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Issues: Whether the commission, reimbursement of expenses and mark-up paid to the non-resident group company were taxable as fees for technical services under the Income-tax Act, 1961 and Article 13(4)(c) of the India-UK DTAA on the basis that technical knowledge, skill or experience was made available to the assessee.
Analysis: The payment structure under the master services arrangement was examined in the light of the definition of fees for technical services in Explanation 2 to section 9(1)(vii) of the Income-tax Act, 1961 and the more restrictive treaty test in Article 13(4)(c) of the India-UK DTAA. The controlling question was not whether services were rendered, but whether they made available technical knowledge, experience, skill, know-how or process to the assessee for future use. On the facts, the services were found to be in the nature of marketing and customer support, and there was no credible material showing that technical skill or know-how was transmitted to the assessee. The agreement and invoices did not establish that the non-resident personnel possessed or transferred the kind of technical or consultancy expertise necessary to satisfy the treaty requirement. The payments were therefore held not to fall within the treaty definition of fees for technical services, and the commission, reimbursement and mark-up could not be artificially split to create taxability where the underlying element of making available was absent.
Conclusion: The aggregate payment was held not taxable as fees for technical services and the claim of the assessee succeeded.
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