the applicable rate for fees for included services became 15% for the relevant period after the treaty had come into force for the later taxable years. The remittance in question fell in that period, and the lower treaty rate was available under the protocol without requiring any further governmental action.

Conclusion: The applicable rate of tax was 15%, not 20%.

Final Conclusion: The assessee succeeded on both issues: the first remittance was outside the scope of fees for included services, and the second remittance was chargeable only at the lower treaty rate.

Ratio Decidendi: Services are taxable as fees for included services only when they make available technical knowledge or skill to the recipient, and a treaty protocol may extend the benefit of a more favourable source-tax rate available under a referenced treaty.

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