Withholding tax on remittances to non-resident parent denied where services failed make available and portal access was not royalty

Remittances to a non-resident parent for professional support services, client-related expenses and computer maintenance charges were held not subject to withholding tax under section 195. The professional support services were found not to be technical services and did not satisfy the India-USA treaty's make available requirement for fees for included services. The computer maintenance charges were treated as access to a common global portal, involving no transfer of technology or royalty. The record also did not support taxing the full client-related expense claim, and liability could not be based on a later retrospective enlargement of the charging provision. The withholding addition was deleted.

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Issues: Whether tax was required to be withheld under section 195 on remittances made to the non-resident parent towards professional support services, client-related expenses and computer maintenance charges, having regard to the India-USA tax treaty and the nature of the payments.

Analysis: The payments for professional support services were found to be neither technical in nature nor to satisfy the treaty's make available requirement for fee for included services. The computer maintenance charges were treated as payments for access to a common global portal and were held not to involve the transfer of technology or any right amounting to royalty. As to the client-related expenses, the record did not justify treating the entire amount as taxable; only the limited items sustained by the first appellate authority were examined further. The Tribunal also accepted that, for the relevant period, the payer could not be fastened with withholding liability on the basis of a later retrospective enlargement of the charging provision.

Conclusion: The assessee was not liable to withhold tax on the impugned remittances, and the addition sustained by the first appellate authority was deleted.

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