MFN clause in Indo-Israel treaty imports the make-available test, limiting fees-for-services taxation
The Indo-Israel treaty's MFN protocol was treated as part of the treaty, so the later India-Portugal "make available" limitation for fees for technical services was read into the treaty without further negotiation. On the facts, the Israeli entity's supervisory, managerial and consultancy services did not transfer technical knowledge, skill, know-how or processes to the assessee, so the make available test was not met. The amended right of appeal under section 248 was considered maintainable where the payer bore the tax and had paid it to the Central Government, and the objection to additional evidence was rejected.
Issues: (i) whether the Most Favoured Nation clause in the Indo-Israel tax treaty imported the narrower "make available" limitation from the India-Portugal treaty for fees for technical services; (ii) whether the services rendered by the Israeli entity made available technical knowledge, experience, skill, know-how or processes to the assessee; (iii) whether the assessee's appeal under section 248 was maintainable and whether admission of additional evidence was vitiated.
Issue (i): whether the Most Favoured Nation clause in the Indo-Israel tax treaty imported the narrower "make available" limitation from the India-Portugal treaty for fees for technical services.
Analysis: The protocol to the Indo-Israel treaty was treated as an integral part of the treaty and the MFN clause was read as operating without any further negotiation or separate governmental action. Since the later India-Portugal treaty restricted the scope of taxable fees for technical services by using a "make available" formula, that narrower scope was held to stand incorporated into the Indo-Israel treaty by virtue of the protocol.
Conclusion: The MFN clause applied and the "make available" limitation governed the treaty.
Issue (ii): whether the services rendered by the Israeli entity made available technical knowledge, experience, skill, know-how or processes to the assessee.
Analysis: The services were found to be essentially supervisory, managerial and consultancy in nature. Such services may involve technical input, but mere rendition of them does not by itself transmit technology or enable the recipient to perform the services independently without the provider. No material was brought on record to show any transfer of technology or that the technical skills of the service provider were imparted to the assessee.
Conclusion: The services did not satisfy the make available test and were not taxable as fees for technical services on that basis.
Issue (iii): whether the assessee's appeal under section 248 was maintainable and whether admission of additional evidence was vitiated.
Analysis: The amended section 248 was held to confer a statutory right of appeal where the payer bears the tax liability under the agreement and has paid tax to the Central Government. The earlier precondition linked to deduction under section 195 was held inapplicable. The objection to additional evidence was rejected because, in such proceedings, the evidence before the appellate authority is not in the backdrop of any specific section 195 order and the Assessing Officer had raised no valid objection warranting exclusion.
Conclusion: The appeal under section 248 was maintainable and the objection regarding additional evidence failed.
Final Conclusion: The impugned relief in favour of the assessee was upheld and the departmental appeals were dismissed.
Ratio Decidendi: A treaty protocol containing an MFN clause can import a later treaty's more restrictive fees-for-technical-services scope directly into the earlier treaty, and consultancy or supervisory services do not become taxable as technical services unless they make available technical knowledge, skill, know-how or processes to the recipient.