Make available test under India-USA DTAA kept service receipts outside fees for included services and royalty treatment.

Receipts under a general service agreement were held not taxable as fees for included services or royalty under the India-USA DTAA because the services were support, coordination, management and advisory functions that did not make available technical knowledge, experience, skill, know-how or processes to the Indian entities. The treaty definition in Article 12(4) prevailed over the broader domestic characterisation under section 9(1)(vi) or section 9(1)(vii). Interest under section 244A was to be recomputed consequentially on the revised computation, with the tax addition deleted and only the interest working left to be adjusted in accordance with law.

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Issues: (i) Whether the receipts under the general service agreement were taxable as fees for included services or royalty under the India-USA tax treaty and the Income-tax Act; (ii) whether interest under section 244A required recomputation as a consequential matter.

Issue (i): Whether the receipts under the general service agreement were taxable as fees for included services or royalty under the India-USA tax treaty and the Income-tax Act.

Analysis: The services were examined against Article 12(4) of the India-USA DTAA, which applies only where technical or consultancy services are rendered and the recipient is enabled to apply the technical knowledge, experience, skill, know-how or processes independently. The services described in the agreement were held to be support, coordination, management and advisory functions, without any obligation to make technical knowledge available to the Indian entities. Applying the make available test, and following the co-ordinate bench view in the assessee's own group matter, the receipts did not fall within fees for included services. The treaty position prevailed over the broader domestic characterization under section 9(1)(vi) or section 9(1)(vii).

Conclusion: The receipts were not taxable as fees for included services or royalty, and the issue was decided in favour of the assessee.

Issue (ii): Whether interest under section 244A required recomputation as a consequential matter.

Analysis: The claim concerning interest was not treated as an independent substantive controversy and followed from the result on the main taxability issue. The matter was therefore left to be worked out in accordance with law on the basis of the revised computation.

Conclusion: The interest was directed to be recomputed in accordance with law, in favour of the assessee to that limited extent.

Final Conclusion: The additions made on account of treaty characterization of the service receipts were deleted, and only consequential recomputation of interest remained to be carried out; the appeals were allowed.

Ratio Decidendi: Under Article 12(4) of the India-USA DTAA, services are taxable as included services only if they make available technical knowledge or skills so that the recipient can independently apply them in future; absent that element, the receipts are not taxable under that article.

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