Make-available test under the India-UK treaty bars tax on specialised services and related cost recharges absent a permanent establishment.

Specialised consulting, engineering and project support services were analysed under the India-UK tax treaty and found not to constitute fees for technical services because they did not make available technical knowledge, experience, skill, know-how or processes to the recipient. As a result, the receipts were treated as business profits and, absent a permanent establishment in India, were not taxable in India. On the same treaty basis, management fees and common cost recharges were also rejected as royalty or fees for technical services because the underlying arrangement did not satisfy the make-available test. The additions on these receipts were deleted.

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Issues: (i) Whether consulting and engineering services received from the Indian group entity were taxable as fees for technical services or were business profits not chargeable in India absent a permanent establishment. (ii) Whether management fees and common cost recharge were taxable as royalty or fees for technical services under the India-UK tax treaty.

Issue (i): Whether consulting and engineering services received from the Indian group entity were taxable as fees for technical services or were business profits not chargeable in India absent a permanent establishment.

Analysis: The services consisted of specialised project-specific consulting, engineering, designs and related technical support. The treaty definition of fees for technical services required, in the relevant setting, that technical knowledge, experience, skill, know-how or processes be made available to the recipient. The mere rendering of specialised services was not sufficient. The reasoning adopted was that project-specific deliverables usable only for the particular assignment do not satisfy the make-available requirement, and therefore the receipts retain the character of business profits.

Conclusion: The receipts from consulting and engineering services were not taxable as fees for technical services and were to be treated as business profits; in the absence of a permanent establishment in India, the addition was not sustainable, in favour of the assessee.

Issue (ii): Whether management fees and common cost recharge were taxable as royalty or fees for technical services under the India-UK tax treaty.

Analysis: The cost recharge was treated by the revenue authorities as royalty and alternatively as fees for technical services on the footing that the payments represented use of brand name or furnishing of technical and consultancy services. The same treaty framework applied. Since the underlying services did not make available technical knowledge, experience, skill, know-how or processes, and the recharge was linked to the same composite arrangement already held not to fall within the treaty definition of fees for technical services, the characterization as royalty or fees for technical services could not stand.

Conclusion: The management fees and common cost recharge were not taxable as royalty or fees for technical services, in favour of the assessee.

Final Conclusion: The additions made in respect of the impugned receipts were deleted, and the assessee obtained substantive relief on the core transfer-pricing and treaty-taxability issues.

Ratio Decidendi: Under the India-UK tax treaty, specialised services are taxable as fees for technical services only when they make available technical knowledge, experience, skill, know-how or processes to the recipient; project-specific services or reimbursements that do not satisfy that test remain business profits and are not taxable in India absent a permanent establishment.

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