Make available test limits fees for technical services; consultancy income deleted, reimbursement claims remanded for verification.

For treaty purposes, managerial, marketing consultancy and employee training services were not taxable as fees for technical services where they did not make available technical knowledge, experience, skill, know-how or processes for independent future use. The India-Sweden treaty MFN protocol allowed application of the narrower India-Portugal-style make available test, so the consultancy and training receipts were deleted. Claims described as reimbursement of expenses and recovery of expatriates' salary cost were not finally accepted as exempt; both lacked sufficient correlation with the underlying costs and were remanded to the Assessing Officer for fresh verification. The result was partial relief, with one receipt deleted and the other two matters restored for reconsideration.

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Issues: (i) Whether the amount received for human resources, marketing consultancy and employee training services was taxable as fees for technical services under the Act and the applicable treaty framework. (ii) Whether the amount claimed as reimbursement of expenses was liable to be taxed as fees for technical services or required fresh verification. (iii) Whether the amount claimed as recovery of expatriates' salary cost was taxable or required fresh verification.

Issue (i): Whether the amount received for human resources, marketing consultancy and employee training services was taxable as fees for technical services under the Act and the applicable treaty framework.

Analysis: Explanation 2 to section 9(1)(vii) of the Income-tax Act, 1961 covers managerial, technical and consultancy services within the ambit of fees for technical services. Under Article 12 of the India-Sweden treaty, the most favoured nation protocol permits adoption of the more restricted treaty definition from the India-Portugal treaty where services qualify only if they make available technical knowledge, experience, skill, know-how or processes. The relevant test is whether the recipient can apply the technology or knowledge independently in future without the provider's assistance. The services in question were essentially managerial, consultancy and training services and did not transfer technical knowledge in that sense.

Conclusion: The amount of Rs.38,16,447/- was not taxable as fees for technical services and was directed to be deleted.

Issue (ii): Whether the amount claimed as reimbursement of expenses was liable to be taxed as fees for technical services or required fresh verification.

Analysis: Reimbursement presupposes recovery of third-party costs incurred without mark-up. The assessee's claim lacked conclusive correlation between the amounts recovered and the underlying expenses before the lower authorities. Since the supporting material was stated to be available and the nature of the claim required verification of the actual character of the expenditure and recovery, the matter warranted another opportunity for examination by the Assessing Officer.

Conclusion: The issue of Rs.20,84,698/- was set aside and remanded to the Assessing Officer for fresh adjudication.

Issue (iii): Whether the amount claimed as recovery of expatriates' salary cost was taxable or required fresh verification.

Analysis: Amounts that constitute salary in the hands of the recipient do not fall within fees for technical services. The assessee asserted that the amount was part of expatriate salary cost recovered from Indian entities without mark-up, but did not establish a conclusive nexus between the recovery and the salary amounts offered to tax as salary in India. The absence of sufficient correlation justified a re-examination of the claim by the Assessing Officer.

Conclusion: The issue of Rs.64,19,453/- was set aside and remanded to the Assessing Officer for fresh adjudication.

Final Conclusion: The addition relating to consultancy and training receipts was deleted, while the remaining two claims were restored for fresh consideration, resulting in a partial relief to the assessee.

Ratio Decidendi: For treaty purposes, services qualify as fees for technical services only when they satisfy the applicable make available requirement and merely imparting managerial or training assistance without enabling independent future use is insufficient.

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