Treaty fees for technical services require making available know-how; inspection and certification receipts were not taxable, and penalty failed.

Inspection, testing, analysis and certification receipts from services rendered largely outside India were not taxable as fees for technical services under Article 13(4)(c) of the India-United Kingdom DTAA because the services did not make available technical knowledge, experience, skill or know-how to the Indian recipients; mere performance of technical services was insufficient. The concealment penalty under section 271(1)(c) was also deleted because the assessee had made a bona fide, debatable treaty claim and the record did not show false particulars or concealment. The receipts were therefore held not chargeable to tax in India and the penalty was unsustainable.

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Issues: (i) Whether the receipts from inspection, testing and certification services rendered to Indian customers were taxable in India as fees for technical services under Article 13(4)(c) of the India-United Kingdom Double Taxation Avoidance Agreement; (ii) Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 was exigible for not offering such receipts to tax.

Issue (i): Whether the receipts from inspection, testing and certification services rendered to Indian customers were taxable in India as fees for technical services under Article 13(4)(c) of the India-United Kingdom Double Taxation Avoidance Agreement.

Analysis: The assessee, a UK tax resident, rendered inspection, testing, analysis and certification services, mostly outside India. The services were technical in nature, but taxation under the treaty depended on whether technical knowledge, experience, skill or know-how was made available to the Indian recipients. The services were performed in the ordinary course of business and the recipients were not shown to have acquired the ability to perform such services independently without the assessee or another similar provider. Mere inspection, survey, analysis and certification did not satisfy the treaty requirement.

Conclusion: The receipts were not taxable in India as fees for technical services under Article 13(4)(c) of the India-United Kingdom Double Taxation Avoidance Agreement, and the issue was decided in favour of the assessee.

Issue (ii): Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 was exigible for not offering such receipts to tax.

Analysis: The penalty arose only from rejection of the assessee's claim on taxability. The record did not show that the assessee made a false claim or furnished inaccurate particulars. A disputed or debatable claim regarding treaty taxability, by itself, does not attract concealment penalty when the explanation is bona fide and full particulars are disclosed.

Conclusion: Penalty under section 271(1)(c) was not sustainable and was deleted, in favour of the assessee.

Final Conclusion: The receipts from the UK-resident assessee's inspection and certification services were held not chargeable to tax in India under the treaty, and the concealment penalty was cancelled. The assessee's appeal was thus allowed in one matter and partly allowed in the connected matter.

Ratio Decidendi: Services do not fall within treaty-based fees for technical services unless they make available technical knowledge, experience, skill or know-how to the recipient, and a bona fide, debatable claim on taxability does not by itself justify penalty for concealment or inaccurate particulars.

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