Make available test under the India-USA DTAA governs taxation of collaborative research payments and TDS exposure.

Payments to a non-resident university for collaborative research on chemical enhanced oil recovery formulations were analysed under the India-USA DTAA to determine whether they constituted royalty or fees for technical services and attracted TDS under section 195. Applying Article 12, the key test was whether technical knowledge, experience, skill, know-how or processes were made available to the payer so it could use them independently in future. On the stated facts, the arrangement involved sponsored research and field tests, but no transfer of patent rights, copyright or technical know-how enabling independent use. The receipts were therefore not taxable as royalty or fees for technical services under the treaty, and no deduction obligation under section 195 survived.

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Issues: Whether the payments made to the non-resident university for collaborative research and development of chemical enhanced oil recovery formulations were taxable as royalty or fees for technical services under the India-USA DTAA, and consequently liable to deduction of tax at source under section 195 of the Income-tax Act, 1961.

Analysis: The payment arose from a sponsored research arrangement for developing chemical EOR formulations and field tests. The governing question was whether the non-resident's services amounted to royalty or fees for technical services under the treaty, and whether the treaty's "make available" requirement was satisfied. The statutory scheme under section 9 of the Income-tax Act, 1961 distinguishes royalty from fees for technical services, but section 90(2) requires the treaty definition to prevail where more beneficial. Applying Article 12 of the India-USA DTAA, the relevant test was whether technical knowledge, experience, skill, know-how, or processes were made available to the assessee so that it could apply them independently in future. On the facts, the agreement showed collaborative research and development, but no transfer of patent, copyright, or technical know-how that enabled the assessee to carry on the work on its own. The services were found not to have made available any technology within the treaty meaning.

Conclusion: The receipts were not taxable as royalty or fees for technical services under the India-USA DTAA, and no obligation to deduct tax at source under section 195 survived.

Ratio Decidendi: Under Article 12 of the India-USA DTAA, technical services are taxable only when the service recipient is enabled to apply the underlying technical knowledge, experience, skill, know-how, or processes independently; absent such "make available" of technology, the consideration is not taxable as fees for technical services or royalty under the treaty.

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