Withholding tax on non-resident payments turns on taxability in India and the treaty make available test.

Tax deduction at source from payments to non-residents arises only where the sum is chargeable to tax in India. For consultancy and design services, the treaty-based fees for technical services test was not met because no technical knowledge, skill, know-how or process was made available to the payer for independent future use; those payments were therefore not taxable. Brokerage paid to non-resident brokers for services rendered outside India was treated as commission, with no established business connection or technical element in India, and was also not taxable. Cost-to-cost reimbursements without markup or income element followed the tax character of the underlying payments and were not separately subject to withholding.

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Issues: (i) Whether payments for architectural design, wind engineering, landscape architectural and marketing consultancy services remitted to non-residents were fees for technical services so as to attract tax deduction at source. (ii) Whether brokerage paid to non-resident brokers for facilitating sale of flats in India was taxable in India and subject to deduction of tax at source. (iii) Whether reimbursement of expenses paid to non-residents on a cost-to-cost basis without markup was liable to tax deduction at source.

Issue (i): Whether payments for architectural design, wind engineering, landscape architectural and marketing consultancy services remitted to non-residents were fees for technical services so as to attract tax deduction at source.

Analysis: The payments were for project-specific consultancy and design services. The governing treaty test required that technical knowledge, experience, skill, know-how or processes be made available to the payer so that it could apply the technology independently in future. The record did not show that any such know-how, skill, or independently usable design was transferred. The services remained confined to the specific project and did not satisfy the make available condition.

Conclusion: The payments were not taxable as fees for technical services and no tax was deductible at source.

Issue (ii): Whether brokerage paid to non-resident brokers for facilitating sale of flats in India was taxable in India and subject to deduction of tax at source.

Analysis: The brokerage was paid for services rendered outside India, the brokers had no operations in India, and the payments were made abroad. The record did not establish a business connection in India or any technical element that could bring the payments within the statutory definition of fees for technical services. The payment was found to be in the nature of commission and the reasoning on non-taxability of foreign commission paid for services outside India applied.

Conclusion: The brokerage was not taxable in India and no tax was deductible at source.

Issue (iii): Whether reimbursement of expenses paid to non-residents on a cost-to-cost basis without markup was liable to tax deduction at source.

Analysis: The reimbursements related only to actual expenses incurred by the non-residents and no profit element or markup was shown. The liability to deduct tax depends on whether the underlying receipt is chargeable to tax. Since the underlying payments were themselves held not taxable, the corresponding reimbursements did not acquire a separate taxable character.

Conclusion: The reimbursements were not liable to tax deduction at source.

Final Conclusion: The additions made under section 201 and section 201(1A) did not survive, and the Revenue's appeals were rejected while the assessee's cross objections became infructuous.

Ratio Decidendi: Under the Income-tax Act, tax is deductible at source from payments to non-residents only if the sum is chargeable to tax in India, and treaty-based fees for technical services require satisfaction of the make available condition; pure brokerage for services rendered outside India and cost-to-cost reimbursements without income element are not taxable.

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