Manpower supply payments to a non-resident were not taxable as technical services, so no withholding tax obligation arose.

Payments to a non-resident for supplying software personnel were treated as manpower supply charges, not fees for technical or included services under the India-US DTAA, because no technical knowledge, skill, experience, plan or design was made available to the assessee. The treaty's make available requirement was not satisfied, so the more beneficial treaty provisions prevailed over section 9(1)(vii) of the Income-tax Act. As the remittances were not chargeable to tax in India, no obligation to deduct tax at source arose under sections 195, 201(1) and 201(1A), and the demand for default in withholding tax was deleted.

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Issues: Whether payments made to the non-resident service provider for supplying software personnel were chargeable to tax in India as fees for technical services or fees for included services under the India-US DTAA, and whether the assessee was liable to deduct tax at source under sections 195, 201(1) and 201(1A) of the Income-tax Act, 1961.

Analysis: The payments flowed from the agreement between the assessee and the non-resident manpower supplier, and the documents showed that the remittances were for supply of personnel at a specified hourly rate. There was no material to show that any technical knowledge, skill, experience, plan or design was made available to the assessee so as to satisfy the treaty's make available requirement. The services were found to be akin to recruitment or placement services rather than technical services, and the treaty provisions being more beneficial prevailed over section 9(1)(vii). As the underlying remittances were not chargeable to tax in India, the obligation to deduct tax at source did not arise.

Conclusion: The payments were not taxable in India under the DTAA as fees for included services, and the assessee was not in default for failure to deduct tax at source.

Final Conclusion: The Revenue's challenge failed and the deletion of the demand under sections 201(1) and 201(1A) was sustained.

Ratio Decidendi: Where payments to a non-resident are only for manpower supply and no technical knowledge, skill or design is made available to the payer, the amounts are not taxable as fees for included services under the applicable tax treaty and no withholding obligation arises.

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