Treaty taxation of certification fees turns on make-available test and permanent establishment absence under the Indo-USA DTAA.

Payments to a non-resident for third-party certification of oil reserves were treated as not taxable in India where the services were rendered outside India and no technical knowledge, skill, know-how, or experience was made available to the payer. The consideration therefore did not constitute fees for technical services under the Indo-USA DTAA. It could be taxed as business profits only if the non-resident had a permanent establishment in India and the profits were attributable to that establishment. As no permanent establishment existed in India, the receipts were held not taxable in India.

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Issues: Whether the amount paid to the non-resident for third-party certification of oil reserves was taxable in India as fees for technical services or only as business profits under the Indo-USA DTAA in the absence of a permanent establishment in India.

Analysis: The services were rendered outside India, and the work did not result in any transfer of technical knowledge, skill, know-how, or experience to the payer. The payment therefore did not fall within fees for technical services under the treaty. The amount could be brought to tax only as business profits under Article 7 of the Indo-USA DTAA if the non-resident had a permanent establishment in India and the profits were attributable to such establishment. Since the non-resident had no permanent establishment in India, the receipts were not taxable in India.

Conclusion: The payment was not taxable in India and the assessee's challenge succeeded.

Ratio Decidendi: Where services are rendered outside India and no technical knowledge is made available to the payer, the consideration is not taxable as fees for technical services under the Indo-USA DTAA, and in the absence of a permanent establishment in India the amount cannot be taxed as business profits.

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