Treaty make-available test limits fees for technical services; only part of bundled management fees was taxable.

Under the India-UK tax treaty, fees for technical services are taxable only when technical or consultancy services make available technical knowledge, experience, skill, know-how or processes to the recipient; mere specialised service delivery is insufficient, and managerial services fall outside that definition. On the facts stated, only some identified services in the bundled Global Management Service Agreement met the make-available test, while others did not or were not clearly classifiable on the incomplete record. Accordingly, the service fee was not wholly taxable as fees for technical services, and no blanket conclusion could be given that tax was not deductible at source on the entire fee.

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Issues: (i) Whether the service fee paid under the Global Management Service Agreement was taxable as royalties or fees for technical services under Article 13 of the India-UK tax treaty. (ii) Whether tax was required to be deducted at source on the service fee and at what rate.

Issue (i): Whether the service fee paid under the Global Management Service Agreement was taxable as royalties or fees for technical services under Article 13 of the India-UK tax treaty.

Analysis: The expression "fees for technical services" in the treaty was held to be narrower than the domestic definition because it applies only when technical or consultancy services make available technical knowledge, experience, skill, know-how or processes to the recipient. Mere rendition of sophisticated or specialised services is not enough if the recipient does not acquire the underlying technical ability for future independent use. Managerial services were also treated as a distinct category not covered by the treaty definition of fees for technical services. On the materials placed, some listed services were found to satisfy the "make available" test, many did not, some were managerial, and some could not be clearly classified on the incomplete particulars furnished.

Conclusion: The service fee was not wholly taxable as fees for technical services, but certain identified services fell within Article 13 and were taxable to that extent.

Issue (ii): Whether tax was required to be deducted at source on the service fee and at what rate.

Analysis: Since the record did not establish that the entire consideration was outside the treaty net, a blanket ruling against withholding was not possible. The appropriate forum under the withholding mechanism was indicated as the competent authority under section 195 for determination of the amount and rate of deduction on the basis of the principles stated in the ruling.

Conclusion: No blanket ruling was given that tax was not deductible at source on the entire service fee.

Final Conclusion: The ruling accepted the treaty-based restriction on fees for technical services, held that only part of the bundled services could be taxed on the facts disclosed, and left the withholding determination to the statutory mechanism under the Income-tax Act.

Ratio Decidendi: Under the India-UK treaty, technical or consultancy services constitute fees for technical services only when they make available technical knowledge, experience, skill, know-how or processes to the recipient; services that do not transmit such enduring capability, or that are managerial in nature, fall outside that definition.

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