Secondment reimbursements and cross-border professional fees fall outside Article 12 absent a make available test

A true secondment arrangement involving cost-to-cost reimbursement was not characterised as fees for technical services or fees for included services under Article 12 of the India-USA DTAA, because the secondees worked under the Indian entity's control and the amounts were only salary-linked reimbursements. Professional and advisory receipts from services rendered from abroad were also not taxable as fees for included services, since the treaty's make available test was not satisfied and Article 15 operated separately from Article 12. On those facts, the reimbursements and professional service receipts were treated as outside the scope of treaty taxation under Article 12.

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Issues: (i) Whether reimbursement of secondment charges could be treated as fees for technical services or fees for included services under Article 12 of the India-USA Double Tax Avoidance Agreement. (ii) Whether receipts from professional services rendered to Indian clients from abroad were taxable as fees for included services under Article 12 or fell within Article 15 of the India-USA Double Tax Avoidance Agreement.

Issue (i): Whether reimbursement of secondment charges could be treated as fees for technical services or fees for included services under Article 12 of the India-USA Double Tax Avoidance Agreement.

Analysis: The deputation arrangement showed that the seconded personnel worked under the control and supervision of the Indian entities and that the payments were only cost-to-cost reimbursements. The Court also noted that tax had already been deducted in the hands of the seconded employees as salary under the Act. In these circumstances, the amount could not be characterised again as consideration for services by the overseas entity, and the factual matrix did not justify treating the reimbursement as taxable technical or included services.

Conclusion: The reimbursement of secondment charges was not taxable as fees for technical services or fees for included services, and the addition was deleted in favour of the assessee.

Issue (ii): Whether receipts from professional services rendered to Indian clients from abroad were taxable as fees for included services under Article 12 or fell within Article 15 of the India-USA Double Tax Avoidance Agreement.

Analysis: The service agreements and scope of work were examined and found to involve professional and advisory functions that did not satisfy the treaty requirement of making available technical knowledge, experience, skill, know-how or processes. The Court held that Article 15 and Article 12 operate in distinct fields, and that the receipts in question did not become taxable merely because they involved consultancy or technical elements. Since the make available condition was not met, the treaty did not permit taxation under Article 12 on these facts.

Conclusion: The professional service receipts were not taxable as fees for included services, and the addition was deleted in favour of the assessee.

Final Conclusion: The appeal succeeded in full and the assessee obtained relief on both disputed additions.

Ratio Decidendi: A cost-to-cost reimbursement under a true secondment arrangement is not taxable as fees for technical or included services, and professional services are taxable under Article 12 only if the treaty's make available test is satisfied.

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