Make-available test under the India-UK treaty excludes project-specific designs from fees for technical services taxation.

Under Article 13(4)(c) of the India-UK tax treaty, consulting and engineering receipts are taxable as fees for technical services only if the services make available technical knowledge, experience, skill, know-how or processes. The article states that the make-available test was not met where drawings and designs were project-specific and did not enable the recipient to independently apply the underlying technology later, so the receipts were treated as business profits and not taxable in India absent a permanent establishment. It further states that management fees and common cost recharge did not constitute royalty or fees for technical services on the same reasoning and were likewise not taxable in India without a permanent establishment.

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Issues: (i) Whether receipts from consulting and engineering services were taxable as fees for technical services under the India-UK tax treaty; (ii) whether management fees and common cost recharge were taxable as royalty or fees for technical services under the India-UK tax treaty.

Issue (i): Whether receipts from consulting and engineering services were taxable as fees for technical services under the India-UK tax treaty.

Analysis: The treaty definition of fees for technical services under Article 13(4)(c) was read as requiring the making available of technical knowledge, experience, skill, know-how or processes. The expression covering development and transfer of a technical plan or technical design was held to take colour from the same requirement and not to operate independently. As the drawings and designs supplied were project-specific and not shown to have enabled the recipient to independently apply the underlying technology in future, the requisite make-available condition was not satisfied.

Conclusion: The receipts were not taxable as fees for technical services and were to be treated as business profits not taxable in India in the absence of a permanent establishment.

Issue (ii): Whether management fees and common cost recharge were taxable as royalty or fees for technical services under the India-UK tax treaty.

Analysis: The cost recharge was treated as consequential to the consulting engineering receipts. Once the principal receipts were held not to be fees for technical services, the same reasoning applied to the recharge component. The record did not establish that the recharge created royalty income or made available technical knowledge, experience, skill, know-how or processes so as to fall within the treaty definition of fees for technical services.

Conclusion: The management fees and common cost recharge were not taxable as royalty or fees for technical services and could not be brought to tax in India in the absence of a permanent establishment.

Final Conclusion: The additions made on the disputed receipts were deleted and the assessee's appeal succeeded on the substantive grounds; the remaining grounds were consequential or infructuous.

Ratio Decidendi: Under Article 13(4)(c) of the India-UK treaty, a payment for technical or consultancy services is taxable as fees for technical services only when the services make available technical knowledge, experience, skill, know-how or processes, and project-specific designs or drawings do not satisfy that test unless such enduring capability is shown to have been transferred.

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