Make available test under India-USA DTAA denied taxability of credit rating fees and TDS liability

A remittance of credit rating fees to a non-resident was held not chargeable to tax in India as fees for included services under the India-USA DTAA because the service did not make available technical knowledge, experience, skill, know-how, or a technical plan or design to the payer. The credit rating exercise produced commercial information, but no technical expertise was transferred that would enable the payer to apply the technology independently. As the payment was not taxable in India under article 12, no obligation arose to deduct tax at source under section 195 of the Income-tax Act, 1961.

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Issues: Whether the remittance made towards credit rating fees to a non-resident constituted income taxable in India as fees for included services under the India-USA DTAA, and consequently whether the payer was required to deduct tax at source under section 195 of the Income-tax Act, 1961.

Analysis: The payment was made to a non-resident credit rating agency that had no business presence or permanent establishment in India. The decisive question was whether the service fell within article 12(4) of the India-USA DTAA. Under that provision, technical or consultancy services are taxable only if they are ancillary and subsidiary to a royalty transaction or if they make available technical knowledge, experience, skill, know-how, or a technical plan or design to the recipient. The Memorandum of Understanding to the treaty clarifies that mere use of technical skill by the service provider is insufficient unless the recipient is enabled to apply that technology. The rating exercise yielded commercial information, but no technical knowledge or expertise was transferred to the assessee. The service therefore did not satisfy the 'make available' requirement and could not be treated as fees for included services.

Conclusion: The remittance was not chargeable to tax in India under article 12 of the DTAA, and the assessee was not liable to deduct tax at source under section 195.

Ratio Decidendi: Under the India-USA DTAA, a payment for technical or consultancy services is taxable as fees for included services only when the service makes available technical knowledge, experience, skill, know-how, or a technical plan or design to the recipient; mere supply of commercial information or use of technical skill by the provider is insufficient.

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