Most-favoured-nation treaty relief and make available test limit taxation of technical services payments.

A later CBDT circular was treated as unable to retrospectively add a separate notification requirement for invoking a most-favoured-nation clause, so the more restrictive fees for technical services definition from the India-Portugal treaty could be applied for the relevant year under the India-Belgium arrangement. The document also applies the make available test to installation, supervision and commissioning services, stating that such payments are not fees for technical services unless technical knowledge, skill, know-how or process is transferred so the recipient can perform the service independently. On that reasoning, the remittance was not taxable as fees for technical services and no tax deduction was required.

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Issues: (i) Whether the assessee was entitled to the benefit of the most-favoured-nation clause so as to import the more restrictive scope of fees for technical services from the India-Portugal treaty into the India-Belgium treaty. (ii) Whether the payment for installation, supervision and commissioning services was taxable as fees for technical services in the absence of any technical knowledge, skill, know-how or process being made available to the service recipient.

Issue (i): Whether the assessee was entitled to the benefit of the most-favoured-nation clause so as to import the more restrictive scope of fees for technical services from the India-Portugal treaty into the India-Belgium treaty.

Analysis: The dispute turned on whether the later CBDT circular insisting on a separate notification for invoking the most-favoured-nation clause could be applied to the year under consideration. The reasoning accepted that the circular introduced an additional requirement and could not operate to the detriment of earlier periods. It was held that the benefit of the more restricted treaty definition available under the India-Portugal arrangement could therefore be applied for the relevant assessment year.

Conclusion: The assessee was held entitled to invoke the most-favoured-nation clause and the restrictive treaty interpretation.

Issue (ii): Whether the payment for installation, supervision and commissioning services was taxable as fees for technical services in the absence of any technical knowledge, skill, know-how or process being made available to the service recipient.

Analysis: The services were examined on the touchstone of the make available requirement. It was found that the vendor's activities did not transfer technical knowledge, experience, skill or know-how to the recipient so as to enable it to perform the services independently in future. In the absence of such making available, the receipt could not be characterised as fees for technical services under the applicable treaty standard.

Conclusion: The remittance was held not taxable as fees for technical services and no tax was deductible at source.

Final Conclusion: The addition made on account of non-deduction of tax at source was deleted and the assessee succeeded in the appeal.

Ratio Decidendi: A later administrative circular cannot retrospectively impose a stricter notification requirement for treaty benefit already available under the most-favoured-nation clause, and services are not taxable as fees for technical services unless they make available technical knowledge, skill, know-how or process to the recipient.

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