Offshore marketing support services and the make-available test determine Indian withholding tax exposure under the DTAA.

Marketing and business-support services rendered offshore by a Singapore subsidiary were treated as non-taxable in India where they were promotional in nature, the non-resident had no permanent establishment in India, and the India-Singapore DTAA make-available condition was not satisfied. On that basis, the payer's withholding obligation under section 195 did not arise and disallowance under section 40(a)(i) was not attracted. Circular No. 23 of 1969 remained available for the relevant year because its later withdrawal could not operate retrospectively to deny relief for an earlier period.

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Issues: (i) Whether the marketing, business development and customer coordination support services rendered by the Singapore subsidiary were taxable in India as fees for technical services or business income, and whether the assessee was liable to withhold tax and suffer disallowance for non-deduction. (ii) Whether Circular No. 23 of 1969 continued to apply to the payments made for the relevant year.

Issue (i): Whether the services rendered by the Singapore subsidiary were taxable in India as fees for technical services or business income, and whether the assessee was liable to withhold tax and suffer disallowance for non-deduction.

Analysis: The services consisted of market information, market studies, customer identification, communication support, marketing collateral and assistance in commercial discussions. They were rendered from Singapore and the non-resident had no permanent establishment in India or authority to conclude contracts. The services were held not to be managerial, technical or consultancy services because they involved marketing and business promotion functions rather than advice or transmission of technical skill. The requirements of the India-Singapore DTAA, including the make available condition under Article 12, were not satisfied since the assessee only consumed the services and was not enabled to perform the functions independently in future. On the law prevailing when the withholding obligation arose, no income accrued or arose in India, so section 195 was not triggered and the expenditure could not be disallowed under section 40(a)(i).

Conclusion: The payments were not taxable in India as fees for technical services or business income, and the assessee was not liable to deduct tax at source or suffer disallowance.

Issue (ii): Whether Circular No. 23 of 1969 continued to apply to the payments made for the relevant year.

Analysis: The circular was in force during the relevant period and its later withdrawal could not be given retrospective effect. Following the binding precedent relied upon, the benefit of the circular remained available for the year under consideration.

Conclusion: The assessee was entitled to rely on Circular No. 23 of 1969 for the relevant year.

Final Conclusion: The appeal succeeded on the substantive taxability and withholding questions, and the additions and disallowance were deleted.

Ratio Decidendi: Marketing and business-support services rendered offshore by a non-resident are not taxable in India as technical services unless they satisfy the statutory treaty requirements, including the make available condition, and a later withdrawal of a beneficial circular does not operate retrospectively to deny relief for an earlier year.

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