Make available test under India-USA DTAA excluded tax on laboratory service receipts absent transfer of technical capability.

Receipts from pre-clinical laboratory testing and research services were not taxable in India as fees for included services or fees for technical services under the India-USA DTAA because the customers received only final reports and were not enabled to independently apply the provider's technical knowledge, skill, know-how or processes. The agreements showed that the provider retained ownership of its inventions, techniques, scientific data and test procedures, so the "make available" test in Article 12(4)(b) was not met. In the absence of a permanent establishment in India, the receipts also could not be assessed as business profits under Article 7, and the related tax addition was unsustainable.

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Issues: (i) Whether the receipts from pre-clinical laboratory services rendered to Indian customers were taxable in India as fees for included services or fees for technical services under the India-USA DTAA and the Income-tax Act, 1961.

Analysis: The services consisted of testing and research followed by issuance of reports. The agreements showed that the assessee retained ownership over its inventions, techniques, documentation, scientific data, test procedures and related know-how. The customers received only the final report and did not acquire the technical knowledge, skill, experience, know-how or processes used in conducting the tests. The service recipients were not enabled to perform similar testing independently without recurring assistance from the assessee. On these facts, the element of "make available" required by Article 12(4)(b) was absent. Since the assessee had no permanent establishment in India, the receipts could not be taxed as business profits under Article 7. The grounds relating to interest and penalty were only consequential.

Conclusion: The receipts were not chargeable to tax in India as fees for included services or fees for technical services, and the addition was unsustainable.

Final Conclusion: The appeals were allowed and the assessment addition treating the laboratory service receipts as taxable income in India was set aside.

Ratio Decidendi: Under the India-USA DTAA, technical services are taxable as fees for included services only when the service recipient is enabled to apply the provider's technical knowledge, skill, know-how or processes independently in future; mere delivery of a technical report without transfer of such capability does not satisfy the "make available" test.

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