India-UK tax treaty applies make-available test: routine managerial and procurement services were not taxable as fees for technical services.

Under the amended India-UK Tax Treaty, managerial services fall outside fees for technical services, and technical or consultancy services are taxable only if they make available technical knowledge, experience, skill, know-how or processes. Review, supervision, guidance, monitoring, human resource support, target-setting and performance appraisal under Agreement No. 1 were treated as routine managerial functions, while procurement support under Agreement No. 2 was found to be commercial sourcing assistance without transfer of know-how. The receipts under both agreements were therefore not taxable in India as fees for technical services. The royalty alternative was rejected because no intellectual property or proprietary information was transferred, and service permanent establishment was not established on the record.

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Issues: (i) Whether the amounts received by the applicant under Agreement No. 1 and Agreement No. 2 were chargeable to tax in India as fees for technical services under the India-UK Tax Treaty. (ii) Whether the alternative characterisation of the receipts as royalties or the existence of a service permanent establishment altered the taxability of the receipts.

Issue (i): Whether the amounts received by the applicant under Agreement No. 1 and Agreement No. 2 were chargeable to tax in India as fees for technical services under the India-UK Tax Treaty.

Analysis: The post-amendment treaty excluded managerial services from the ambit of fees for technical services and, for technical or consultancy services, required the services to "make available" technical knowledge, experience, skill, know-how or processes. The services under Agreement No. 1 consisted of review, supervision, general guidance, monitoring, human resource support, target-setting and performance appraisal, all rendered predominantly from the UK. These were held to be routine managerial activities and not technical or consultancy services. The procurement services under Agreement No. 2 were also found to be commercial support services aimed at sourcing and cost reduction, and they did not transmit any technical knowledge or know-how to the Indian entity.

Conclusion: The receipts under both agreements were not taxable in India as fees for technical services.

Issue (ii): Whether the alternative characterisation of the receipts as royalties or the existence of a service permanent establishment altered the taxability of the receipts.

Analysis: The royalty contention was rejected because the services were general and routine in nature and did not create or transfer any intellectual property or proprietary industrial, commercial or scientific information. As to service permanent establishment, the record did not establish the requisite physical presence in India for the relevant period, and the factual question was not shown to alter the ruling on taxability of the receipts under the treaty.

Conclusion: Neither royalty characterisation nor service permanent establishment altered the non-taxability of the receipts under the treaty.

Final Conclusion: The treaty did not bring the receipts from either agreement within Indian tax charge, and the questions were answered in favour of the applicant.

Ratio Decidendi: Under the amended India-UK Tax Treaty, managerial services are outside fees for technical services, and technical or consultancy services are taxable only when they make available technical knowledge, experience, skill, know-how or processes to the recipient.

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