Treaty make available test and substituted appeal rule controlled taxability of foreign remittance payments.

Section 248 permits a payer who is contractually liable to bear tax on a non-resident remittance and has paid that tax to seek a declaration that no tax was deductible; the prior requirement that deduction and payment under sections 195 and 200 must first occur no longer governs. Applying that substituted regime, the appeal was maintainable where the payer had borne and paid the tax under the agreement. On treaty classification, the Indo-Israel protocol and MFN clause imported the India-Portugal make available condition, so supervisory, managerial and consultancy services were taxable as fees for technical services only if they transmitted technical knowledge, skill, know-how or processes to the recipient. As no such transfer was shown, the payment was not taxable on that basis.

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Issues: (i) Whether an appeal under section 248 of the Income-tax Act, 1961 was maintainable on the facts where the payer had borne and paid the tax on foreign remittances under the agreement; (ii) whether, by reason of the Most Favoured Nation clause in the Indo-Israel tax treaty read with the protocol and the India-Portugal treaty, the services rendered by the Israeli entity fell outside the taxable scope of fees for technical services because they did not make available technical knowledge, experience, skill, know-how or processes.

Issue (i): Whether an appeal under section 248 of the Income-tax Act, 1961 was maintainable on the facts where the payer had borne and paid the tax on foreign remittances under the agreement.

Analysis: Section 248, as substituted, permits an appeal where the payer is contractually liable to bear the tax deductible on income paid to the non-resident and has paid such tax to the credit of the Central Government, seeking a declaration that no tax was deductible. The earlier regime, which required deduction and payment under sections 195 and 200 before an appeal could be filed, no longer governed the field. Since the assessee had an obligation under the agreement to bear the tax and had paid the tax before filing the appeal, the appellate remedy was available and objections to maintainability and additional evidence failed.

Conclusion: The appeal under section 248 was maintainable and the objections on that score were rejected.

Issue (ii): Whether, by reason of the Most Favoured Nation clause in the Indo-Israel tax treaty read with the protocol and the India-Portugal treaty, the services rendered by the Israeli entity fell outside the taxable scope of fees for technical services because they did not make available technical knowledge, experience, skill, know-how or processes.

Analysis: The protocol in the Indo-Israel treaty operated as an integral part of the treaty and the MFN clause became effective without further negotiation. The India-Portugal treaty contained a make available clause, and that restriction therefore applied. On the facts, the services were supervisory, managerial and consultancy in nature. Such services may involve technical inputs, but they do not, by themselves, transmit technology or equip the recipient to perform the services independently in future. No material showed any transfer of technical skill or know-how to the assessee.

Conclusion: The services did not make available technical knowledge, experience, skill, know-how or processes, and the payment was not taxable as fees for technical services on that basis.

Final Conclusion: The impugned relief granted by the Commissioner (Appeals) was upheld and the Revenue's appeals failed in entirety.

Ratio Decidendi: Under the substituted section 248, an appeal lies where the payer contractually bears and pays the tax on behalf of the non-resident, and treaty-based fees for technical services are taxable only when the services make available technical knowledge, experience, skill, know-how or processes to the recipient.

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