Fees for technical services under India-UK DTAA applied where head-office know-how was made available independently.

Receipts for services partly performed through an Indian permanent establishment and partly from the United Kingdom were treated as fees for technical services under domestic law because the payer carried on business in India and the source remained in India. Article 13(6) of the India-UK DTAA did not shift the balance receipts into business profits under Article 7, as only fees actually and functionally connected with the permanent establishment qualify for that treatment; independently performed head-office services do not. The make available condition was also satisfied because the services transferred rules, documentation, guidelines and related know-how in a form the recipient could use independently. The disputed receipts were therefore taxable as fees for technical services.

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Issues: (i) whether the balance receipts from services rendered outside India were taxable as fees for technical services under the India-UK DTAA and section 9(1)(vii)(b) of the Income-tax Act, 1961; (ii) whether the receipts fell within Article 13(6) as being effectively connected with the Indian permanent establishment so as to be taxable only as business profits under Article 7; and (iii) whether the services satisfied the make available condition under Article 13(4)(c).

Issue (i): Whether the balance receipts from services rendered outside India were taxable as fees for technical services under the India-UK DTAA and section 9(1)(vii)(b) of the Income-tax Act, 1961.

Analysis: The service arrangement covered both activities performed through the Indian permanent establishment and substantial advisory, strategic, and documentation work performed from the United Kingdom. The Court held that the balance receipts were not covered by the exclusion for income from a source outside India, because the payer carried on business in India and the source of the income remained in India. The receipts therefore retained the character of fees for technical services under domestic law.

Conclusion: The balance receipts were chargeable to tax as fees for technical services and did not fall within the section 9(1)(vii)(b) exception.

Issue (ii): Whether the receipts fell within Article 13(6) as being effectively connected with the Indian permanent establishment so as to be taxable only as business profits under Article 7.

Analysis: The Court distinguished between income attributable to the Indian permanent establishment and income arising from services independently performed by the foreign head office. It held that Article 13(6) applies only to that part of the fees for technical services which is actually and functionally connected with the permanent establishment. Because the head-office services were not carried on through, by, or under the control of the permanent establishment, the balance receipts could not be shifted into Article 7.

Conclusion: Article 13(6) did not apply to the balance receipts, and they remained taxable under Article 13.

Issue (iii): Whether the services satisfied the make available condition under Article 13(4)(c).

Analysis: The Court found that the services included preparation of rules, documentation, guidelines, contracts, and related material that enabled the recipient to use the technical and consultative output independently. The knowledge and know-how were not merely used for a single event but were transferred in a manner that left the recipient capable of applying them later. On that basis, the make available requirement was satisfied.

Conclusion: The services satisfied the make available test and were taxable as fees for technical services.

Final Conclusion: The assessee's appeal failed, while the Revenue succeeded in its challenge, resulting in taxation of the disputed receipts as fees for technical services rather than as only business profits attributable to the permanent establishment.

Ratio Decidendi: For Article 13(6) to exclude fees for technical services from treaty taxation, the relevant services or contract must be actually and functionally connected with the permanent establishment; services independently performed outside the permanent establishment remain taxable as fees for technical services, and the make available test is satisfied where the recipient is enabled to apply the transferred know-how independently.

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