Make available test under tax treaty governs cross-border service payments and withholding for management advice and research testing.

Under the India-US tax treaty, managerial or consultancy services are taxable as fees for included services only if they make available technical knowledge, experience, skill, know-how or processes that can be independently applied later. Payments for conference and strategy sessions with a non-resident management expert did not meet that test because no technical knowledge was transferred to the payer. Payments to non-resident contract research organisations for bio-equivalence and clinical testing also failed the make available requirement, as the organisations only performed tests and supplied reports without enabling independent future use by the payer. On that basis, the article explains that such payments were not chargeable to tax in India and no withholding obligation arose.

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Issues: (i) Whether payment made to a non-resident management expert for conference and strategy sessions was chargeable to tax in India as fees for technical or included services, and whether tax was deductible at source; (ii) Whether payments made to non-resident contract research organisations for bio-equivalence and clinical testing were chargeable to tax in India as fees for technical or included services, and whether tax was deductible at source.

Issue (i): Whether payment made to a non-resident management expert for conference and strategy sessions was chargeable to tax in India as fees for technical or included services, and whether tax was deductible at source.

Analysis: Under the India-US tax treaty, only technical or consultancy services that make available technical knowledge, experience, skill, know-how, or processes can fall within fees for included services. Managerial services, by themselves, are outside that definition. The services in question consisted of sharing management experiences and business strategies for employees, and no technical knowledge was shown to have been made available so that the recipient could independently apply it in future business.

Conclusion: The payment was not taxable in India, no obligation to deduct tax at source arose, and the addition under sections 201 and 201(1A) could not be sustained; this issue was decided in favour of the assessee.

Issue (ii): Whether payments made to non-resident contract research organisations for bio-equivalence and clinical testing were chargeable to tax in India as fees for technical or included services, and whether tax was deductible at source.

Analysis: The testing organisations only conducted experiments, analysed the drug samples, and supplied reports. The reports reflected application of their own expertise, but no technical knowledge, skill, or know-how was transferred to the payer so as to enable independent future use. The services were therefore commercial in character and did not satisfy the make available requirement under the relevant treaty provisions.

Conclusion: The payments were not chargeable to tax in India, no withholding obligation arose, and the assessee could not be treated as in default under sections 201 and 201(1A); this issue was decided in favour of the assessee.

Final Conclusion: The assessee succeeded on both substantive withholding-tax disputes, and the Revenue's challenge failed; the liability under section 201 was not sustained except to the extent expressly disallowed by the lower appellate authority and not accepted here.

Ratio Decidendi: For a cross-border payment to fall within fees for included services, the service must be technical or consultancy in nature and must make available to the recipient the technical knowledge or skill so that it can be independently applied in future; mere rendering of expert reports, advice, or management/business presentations does not satisfy that test.

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