Make-available test under the India-UK treaty excluded consulting engineering receipts and related cost recharge from FTS taxation.

Project-specific consulting engineering drawings, designs and plans were examined under Article 13(4)(c) of the India-UK treaty, which requires that technical knowledge, experience, skill, know-how or processes be made available to the recipient. Because the materials were not shown to equip the recipient to use the expertise independently in future projects, the receipts did not qualify as fees for technical services and were treated as business profits not taxable in India absent a permanent establishment. The related common cost recharge, lacking an independent tax basis, was also not taxable in India, and the additions were deleted.

---

---

Issues: (i) Whether receipts for consulting engineering services were taxable as fees for technical services under the India-United Kingdom tax treaty; (ii) whether the related common cost recharge was separately taxable as fees for technical services.

Issue (i): Whether receipts for consulting engineering services were taxable as fees for technical services under the India-United Kingdom tax treaty.

Analysis: The services consisted of supply of project-specific technical drawings, designs and plans. Article 13(4)(c) of the treaty was held to require that technical knowledge, experience, skill, know-how or processes be made available to the recipient. The phrase relating to development and transfer of a technical plan or technical design was read with the make-available requirement. Because the designs and plans were project-specific and not shown to equip the recipient to use the technical knowledge independently in future projects, the condition was not satisfied. In the absence of proof that technical expertise was transferred in a manner enabling independent future use, the receipts were not taxable as fees for technical services.

Conclusion: The amount received for consulting engineering services was not taxable as fees for technical services and was to be treated as business profit not chargeable in India in the absence of a permanent establishment.

Issue (ii): Whether the related common cost recharge was separately taxable as fees for technical services.

Analysis: The cost recharge had been treated by the tax authorities as ancillary and incidental to the consulting engineering services. Once the main receipts themselves were held not to be fees for technical services, the same reasoning could not support taxation of the recharge as technical services income. No independent basis was established to bring the recharge to tax apart from the failed characterisation of the principal services.

Conclusion: The common cost recharge was also not taxable in India.

Final Conclusion: The additions were deleted and the assessee's appeal was allowed.

Ratio Decidendi: Under Article 13(4)(c) of the India-United Kingdom tax treaty, development and transfer of technical designs or plans is taxable as fees for technical services only if it makes available technical knowledge, experience, skill, know-how or processes enabling independent future use by the recipient.

---