Treaty-based taxability of advisory services depends on "make available" of technical know-how; no withholding arises if not chargeable in India.

Under the India-USA DTAA, management, financial, legal, public relations, treasury and risk management services are taxable in India as "fee for included services" only when technical knowledge, experience, skill, know-how or processes are made available to the recipient. Mere advisory or managerial assistance, without transfer of technology or independently usable technical know-how, does not satisfy that treaty test, so the payments are not chargeable to tax in India where there is no permanent establishment. If no tax is chargeable on the remittance, no withholding obligation arises under Section 195, and consequential disallowance and proceedings under Section 201 cannot be sustained.

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Issues: (i) Whether the management, financial, legal, public relations, treasury and risk management services paid for by the assessee fell within "fee for included services" under the India-USA DTAA and were taxable in India; (ii) whether, in the absence of any taxable liability under the DTAA, the assessee was bound to deduct tax at source under Section 195 and liable to disallowance and proceedings under Section 201.

Issue (i): Whether the management, financial, legal, public relations, treasury and risk management services paid for by the assessee fell within "fee for included services" under the India-USA DTAA and were taxable in India.

Analysis: The services were held to be technical and consultancy services under the domestic definition in Section 9(1)(vii) of the Income-tax Act, 1961. However, the DTAA, read with the Memorandum of Understanding, applied a narrower test and required that technical knowledge, experience, skill, know-how or processes be made available to the recipient. The arrangement here was only for advisory assistance on managerial and related matters, without any transfer of technology, know-how, or a technical plan capable of independent application by the assessee. In the absence of a permanent establishment, the business profits of the US company were not taxable in India, and the payments did not qualify as "fee for included services" under the treaty.

Conclusion: The payments were not taxable in India under the DTAA and the finding was in favour of the assessee.

Issue (ii): Whether, in the absence of any taxable liability under the DTAA, the assessee was bound to deduct tax at source under Section 195 and liable to disallowance and proceedings under Section 201.

Analysis: Since the treaty provisions were more beneficial and excluded the payments from Indian tax, no tax was chargeable on the remittance in the hands of the non-resident. Once the underlying income was not taxable in India, the statutory obligation to deduct tax at source did not arise. The consequent disallowance under Section 40(a)(ia) and the proceedings under Section 201 could not be sustained.

Conclusion: The assessee was not liable to deduct tax at source and the adverse orders were set aside in favour of the assessee.

Final Conclusion: The appeals succeeded, the revenue authorities' orders were set aside, and the assessee obtained complete relief from the tax deduction and consequential demand consequences.

Ratio Decidendi: Where a tax treaty contains a narrower definition of technical or consultancy services and requires technology or know-how to be made available, mere advisory or managerial assistance does not constitute taxable included services, and no withholding obligation arises if the payment is not chargeable to tax in India.

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