Make Available Clause | Case Laws |

The term ‘fees for technical services is defined in Explanation 2 to section 9(1)(vii) of the Income Tax Act. The said term is also defined in various Double Taxation Avoidance Agreements (DTAA) . The normal definition of ‘fees for technical services is more or less along similar lines in the Act, as well as in tax treaties. But certain tax treaties (e.g. treaty with UK & USA) clearly depart from the normal definition. The key difference is that as against reference to ‘rendering of’ technical services, the stress is on ‘make available’ technical knowledge, experience, skill, know-how or process, etc.

There has been a long-drawn controversy about the scope of expression ‘make available’ used in reference to technical services. It may be mentioned that the protocol attached to the Indo-US tax treaty explains the intent and meaning of the term ‘make available’.

Broadly speaking, the term ‘make available’ means that the person acquiring the technical service is enabled to independently apply the technology. The word ‘enable’ is used in the sense that the technical services should be such that they make the recipient able or wiser in the subject matter. Thus, where the recipient of technical services does not get equipped with the knowledge or expertise and the recipient would not be able to apply it in the future independently without support from the service provider, it will not be a case of technical service has been ‘made available.

The expression ‘make available’ has been used in several important DTAAs like in agreements with Switzerland, UK, USA, Netherland, etc. But the term ‘made available’ has been explained only in DTAA with the USA. The issue for consideration, therefore, is whether the explanation given in Indo-US DTAA will apply to other treaties also where the condition of ‘made available’ is mentioned but the DTAA does not contain the interpretation of the term ‘made available.

Case Laws regarding the "Make Available Clause"

1.?????CIT vs. Andaman Sea Food (P) Ltd - [TS-30-SC-2016] [India - Singapore DTAA]

The Apex Court dismissed the assessee's SLP against the judgement of the Calcutta High Court wherein it was held that payment of consultancy fees paid to Singaporean company for forex derivative transaction services was taxable as 'Fees for technical services '('FTS') for AY 2008-09 considering the fact that the Singaporean company provided expert guidance and consultancy services.

2.?????DIT (International Taxation) vs. Marks & Spencer Reliance India Pvt. Ltd - TS-178-HC- 2017(BOM)

?Assessee, a joint venture between Marks and Spencer and Reliance retail, entered into an agreement with M&S whereby the assessee was provided personnel to carry out the functions in the area of management, setting up of business, property selection and retail operation, product and merchandise selection and setting up merchandise team, for which it reimbursed the salary expenditure of 4 employees deputed to it. AO held that the sum was chargeable to tax as fees for technical services and therefore passed an order u/s 201 by treating the assessee as ‘assessee in default’. The Court upheld the order of the Tribunal wherein the Tribunal held that i) the impugned payment was not FTS since the technology was not ‘made available’ by payee to the assessee, that ii) the payment was a reimbursement of expenses and therefore in the absence of profit element in the said payment no tax was to be deducted and that iii) that TDS u/s 195 was not applicable on reimbursement as it was actually a payment made to the employees deputed in India under seconded agreement but routed through M&S. It also upheld the finding of the Tribunal that since the said payments were already subject to tax in India in the hands of the employees as it was a clear case of deputation of officials / employees, there was no question of treating the assessee in default for non-deduction of tax.

?3.?????DIT v TUV Bayren (ITA No 1304 of 2013) – TS-586-HC-2015 (BOM)

The Court held that the income of the assessee from rendering ISO certification and audit services was not taxable as fees for technical services under the Act or under the India- Germany DTAA as there was no transfer of technology and that the assessee was not involved in management of clients business. It held that though there were some instances of advice given it could not be termed as a pure consultancy service.

?4.?????Steria India Ltd - TS-416-HC-2016 (Del) - W.P.(C) 4793/2014 & CM APPL. 9551/2014 [India - France DTAA]

The Court reversed the decision of the AAR and held that the Most Favoured Nation clause contained in Article 7 of the Protocol between India and France was applicable to Fees for technical services under the India-France DTAA and therefore where the Protocol provided that where any convention / agreement / protocol was signed between India and a OECD member state which limits India's taxation at source on FTS to a lower rate or on the basis of a restricted meaning the benefit under the Protocol could not be denied. Accordingly, it held that the definition appearing in the India- UK DTAA was to be read as forming part of the India-France DTAA as well and therefore since the management fee paid by the assessee to a French company was not covered under the FTS clause of the India-UK DTAA, the same would not be taxable under the India-France DTAA.

?5.?????Foster Wheeler GB Ltd - TS-491-AAR-2016 - A.A.R. No 1003 of 2010 [India - UK DTAA

The AAR held that administrative support services provided by a third party service provider to the Applicant in connection with the Applicant's contract with Indian Oil Corporation were not taxable as fees for technical services since it was in the nature of managerial services which did not make available any technical skill information or knowledge to the Applicant.