Treaty withholding tax on non-resident services fails where no technical knowledge or know-how is made available.

Payments to non-resident entities for bio-analytical, professional and due diligence services were analysed under the relevant DTAAs to determine whether they constituted fees for technical services or included services. The decisive treaty test was whether the services made available technical knowledge, skill, experience, know-how or processes so the recipient could apply them independently in future; on the facts, no such transfer of technology or know-how occurred. The Belgium payments were also covered by the more restricted treaty standard through the most favoured nation clause. Accordingly, the payments were not subject to tax withholding, and no liability arose as an assessee in default or for interest.

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Issues: Whether payments made to non-resident entities for bio-analytical and professional services were chargeable as fees for technical services or included services under the relevant DTAAs so as to require deduction of tax at source under section 195 of the Income-tax Act, 1961, and consequential liability under section 201(1) and section 201(1A).

Analysis: The services rendered by the USA and Canada recipients were confined to conducting tests and furnishing reports, and the non-residents had no permanent establishment in India. The decisive test under the treaty provisions was whether the services "made available" technical knowledge, skill, experience, know-how or processes to the assessee so that it could apply the same independently in future. On the facts found, the services did not transfer technology or enable the assessee to perform similar work on its own. The same principle applied to the Belgian payments, where the services were rendered outside India for due diligence purposes and the assessee did not receive any technical knowledge or know-how. The benefit of the most favoured nation clause was also accepted in relation to the Belgium DTAA, leading to application of the more restricted treaty standard.

Conclusion: The payments did not constitute fees for technical services or included services under the applicable DTAAs, and no obligation to deduct tax at source arose under section 195. The assessee was not liable to be treated as an assessee in default under section 201(1) or to pay interest under section 201(1A).

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