Make available test and database access: specialised outsourced services and limited online access were not taxable as royalty or fees.

Payments to non-resident service providers for bio-analytical, bioequivalence and clinical trial services were not fees for technical or included services because the treaty "make available" test was not met: the services involved specialised outsourced work, but did not transfer technical knowledge or skill enabling independent future performance by the recipient, so no withholding tax arose. Payment for online access to a scientific database was also not royalty, because the payer received only limited access to copyrighted material and no right to use the copyright itself, so no withholding obligation arose. The Revenue's appeal failed and the withholding tax demand was sustained in favour of the assessee.

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Issues: (i) Whether payments made to non-resident service providers for bio-analytical, bioequivalence and clinical trial related services were taxable as fees for technical or included services under the relevant DTAAs so as to attract withholding tax under section 195; (ii) Whether payment for online access to a scientific database constituted royalty under the Indo-US tax treaty and the Act, attracting withholding tax.

Issue (i): Whether payments made to non-resident service providers for bio-analytical, bioequivalence and clinical trial related services were taxable as fees for technical or included services under the relevant DTAAs so as to attract withholding tax under section 195.

Analysis: The treaty provisions required not merely the rendering of technical services, but that the services must also 'make available' technical knowledge, experience, skill, know-how or processes to the recipient. The services rendered by the foreign entities consisted of specialized testing and reports, but there was no material to show that the assessee was enabled to perform the same functions independently in future without recourse to the service providers. The expression 'make available' has a distinct treaty meaning and is satisfied only when the technical knowledge or skill is imparted and absorbed by the recipient. On the facts, the services remained in the nature of specialized outsourced services and did not amount to transfer of technology or know-how.

Conclusion: The payments were not fees for technical or included services and no tax was deductible under section 195. This issue was decided in favour of the assessee.

Issue (ii): Whether payment for online access to a scientific database constituted royalty under the Indo-US tax treaty and the Act, attracting withholding tax.

Analysis: The relevant treaty definition of royalty covered consideration for the use of, or the right to use, copyright, not mere access to copyrighted material. The assessee only obtained limited, non-exclusive and non-transferable access to an online database, without acquiring any right to exploit the underlying copyright. The distinction between use of copyright and use of a copyrighted article was material, and the payment fell on the copyrighted article side of that line. Accordingly, the amount could not be treated as royalty under the treaty or the Act.

Conclusion: The payment for database access was not royalty and no withholding obligation arose. This issue was decided in favour of the assessee.

Final Conclusion: The Revenue's appeal failed on both substantive grounds, and the deletion of the withholding tax demand was sustained.

Ratio Decidendi: Under a treaty 'make available' clause, technical services are taxable only if they transmit technical knowledge or skill to the recipient for independent future use, and payment for mere access to copyrighted material is not royalty absent any right to use the copyright itself.

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