India-US DTAA make-available test excludes offshore support services and software licence payments from royalty treatment.

Offshore maintenance and support services rendered from outside India to PGCIL were held not to constitute royalty or fees for included services under the India-US DTAA because they did not make available technical knowledge, experience, skill, know-how or processes. Consideration for software licence and related offshore services received from NDPL was also treated as non-taxable as royalty or fees for included services, since the software arrangement involved only a right to use without transfer of copyright and the connected services did not satisfy the make-available test. Interest under section 234B was not leviable for the relevant years, while section 234C interest was consequential.

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Issues: (i) Whether offshore maintenance and support services rendered to PGCIL constituted fees for included services or royalty under the India-US DTAA; (ii) Whether consideration for software licence and connected services received from NDPL was taxable as royalty or fees for included services; (iii) Whether interest under sections 234B and 234C was chargeable.

Issue (i): Whether offshore maintenance and support services rendered to PGCIL constituted fees for included services or royalty under the India-US DTAA.

Analysis: The agreement showed that the services were to be performed from outside India and were repetitive maintenance and support services. Applying section 90(2), the more beneficial treaty provisions governed the taxability issue. Under Article 12 of the DTAA and the MOU, technical or consultancy services qualify as fees for included services only if they are ancillary and subsidiary to a royalty arrangement and make available technical knowledge, experience, skill, know-how or processes to the recipient. The services in question did not transfer such knowledge or enable independent use by the recipient; the customer remained dependent on the assessee for future support.

Conclusion: The receipts from PGCIL were not taxable as royalty or fees for included services and the addition was deleted.

Issue (ii): Whether consideration for software licence and connected services received from NDPL was taxable as royalty or fees for included services.

Analysis: The software supply involved only a right to use software and no transfer of copyright. The Supreme Court's ruling in Engineering Analysis clarified that such payments do not amount to royalty and do not attract tax deduction obligations on that basis. The connected offshore services also did not make available any technical knowledge, experience, skill, know-how or processes, and therefore did not fall within Article 12(4)(a) or 12(4)(b) of the DTAA.

Conclusion: The NDPL receipts were not taxable as royalty or fees for included services and the addition was deleted.

Issue (iii): Whether interest under sections 234B and 234C was chargeable.

Analysis: For the years concerned, interest under section 234B was not leviable in view of the settled legal position relied upon by the Tribunal. Interest under section 234C was consequential and had to follow the final computation in accordance with law.

Conclusion: Interest under section 234B was not chargeable for the relevant years and section 234C interest was only consequential.

Final Conclusion: The additions on account of PGCIL and NDPL receipts did not survive and the assessee obtained full relief in the appeals.

Ratio Decidendi: Under the India-US DTAA, offshore technical support services are taxable as fees for included services only if they are ancillary and subsidiary to royalty and make available technical knowledge or skills to the recipient; payments for a mere software licence without transfer of copyright are not royalty.

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