Make-available rule and force of attraction failed to tax offshore marketing and management services under the treaty.

Marketing and management service receipts were not taxable in India as fees for included services because article 12(4)(b) of the India-US treaty requires a make-available element, and the services did not transfer technical knowledge, experience, skill, know-how or processes in that sense. The existence of a service permanent establishment did not alter that result where the relevant services were rendered outside India. Article 7(1) force of attraction also did not apply, because it extends only to business activity carried on in the source State through or alongside a permanent establishment and of the same or similar kind. The Revenue's alternative tax claim therefore failed.

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Issues: (i) Whether the marketing and management services rendered by the assessee were taxable in India as fees for included services on the footing that technical knowledge, experience, skill, know-how or processes were made available to the Indian entity, and whether the existence of a service permanent establishment altered that position. (ii) Whether, even if the receipts were treated as business profits, the amount attributable to services rendered outside India could be brought to tax in India by applying the force of attraction rule under the treaty.

Issue (i): Whether the marketing and management services rendered by the assessee were taxable in India as fees for included services on the footing that technical knowledge, experience, skill, know-how or processes were made available to the Indian entity, and whether the existence of a service permanent establishment altered that position.

Analysis: The receipts were examined under article 12(4)(b) of the India-US treaty, which requires that the service provider make available technical knowledge, experience, skill, know-how or processes, or develop and transfer a technical plan or design. The services rendered by the assessee were held not to satisfy that requirement. The existence of a service permanent establishment did not change the character of the income where the relevant services were rendered outside India and no technical knowledge or skill was made available in the treaty sense. The Tribunal followed its own earlier orders in the assessee's case and the earlier High Court affirmation.

Conclusion: The receipts were not taxable as fees for included services, and the finding in favour of the assessee was sustained.

Issue (ii): Whether, even if the receipts were treated as business profits, the amount attributable to services rendered outside India could be brought to tax in India by applying the force of attraction rule under the treaty.

Analysis: Article 7(1) was read as applying the force of attraction rule only where the enterprise carries on business in the other Contracting State through a permanent establishment and also carries on business there otherwise, with the latter activity being of the same or similar kind. The services in question were rendered outside India, and the condition that the business activity be carried on in India was not satisfied. The mere existence of a service permanent establishment did not make income from services rendered abroad taxable in India.

Conclusion: The force of attraction rule did not apply, and the alternative plea of the Revenue failed.

Final Conclusion: The marketing and management service receipts were held not chargeable in India on the grounds urged by the Revenue, and the assessee's tax treatment was upheld in full.

Ratio Decidendi: Under article 12(4)(b), services are taxable as fees for included services only if the treaty's make-available requirement is satisfied; and under article 7(1), the force of attraction rule applies only to business activity carried on in the source State through or alongside a permanent establishment and of the same or similar kind.

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