Limitation for section 201 action and the make available test defeated taxability of non-resident payments under the treaty.

Orders treating an assessee as in default under section 201 cannot be initiated after an unreasonable lapse of time for non-resident payments, and the Tribunal applied the jurisdictional High Court's four-year benchmark to hold the 2013 orders for the earlier assessment years barred by limitation. The payments to the non-resident were also held not to constitute fees for technical services or fees for included services, because the data and reports supplied did not make available technical knowledge, skill, or know-how enabling independent use by the recipient. As a result, the domestic withholding basis could not be sustained and the assessee was not liable to be treated as in default on that ground.

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Issues: (i) Whether the orders under section 201 were barred by limitation for the relevant assessment years. (ii) Whether the payments made to the non-resident were taxable as fees for technical services under section 9(1)(vii) of the Income-tax Act, 1961 and as fees for included services under Article 12 of the India-USA DTAA.

Issue (i): Whether the orders under section 201 were barred by limitation for the relevant assessment years.

Analysis: The Tribunal followed the jurisdictional High Court decision on section 201(3) and held that, even in the absence of an express limitation for non-resident payments, proceedings to treat an assessee as in default cannot be initiated after an unreasonable lapse of time. The facts were found to be in parity with the binding precedent, and the later orders were examined against the four-year benchmark discussed in that decision.

Conclusion: The orders dated 28.03.2013 for assessment years 2006-07, 2007-08 and 2008-09 were held to be barred by limitation.

Issue (ii): Whether the payments made to the non-resident were taxable as fees for technical services under section 9(1)(vii) of the Income-tax Act, 1961 and as fees for included services under Article 12 of the India-USA DTAA.

Analysis: On the agreement and the nature of the data supplied, the Tribunal held that the non-resident had made available data and reports, but not technical knowledge, skill or know-how enabling the assessee to carry on the activity independently. Applying the make available test, and following the coordinate bench and treaty principles, the Tribunal found that the receipts did not fall within the treaty definition of technical services. Consequently, the domestic withholding obligation could not be sustained on that basis.

Conclusion: The payments were not held taxable as fees for technical services or fees for included services, and the assessee was not liable to be treated as an assessee in default on that ground.

Final Conclusion: The appeals were disposed of in the assessee's favour on the limitation issue, and the alternate taxability issue was also decided against the Revenue, resulting in partial relief to the assessee in the form of partly allowed appeals.

Ratio Decidendi: In proceedings under section 201, limitation cannot be left open-ended for non-resident payments where binding precedent treats action after an unreasonable period as impermissible, and a service is taxable as technical services under the treaty only when technical knowledge or know-how is made available so that the recipient can apply it independently.

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