Business support services and make-available test under the India-Portugal DTAA: receipts held outside fee for technical services.

Business support service receipts under the India-Portugal DTAA were not taxable as fee for technical services under Article 12(4)(a) or Article 12(4)(b). The services were separate from the royalty-linked trademark and technology licence, were not ancillary or subsidiary to the enjoyment of any right or information for which royalty was paid, and did not involve making technical knowledge, skill, know-how or experience available for independent future use. The reimbursement of expenses on a cost-to-cost basis was not finally determined because the factual nature of the reimbursement was not fully verified, so the matter required fresh examination.

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Issues: (i) Whether receipts from business support services were taxable as fee for technical services under Article 12(4)(a) or Article 12(4)(b) of the India-Portugal DTAA by applying paragraph 7 of the Protocol to the India-France DTAA; (ii) Whether the reimbursement of expenses on a cost-to-cost basis required fresh examination.

Issue (i): Whether receipts from business support services were taxable as fee for technical services under Article 12(4)(a) or Article 12(4)(b) of the India-Portugal DTAA by applying paragraph 7 of the Protocol to the India-France DTAA.

Analysis: The management service agreement was distinct from the trademark and technology licence arrangement entered into by another group entity. The service fee was quantified separately and the services rendered in management, IT, finance, personnel, quality and allied functions were in a different field from the royalty-linked licence to use intellectual property for manufacture. The receipts therefore were not ancillary or subsidiary to the enjoyment or application of any right, property or information for which royalty was paid, and could not fall within Article 12(4)(a). The services were also recurring operational services and the record did not show that technical knowledge, skill, know-how or experience was made available to the Indian recipient so that it could apply them independently in future.

Conclusion: The receipts from business support services were not taxable as fee for technical services under Article 12(4)(a) or Article 12(4)(b) of the India-Portugal DTAA.

Issue (ii): Whether the reimbursement of expenses on a cost-to-cost basis required fresh examination.

Analysis: The nature of the reimbursement was not fully verified by the departmental authorities and additional evidence was stated to be available. The matter therefore required factual verification before a final determination on whether the amount could be treated as fee for technical services.

Conclusion: The issue of reimbursement of expenses was remitted for fresh examination.

Final Conclusion: The assessee succeeded on the principal treaty-taxability issue for business support service receipts, while the reimbursement component was sent back for factual verification.

Ratio Decidendi: Services are not taxable as fee for technical services under the ancillary-and-subsidiary limb unless they are connected with the royalty-bearing right or information, and the make-available test is satisfied only when the recipient is enabled to apply the technical knowledge independently in future.

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