Make available test under the India-Canada tax treaty: research service payments were not technical fees and no withholding applied.

Payments to a Canadian service provider for bio-analytical and clinical research services were examined under the India-Canada DTAA and section 9(1)(vii) to determine whether they were fees for technical services and subject to withholding under section 195. The decisive test was whether the services made technical knowledge, skill or process available to the payer so it could apply them independently in future. As only final reports and results were supplied, with no transfer of methods, procedures or know-how, the make available condition was not met. The receipts were treated as business profits under Article 7 and, absent a permanent establishment in India, were not taxable in India; consequently, no tax was deductible at source and consequential default and interest could not stand.

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Issues: Whether the remittance made to the Canadian entity for bio-analytical and clinical research services constituted fees for technical services under Article 12 of the India-Canada DTAA and section 9(1)(vii) of the Income-tax Act, and whether tax was deductible under section 195, with the assessee consequently treated as an assessee in default under section 201(1) and liable for interest under section 201(1A).

Analysis: The services rendered by the Canadian entity were sophisticated, but the decisive test was whether the underlying technical knowledge, skill or process was made available to the assessee so that it could independently apply the same in future without recourse to the service provider. On the facts, the agreement and invoices showed that the Canadian entity was engaged because of excess workload and capacity constraints, and only final reports and results were furnished. The record did not show any transfer of the analytical methods, procedures or technical know-how used in conducting the tests. The payments therefore did not satisfy the make available condition under Article 12. In substance, the receipts of the non-resident were business profits under Article 7, and in the absence of a permanent establishment in India, they were not taxable in India.

Conclusion: The remittance was not chargeable as fees for technical services and no tax was deductible at source under section 195; the findings treating the assessee as an assessee in default and levying consequential interest could not be sustained. The issue is decided in favour of the assessee.

Ratio Decidendi: Technical services rendered by a non-resident are taxable under the treaty only when the service recipient is enabled to apply the underlying technical knowledge, skill or process independently in future; mere supply of reports or results does not satisfy the make available requirement.

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