Re-fabrication charges and FTS: no taxability where services do not make available technical know-how under the Indo-Singapore treaty.

Re-fabrication of bushings in Singapore was treated as fabrication activity, not fees for technical services, because it did not make available technical knowledge, experience, skill, know-how or process to the Indian affiliate under section 9(1)(vii) and Article 12 of the Indo-Singapore DTAA. The analysis also rejected treating the receipt as treaty-covered royalty-linked service income merely because alloys were supplied within the group, since the treaty test required a direct nexus with the assessee's own payment arrangement. On that basis, the fabrication charges were not taxable as FTS and the related addition was deleted; consequential TDS credit was also to be granted.

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Issues: (i) Whether fabrication charges received for re-fabrication of bushings were taxable as fees for technical services under section 9(1)(vii) of the Income-tax Act, 1961 and Article 12 of the Indo-Singapore DTAA; (ii) Whether credit for tax deducted at source was to be granted.

Issue (i): Whether fabrication charges received for re-fabrication of bushings were taxable as fees for technical services under section 9(1)(vii) of the Income-tax Act, 1961 and Article 12 of the Indo-Singapore DTAA.

Analysis: The fabrication activity was found to be a recurring issue already decided in the assessee's own earlier years. The service consisted of re-fabrication of bushings in Singapore and did not involve making available technical knowledge, experience, skill, know-how or process to the Indian affiliate. The reasoning also rejected the attempt to invoke the treaty provision on the basis that alloys were supplied within the group, since the relevant treaty test required a direct nexus with payments for royalty-linked services and did not permit restructuring the transaction by attributing a group company's arrangement to the assessee.

Conclusion: The fabrication charges were not taxable as fees for technical services, and the addition was deleted in favour of the assessee.

Issue (ii): Whether credit for tax deducted at source was to be granted.

Analysis: Once the receipt was held taxable, if at all, only in accordance with the assessee's position, the related TDS credit claim survived for consideration and had to be allowed on the assessee's returned fabrication receipts.

Conclusion: Credit for tax deducted at source was directed to be granted in favour of the assessee.

Final Conclusion: The appeal succeeded and the transfer pricing-related addition on fabrication charges was removed, with consequential TDS credit relief also directed.

Ratio Decidendi: Re-fabrication services do not constitute fees for technical services unless they make available technical knowledge, experience, skill, know-how or process, and a group structure cannot be used to rewrite the treaty conditions for taxing such receipts.

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