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Issues: Whether IT support services rendered by the assessee to its Indian affiliates were taxable in India as royalty or fees for technical services under Article 12 of the India-Australia DTAA and section 9(1)(vii) of the Income-tax Act, 1961, on the ground that technical knowledge, skill, know-how or process was made available to the recipients.
Analysis: The contractual terms and the actual nature of the services showed that the assessee provided help desk, user administration, networking and data-centre support as back-up IT services for resolving IT-related issues. The agreement did not establish that the assessee imparted technical knowledge, experience, skill, know-how or process so that the Indian recipients could apply the technology independently. The expression "make available" in Article 12(3)(g) requires that the service not only be technical in nature but also transmit the underlying technical knowledge or capability to the recipient. Since the services merely assisted the affiliates without transferring such capability, the treaty condition was not satisfied. The receipts therefore could not be taxed as fees for technical services under the treaty, and they were also not royalty.
Conclusion: The receipts were not taxable in India as royalty or fees for technical services under Article 12 of the India-Australia DTAA, and the addition was deleted in favour of the assessee.
Ratio Decidendi: Under a DTAA provision using the "make available" test, technical services are taxable as fees for technical services only when the service provider transfers the underlying technical knowledge or capability to the recipient so that the recipient can apply it independently.
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