DTAA fee for included services and make available test require factual scrutiny; treaty override under section 90(2) rejected

Management fee paid to a non-resident was examined under Article 12(4) of the DTAA on whether technical knowledge, experience, skill or know-how was made available to the Indian subsidiary. The record was found insufficient at that stage to decide whether the receipts were only for managerial services or constituted fee for included services, so the matter was remanded to the Assessing Officer for fresh consideration after hearing the assessee. The alternative contention that section 90(2) of the Income-tax Act could be used to ignore the DTAA and claim non-taxability was rejected, as the treaty provisions cannot be overridden where the DTAA governs chargeability.

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Issues: (i) whether the management fee received by the non-resident assessee was taxable in India as fee for included services under Article 12(4) of the DTAA on the basis that technical knowledge was made available; and (ii) whether section 90(2) of the Income-tax Act, 1961 could be invoked to ignore the DTAA and claim non-taxability.

Issue (i): whether the management fee received by the non-resident assessee was taxable in India as fee for included services under Article 12(4) of the DTAA on the basis that technical knowledge was made available.

Analysis: The services were examined against the service agreement and the surrounding facts. The authorities below had treated the receipts as fee for included services on the footing that technical knowledge, experience, skill and know-how were made available to the Indian subsidiary, and that advice on research and development also satisfied the make available requirement. The assessee's case that the receipts were only for managerial services was not supported by sufficient detail or invoices at this stage. Since the material needed fuller examination, the matter was sent back for reconsideration by the Assessing Officer after giving the assessee an opportunity of hearing.

Conclusion: The issue was remanded to the Assessing Officer for fresh consideration in accordance with law.

Issue (ii): whether section 90(2) of the Income-tax Act, 1961 could be invoked to ignore the DTAA and claim non-taxability.

Analysis: The alternative plea was tested against the treaty framework and the statutory scheme. It was held that section 90(2) does not permit the DTAA taxing provisions to be disregarded or overridden where the treaty itself governs the chargeability of the income.

Conclusion: The alternative plea was rejected.

Final Conclusion: The dispute on taxability was left open for fresh examination on the primary issue, while the alternative treaty-override contention was negatived.

Ratio Decidendi: Where the nature of services and the make available requirement under the applicable DTAA need fuller factual examination, the matter may be remanded for reconsideration, and section 90(2) cannot be used to bypass the treaty's taxing provisions.

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