Make available test excludes advisory and reimbursement receipts from treaty-based service taxation

Advisory receipts from home-office allocations were held not to constitute fees for included services under the India-USA treaty because the services did not make available technical knowledge, experience or skill to the Indian affiliate, and the addition was deleted. Chargeback receipts were also treated as reimbursements of actual third-party payments, with no mark-up and no service rendered by the recipient to the Indian entities; even otherwise, the treaty's make available test was not satisfied, so the receipts were not taxable as fees for technical services and the addition was deleted.

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Issues: (i) Whether home office allocation receipts were taxable as fees for included services under the India-USA treaty. (ii) Whether chargeback receipts were taxable as fees for technical services or were only reimbursements not chargeable in the assessee's hands.

Issue (i): Whether home office allocation receipts were taxable as fees for included services under the India-USA treaty.

Analysis: The receipts arose from advisory services rendered under the agreement with the Indian affiliate. The prior co-ordinate bench had held that such services did not make available technical knowledge, experience or skill to the recipient, and therefore did not fall within the treaty definition of fees for included services. As the present receipts arose from the same arrangement and identical facts, the appellate authority followed the earlier decision and deleted the addition.

Conclusion: The receipts were not taxable as fees for included services, and the issue was decided in favour of the assessee.

Issue (ii): Whether chargeback receipts were taxable as fees for technical services or were only reimbursements not chargeable in the assessee's hands.

Analysis: The sums represented reimbursement of actual payments made to third parties for services rendered to the Indian entities. The prior bench had found that the assessee was not the ultimate beneficiary, had rendered no service itself to the Indian recipient, and had earned no mark-up on the reimbursements. Even on the assumption of technical character, the make available requirement under the treaty was not satisfied. On the same factual pattern, the appellate authority deleted the addition.

Conclusion: The receipts were pure reimbursements and not taxable in the assessee's hands, and the issue was decided in favour of the assessee.

Final Conclusion: The revenue's appeals failed on both issues, and the additions made on account of home office allocation receipts and chargeback receipts were sustained by no authority.

Ratio Decidendi: Advisory services and reimbursement receipts are not taxable as fees for included services or fees for technical services unless the service arrangement makes available technical knowledge, experience or skill, and mere reimbursement without mark-up does not create taxable income in the recipient's hands.

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