Cost-to-cost reimbursement and make available test bar taxation of SAP licence, consultancy, and IT support receipts.

SAP licence fee reimbursements paid on a cost-to-cost basis, without any mark-up or income element, were treated as non-taxable and not assessable as royalty. Consultancy receipts were also held outside the scope of fees for technical services because the services did not make available technical knowledge, skill, or know-how enabling the recipient to perform similar services independently in future. IT support receipts likewise were not taxable as fees for technical services or royalty, as they were neither ancillary to royalty nor sufficient to satisfy the make available test. The additions on all three receipt streams were deleted.

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Issues: (i) Whether receipts from SAP licence charges were taxable as royalty; (ii) Whether consultancy service receipts were taxable as fees for technical services under the make available clause; (iii) Whether IT support service receipts were taxable as fees for technical services or royalty.

Issue (i): Whether receipts from SAP licence charges were taxable as royalty.

Analysis: The receipts were found to be mere reimbursement of SAP licence fees paid by the assessee to a third party on a cost-to-cost basis without any mark-up. A pure reimbursement, lacking any income element, cannot be taxed as royalty or as income under domestic law. The earlier year's decision on identical facts was followed.

Conclusion: The SAP licence receipts were not taxable as royalty and the addition was deleted in favour of the assessee.

Issue (ii): Whether consultancy service receipts were taxable as fees for technical services under the make available clause.

Analysis: The consultancy services did not transfer technical knowledge, skill, or know-how so as to enable the recipient to perform similar services independently in future. The core requirement of the make available clause was therefore not satisfied. In the absence of any distinguishing material, the earlier year's view was applied.

Conclusion: The consultancy receipts were not taxable as fees for technical services and the addition was deleted in favour of the assessee.

Issue (iii): Whether IT support service receipts were taxable as fees for technical services or royalty.

Analysis: The IT support services were held not to be ancillary or subsidiary to any royalty payment and, on the facts, did not satisfy the make available condition either. The incidental benefit to the Indian entity was not enough to attract taxation under the treaty.

Conclusion: The IT support receipts were not taxable as fees for technical services or royalty and the addition was deleted in favour of the assessee.

Final Conclusion: The additions made on account of SAP licence charges, consultancy services, and IT support services did not survive and the assessee succeeded on all substantive grounds.

Ratio Decidendi: A receipt that is only a reimbursement on a cost-to-cost basis, without an income element, is not taxable; and service receipts are not taxable as fees for technical services unless the recipient is enabled to perform the same services independently in future under the make available test.

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