Fees for included services under the India-US treaty depend on whether technical know-how is made available for independent future use.

Technical and consultancy services connected with power project design review were treated as fees for included services under Article 12 of the India-US tax treaty because the work made available technical knowledge, experience, skill, know-how or processes to the payer for independent future use; the treaty therefore applied to the receipt. Interest under section 234B was not leviable on a non-resident whose income was subject to tax deduction at source in India, because advance tax default did not arise in that situation. The article notes that the appeal succeeded only on the interest issue, while treaty taxability was upheld against the assessee.

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Issues: (i) Whether the consideration received for consulting and engineering services in connection with power project design review constituted fees for included services under Article 12 of the Double Taxation Avoidance Agreement between India and USA on the basis that the services made available technical knowledge, experience, skill, know-how, or processes to the payer. (ii) Whether interest under section 234B of the Income-tax Act, 1961 was chargeable in the case of a non-resident whose income was liable to tax deduction at source in India.

Issue (i): Whether the consideration received for consulting and engineering services in connection with power project design review constituted fees for included services under Article 12 of the Double Taxation Avoidance Agreement between India and USA on the basis that the services made available technical knowledge, experience, skill, know-how, or processes to the payer.

Analysis: The services were found to be technical or consultancy services rendered for preparation of technical design bases and related project documentation. Under Article 12, taxation as fees for included services required not only the rendering of such services but also that they make available technical knowledge or skill to the payer so that it can use the same independently in future. On the facts, the services consisted of technical plans, designs, and blueprints prepared at a pre-bid stage for future use, and the payer was held to have received the technical benefit in a manner enabling future use without the service provider.

Conclusion: The receipt was taxable as fees for included services under Article 12, and the issue was decided against the assessee.

Issue (ii): Whether interest under section 234B of the Income-tax Act, 1961 was chargeable in the case of a non-resident whose income was liable to tax deduction at source in India.

Analysis: The assessee was a tax resident of USA and the income in question was subject to deduction of tax at source in India. In such a case, advance tax liability did not arise in a manner attracting interest for default under section 234B.

Conclusion: Interest under section 234B was not leviable, and the issue was decided in favour of the assessee.

Final Conclusion: The appeal succeeded only in part: the treaty-taxability issue was decided against the assessee, while the interest levy was deleted.

Ratio Decidendi: For Article 12 of the India-USA tax treaty, technical or consultancy services are taxable as fees for included services only when they are of such a nature that they make available technical knowledge, experience, skill, know-how, or processes to the payer so that the payer can apply them independently in future.

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