Make available requirement and PE attribution govern taxability of foreign service receipts; section 234B interest not leviable on the non-resident.

Technical or consultancy services rendered outside India are taxable as fees for included services under the Indo-US DTAA only if they make available technical knowledge, experience, skill, know-how or processes to the recipient; mere provision of sophisticated services abroad is insufficient. The receipts were also not taxable as business profits because only profits attributable to the permanent establishment in India can be taxed, and no attribution to that permanent establishment was shown. Where tax was deductible at source under section 195, interest under section 234B was not leviable on the non-resident for failure to pay advance tax.

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Issues: (i) Whether the consideration for project management, engineering support services and factory acceptance test was taxable in India as fees for included services or business profits under the Indo-US DTAA. (ii) Whether interest under section 234B of the Income-tax Act, 1961 was leviable on the non-resident assessee.

Issue (i): Whether the consideration for project management, engineering support services and factory acceptance test was taxable in India as fees for included services or business profits under the Indo-US DTAA.

Analysis: The services in question were rendered outside India. For article 12 to apply, the technical or consultancy services must make available technical knowledge, experience, skill, know-how or processes to the recipient, or fall within the ancillary and subsidiary limb connected with royalty, which was not the case here. Merely rendering sophisticated services abroad, without transmitting the relevant knowledge or expertise to the recipient, does not satisfy the make available requirement. The receipts also could not be taxed as business profits merely because the assessee had a permanent establishment in India, since article 7 permits taxation only of profits attributable to that permanent establishment, and no part of the disputed receipts was shown to be attributable to activities of the permanent establishment in India.

Conclusion: The amount was not taxable as fees for included services under article 12, but it was also not taxable in India as business profits under article 7 for want of attribution to the permanent establishment.

Issue (ii): Whether interest under section 234B of the Income-tax Act, 1961 was leviable on the non-resident assessee.

Analysis: Where the payer is obliged to deduct tax at source under section 195 and the receipts are of a kind on which tax deduction mechanism applies, the non-resident cannot be treated as having defaulted in payment of advance tax for the purpose of section 234B. The advance tax computation under sections 208 and 209(1)(d) also excludes income on which tax is deductible at source.

Conclusion: Interest under section 234B was not leviable.

Final Conclusion: The Revenue's appeal failed on both the taxability issue and the interest issue, and the deletion of the addition and the levy of interest was maintained.

Ratio Decidendi: Technical or consultancy services rendered abroad are taxable as fees for included services only if they make available technical knowledge, experience, skill, know-how or processes to the recipient, and business profits of a non-resident are taxable in the source State only to the extent attributable to the relevant permanent establishment; where tax is deductible at source, interest under section 234B is not leviable on the non-resident for non-payment of advance tax.

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