Treaty-based taxation of centralized services denied where no make-available test was satisfied and receipts were business income.

Receipts from centralized marketing, reservation, loyalty and related support services were treated as business income and not as fee for technical services under domestic law or the India-Singapore DTAA, because the services were not ancillary to royalty and did not make available technical knowledge, skill or know-how. Reimbursement receipts for routine expenses such as courier, media monitoring, email campaigns and translation were also held not taxable as fee for technical services for the same reason. The short credit of tax deducted at source was remitted for factual verification, with credit to be granted in accordance with law. The additions on centralized service receipts and reimbursements were deleted, subject to TDS verification.

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Issues: (i) whether receipts from marketing, reservation, loyalty and related centralized services were taxable as fee for technical services under the Act and the India-Singapore DTAA; (ii) whether reimbursement of expenses was taxable as fee for technical services; (iii) whether short credit of tax deducted at source required verification and grant in accordance with law.

Issue (i): whether receipts from marketing, reservation, loyalty and related centralized services were taxable as fee for technical services under the Act and the India-Singapore DTAA.

Analysis: The services were rendered under distinct agreements and were aimed at marketing, publicity, promotion and centralized reservation support. They were held not to be ancillary and subsidiary to the trademark licence fee, and the arrangement did not satisfy the make-available requirement under the treaty. The receipts were therefore not chargeable either as fee for technical services under the domestic law or as included services under Article 12 of the treaty.

Conclusion: The issue was decided in favour of the assessee. The receipts were held to be business income and not taxable in India in the absence of a permanent establishment.

Issue (ii): whether reimbursement of expenses was taxable as fee for technical services.

Analysis: The reimbursements related to routine and recurring activities such as courier, media monitoring, email campaign and translation services. They did not involve technical or consultancy services that made available technical knowledge, skill, know-how or processes, nor were they ancillary to royalty.

Conclusion: The issue was decided in favour of the assessee. The reimbursement receipts were directed to be deleted from taxation as fee for technical services.

Issue (iii): whether short credit of tax deducted at source required verification and grant in accordance with law.

Analysis: The claim was directed to be examined factually by the assessing authority and credit was to be allowed on verification in accordance with law.

Conclusion: The issue was decided in favour of the assessee to the extent of remand for verification and consequential relief.

Final Conclusion: The additions on account of centralized service receipts and reimbursement receipts were set aside, and the TDS issue was sent back for factual verification, leaving the assessee substantially successful.

Ratio Decidendi: Under the treaty, services are taxable as included services only when they are technical or consultancy services that are either ancillary and subsidiary to royalty-related rights or make available technical knowledge, skill or know-how; centralized marketing and reservation services lacking those features are business receipts.

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