Make available test under treaty defeats FTS treatment for intra-group services; surcharge and cess also barred beyond treaty rate.

Intra-group service recoveries were held not to be fees for technical services under Article 12 of the India-Netherlands tax treaty because the services did not make available technical knowledge, experience, skill, know-how or processes to the Indian recipient for independent future use. The Tribunal also treated surcharge and education cess as not leviable over and above the treaty rate on royalty or fees for technical services, considering the treaty rate a composite ceiling. A separate reimbursement or cost-allocation characterisation was rejected on the facts. Substantive treaty-based non-taxability was accepted for the service receipts, while computational matters were remanded for verification.

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Issues: (i) whether the impugned cost recoveries for intra-group services, including recruitment, information, IT, travel, health and advisory functions, constituted fees for technical services under Article 12 of the India-Netherlands tax treaty without satisfying the "make available" condition; (ii) whether surcharge and education cess could be levied over and above the treaty rate on royalty/fees for technical services; (iii) whether receipts claimed as mere cost allocation or reimbursement were chargeable to tax.

Issue (i): whether the impugned cost recoveries for intra-group services, including recruitment, information, IT, travel, health and advisory functions, constituted fees for technical services under Article 12 of the India-Netherlands tax treaty without satisfying the "make available" condition.

Analysis: The services were examined as technical or consultancy services, but the decisive treaty requirement was whether they made available technical knowledge, experience, skill, know-how or processes to the Indian recipients. Applying the earlier coordinate-bench decisions in the assessee's own case, the Tribunal found no material to show that the recipients were enabled to perform the services independently in future without recourse to the assessee. The mere rendering of services, even if technical in character, was held insufficient unless the "make available" threshold under the treaty was satisfied.

Conclusion: The services did not qualify as fees for technical services under Article 12 of the India-Netherlands tax treaty, and the related grounds were allowed in favour of the assessee.

Issue (ii): whether surcharge and education cess could be levied over and above the treaty rate on royalty/fees for technical services.

Analysis: The treaty rate of tax on royalty and fees for technical services was treated as a composite ceiling, and the definition of tax under the treaty included surcharge. On that basis, surcharge and cess were held not to be leviable in addition to the specified treaty rate.

Conclusion: Levy of surcharge and cess over and above the treaty rate was held impermissible and this ground was allowed in favour of the assessee.

Issue (iii): whether receipts claimed as mere cost allocation or reimbursement were chargeable to tax.

Analysis: The assessee's plea that the amounts were only reimbursement of costs without markup was not accepted on the facts, and the issue was decided consistently with the earlier years against the assessee.

Conclusion: The reimbursement and cost-allocation plea was rejected.

Final Conclusion: The appeal succeeded substantially on the treaty-based non-taxability of the impugned service receipts and on the surcharge/cess issue, while the reimbursement plea failed and the remaining computational matters were sent back for verification.

Ratio Decidendi: Under the India-Netherlands tax treaty, technical or consultancy services are taxable as fees for technical services only if they make available technical knowledge, experience, skill, know-how or processes to the recipient so that the recipient can use them independently in future.

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