Make available test under the India-US treaty kept engineering and start-up receipts outside fees for included services.

Engineering, design, start-up and overall responsibility receipts were examined under section 9(1)(vii) and Article 12 of the India-US treaty. Because the services were largely performed outside India and did not make available technical knowledge, skill, know-how or technical design to the Indian customer, they did not qualify as fees for technical services or included services. The contract was treated as a composite offshore supply arrangement linked to equipment supply and start-up activity. In the absence of a permanent establishment in India, the receipts were characterised as business profits taxable only if attributable to such establishment, and no Indian tax liability arose on these facts.

---

---

Issues: Whether the amounts received for engineering, design, start-up and overall responsibility services under the contract were taxable in India as fees for technical services or fees for included services, or whether they were business profits not chargeable in the absence of a permanent establishment.

Analysis: The services were examined in the light of section 9(1)(vii) of the Income-tax Act, 1961 and Article 12 of the India-US tax treaty. The services were rendered largely from outside India, and the record did not show that technical knowledge, skill, know-how or technical design was made available to the Indian customer so as to enable independent future use. The contract was found to involve composite offshore supply and related services, and the services were held to be inextricably linked with the supply of equipment and start-up activity. Applying the treaty definition, the make available test, and the absence of a permanent establishment in India, the receipts were held not to fall within fees for included services. The income was instead treated as business profits taxable only if attributable to a permanent establishment.

Conclusion: The receipts were not taxable in India as fees for technical services or fees for included services; they constituted business profits, and in the absence of a permanent establishment in India, no Indian tax liability arose.

Final Conclusion: The assessee succeeded and the addition treating the contractual receipts as taxable fees for included services was set aside.

Ratio Decidendi: Under Article 12 of the India-US treaty, technical or consultancy services are taxable as included services only when they make available technical knowledge, experience, skill, know-how, or technical design to the recipient; where that test is not satisfied and no permanent establishment exists in India, the receipts are taxable, if at all, only as business profits.

---