Make available test under India-US treaty applies where process development transfers technical know-how and triggers withholding tax.

Payments to two US non-resident entities for developing and validating a manufacturing process were held to constitute fees for included services because the work made available technical knowledge, skill, know-how and processes to the recipient. The Tribunal noted that the arrangements went beyond mere testing abroad and resulted in transfer of technical capability enabling the assessee to use the process in its business thereafter. On that basis, the treaty and section 9(1)(vii) were attracted, the payments were taxable in India, and tax was required to be deducted at source. The assessee was therefore treated as an assessee in default and interest under section 201(1A) was chargeable.

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Issues: Whether payments made to two non-resident US entities for developing and validating the assessee's manufacturing process constituted fees for technical services or fees for included services, so as to require tax deduction at source and attract liability under section 201 and section 201(1A).

Analysis: The agreements showed that the foreign entities were engaged to develop and provide the new process with facilities, machinery and technical manpower in the United States. The decisive question was whether the services merely involved testing abroad or whether they made available technical knowledge, skill, know-how or processes to the assessee. Applying the treaty expression "make available", the Tribunal held that the work performed by the non-residents did not stop at rendering a service, but resulted in transfer of technical know-how enabling the assessee to use the process in its business thereafter. The fact that the assessee later carried out the manufacture in-house and obtained patents supported the conclusion that the technical knowledge had been transmitted to it. The Tribunal therefore agreed with the view that the treaty and section 9(1)(vii) were attracted.

Conclusion: The payments were taxable in India as fees for included services and the assessee was liable to deduct tax at source; the assessee was rightly treated as an assessee in default and interest under section 201(1A) was also chargeable.

Ratio Decidendi: Under the India-USA treaty, technical or consultancy services are taxable as fees for included services only when they make available technical knowledge, skill, know-how or processes to the recipient, and where such transfer is established the payer must deduct tax at source.

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