Most favoured nation clause in tax treaty applied make available test to management service fees under the India-Sweden convention.

The article explains that management service fees described as managerial, commercial, marketing, administrative and support services were analysed under the India-Sweden treaty in light of its protocol and the most favoured nation clause. It notes that the protocol was treated as operative so that the more restrictive India-Portugal treaty standard applied, requiring the services to make available technical knowledge, skill, know-how or processes before they could be taxed as fees for technical services. On that basis, mere rendering of managerial services without satisfying the make available condition was treated as insufficient for Indian taxability.

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Issues: Whether management service fees received by the assessee from Indian group entities were taxable in India as fees for technical services under Article 12 of the India-Sweden treaty, or whether the protocol and the most favoured nation clause entitled the assessee to the more restrictive make available condition in the India-Portugal treaty.

Analysis: The services were described as managerial, commercial, marketing, administrative and support services. The dispute turned on treaty interpretation, particularly the protocol to the India-Sweden convention, which provided that if India later agreed with another OECD member state to a lower rate or a more restricted scope for dividends, interest, royalties or fees for technical services, that same rate or scope would apply under the Sweden treaty. The India-Portugal treaty contained a more restrictive definition for technical services because taxability depended on the services making available technical knowledge, skill, know-how or processes. The Court followed the earlier decision in the assessee's own case and treated the protocol as operative, holding that the more restricted Portuguese treaty standard applied. On that basis, mere rendering of managerial services without satisfying the make available condition did not permit taxation as fees for technical services in India.

Conclusion: The management service fees were not taxable in India under the treaty and the addition was deleted in favour of the assessee.

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