Management support services made available technical know-how and were taxable in India under the India-USA treaty

Management support payments to a US resident company were treated as fees for included services under the India-USA DTAA because the foreign provider's assistance in managerial, financial, legal, treasury and risk-management functions made available technical knowledge, experience, skill and know-how for use in the recipient's own decision-making process. Although managerial services are not named in Article 12(4), their substance brought them within the treaty's technical or consultancy service limb. The consideration was therefore taxable in India, and tax was required to be deducted at source under section 195.

---

---

Issues: Whether the payment made for management services to a United States resident company was chargeable to tax in India under the India-USA DTAA, and consequently whether tax was deductible under section 195 of the Income-tax Act, 1961.

Analysis: The payment was made under a management service agreement under which the foreign company provided assistance, advice and support in managerial, financial, legal, treasury and risk-management functions. Although managerial services are not expressly named in Article 12(4) of the India-USA DTAA, the services rendered were held to be technical or consultancy services in substance because the foreign company supplied technical knowledge, experience, skill and know-how and made them available to the assessee so that they could be used in its own decision-making process. The Tribunal distinguished authorities where only the result of a service was delivered or where no technology was made available, and held that the present case involved absorbed and usable expertise within the meaning of the treaty.

Conclusion: The payment was chargeable to tax in India as fees for included services, and the assessee was liable to deduct tax at source under section 195.

Ratio Decidendi: Where foreign management support effectively makes available technical knowledge, experience, skill or know-how for use by the recipient in its own business decisions, the consideration falls within Article 12(4)(b) of the India-USA DTAA and is taxable in India.

---