Payments for in-house and market training are general training, not "making available" technical services; no TDS under treaty

ITAT AHMEDABAD - AT held that payments for in-house and market awareness/development training are general training and do not involve transfer of technology, so fees do not qualify as "making available" technical services. The revenue failed to discharge the onus to show transfer of technology; treaty tests were not met, and reliance on domestic law was unnecessary. The CIT(A)'s conclusions were upheld and the appeal was decided against the Revenue, negating any TDS obligation under the treaty and relevant domestic provisions.

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Issues Involved:
Whether the assessee had an obligation to deduct tax at source under section 195 for payments made to foreign entities for training services.

Analysis:
The central issue in this case was whether the assessee was required to deduct tax at source under section 195 for payments made to foreign entities for training services. The payments in question were made for in-house training of IT and medical staff, as well as market awareness and development training. The Assessing Officer contended that the training fees were taxable in India under Article 13(4)(b) of the India UK Double Taxation Avoidance Agreement. The Assessing Officer argued that the expression 'make available' in the agreement included cases where technical services were offered or made accessible to the recipient, even if the recipient was not trained or made an expert in such technical knowledge. However, the CIT(A) disagreed with this interpretation, stating that the services provided did not fall under Article 13(4)(b) of the agreement, and thus, the demands raised under section 201 were cancelled.

The Appellate Tribunal examined the connotations of the 'make available' clause in the definition of fees for technical services in tax treaties. It was established that for this clause to apply, the services provided must enable the recipient to apply the technology contained therein. The Tribunal cited relevant High Court decisions supporting this interpretation. It was emphasized that unless there is a transfer of technology involved in the technical services provided by the foreign company, the 'make available' clause is not satisfied, and the consideration for such services cannot be taxed under the tax treaty. In this case, the training services were deemed general in nature and did not involve any transfer of technology. The Tribunal held that the revenue authorities failed to demonstrate that the services provided involved a transfer of technology, and thus, the training fees could not be taxed under the tax treaty.

Ultimately, the Tribunal approved the conclusions reached by the CIT(A) and declined to interfere in the matter. Despite acknowledging that the reasoning adopted by the CIT(A) was incorrect, the Tribunal found that the right conclusions were reached. The appeal was dismissed, affirming the decision to cancel the demands raised under section 201. The judgment was pronounced on June 28, 2013, upholding the position that the training services, lacking a transfer of technology, were not subject to taxation under the India UK tax treaty.

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