Make available test under the India-US treaty excluded manpower support receipts from fee for technical services taxation.

Under the India-US treaty, manpower support services were not fee for technical services because the arrangement did not satisfy the make available test; Flipkart-related receipts were therefore not taxable and the addition was deleted. PhonePe receipts, described as reimbursement of costs, could not be finally characterised on the existing record because the factual position was inconsistent on secondment versus services rendered abroad; the matter was remanded for de novo verification. Interest under sections 234A and 234B was treated as mandatory and the challenge to initiation of penalty proceedings under section 270A(1) was premature, so those objections failed.

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Issues: (i) Whether receipts from Flipkart for manpower support services were taxable as fee for technical services under section 9(1)(vii) of the Income-tax Act, 1961 and Article 12(4) of the India-US Double Taxation Avoidance Agreement. (ii) Whether receipts from PhonePe described as reimbursement of costs were taxable as fee for technical services, or whether the matter required fresh factual examination. (iii) Whether interest charged under sections 234A and 234B, and the initiation of penalty proceedings under section 270A(1), could be interfered with.

Issue (i): Whether receipts from Flipkart for manpower support services were taxable as fee for technical services under section 9(1)(vii) of the Income-tax Act, 1961 and Article 12(4) of the India-US Double Taxation Avoidance Agreement.

Analysis: The services rendered to Flipkart were examined in the light of the treaty requirement that technical or consultancy services must make available technical knowledge, experience, skill, know-how, or processes, or involve development and transfer of a technical plan or design. The services on record did not show a transfer of capabilities enabling the recipient to perform independently. Mere collaboration support or provision of services did not satisfy the make available test.

Conclusion: The addition relating to Flipkart receipts was deleted and the issue was decided in favour of the assessee.

Issue (ii): Whether receipts from PhonePe described as reimbursement of costs were taxable as fee for technical services, or whether the matter required fresh factual examination.

Analysis: The factual position before the lower authorities and the Tribunal was not consistent, particularly on whether the arrangement involved secondment of employees or services rendered by employees stationed abroad. As the available material did not clearly establish the true character of the transaction, the issue required verification of documents and fresh adjudication.

Conclusion: The matter concerning PhonePe receipts was remanded to the Assessing Officer for de novo consideration and was allowed for statistical purposes.

Issue (iii): Whether interest charged under sections 234A and 234B, and the initiation of penalty proceedings under section 270A(1), could be interfered with.

Analysis: Interest under sections 234A and 234B was treated as mandatory and consequential. The challenge to initiation of penalty proceedings was premature at the stage of appeal.

Conclusion: The challenge to interest and penalty initiation failed.

Final Conclusion: The appeal was partly allowed, with deletion of the Flipkart-related addition, remand of the PhonePe-related issue, and rejection of the remaining challenges.

Ratio Decidendi: Under the India-US treaty, technical or consultancy services are taxable only when they make available technical knowledge, experience, skill, know-how, or processes, so that the recipient acquires an enduring ability to apply the skill independently.

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