DTAA make-available test and software licence characterization determine taxability of cross-border service and licence receipts.
Management service fees paid to a Singapore group entity were not taxable as fees for technical services or as fees for included services under Article 12(4)(b) of the India-Singapore DTAA because the revenue authorities did not show that technical knowledge, skill, know-how or processes were made available to the Indian recipient. Receipts from sale of software licences to an Indian bank were also not taxable as fees for technical services because the arrangement was a licence to install and use software on specified terms, not a rendering of technical services. The disputed additions therefore failed on both issues.
Issues: (i) Whether management service fees received from the Indian subsidiary were taxable as fees for technical services or fees for included services under Article 12(4)(b) of the India Singapore Double Tax Avoidance Agreement; (ii) Whether receipts from sale of software licences to an Indian bank were taxable as fees for technical services.
Issue (i): Whether management service fees received from the Indian subsidiary were taxable as fees for technical services or fees for included services under Article 12(4)(b) of the India Singapore Double Tax Avoidance Agreement.
Analysis: The services were rendered remotely from Singapore under an inter-company management services arrangement covering general management, product strategy, sales and marketing support, financial management, compliance, human resources, customer relations, and project management. For taxation as fees for included services, the crucial requirement was that technical knowledge, skill, know-how, or processes be made available to the recipient so that it could perform the services independently in future. The revenue authorities did not establish, on facts or by reasoned analysis, that this make available requirement was satisfied.
Conclusion: The management service fees were not taxable as fees for technical services or fees for included services, and the addition was deleted.
Issue (ii): Whether receipts from sale of software licences to an Indian bank were taxable as fees for technical services.
Analysis: The agreement showed that what was supplied was a software licence granting a perpetual, non-exclusive and non-transferable right to install and use proprietary software at specified premises for specified users. The transaction was a licence of software and not a rendering of technical services. On the material on record, the receipts could not be characterised as fees for technical services.
Conclusion: The software licence receipts were not taxable as fees for technical services, and the addition was deleted.
Final Conclusion: The disputed additions failed on both issues, and the assessee succeeded in full.
Ratio Decidendi: Income can be taxed as fees for included services only when the service recipient is enabled to perform the relevant activity independently by virtue of technical knowledge, skill, or know-how made available by the payer; a software licence transaction, without rendition of technical services, does not constitute fees for technical services.