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 with 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 future independently without support from the service provider, it will not be a case of technical service having 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 USA. The issue for consideration, therefore, is that 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’.
In case of CESC Ltd. v. CIT [275 ITR 15] the Kolkata Tribunal considered meaning of ‘made available’ in the context of ‘fees for technical services’ as appearing in DTAA between India & UK.
The provisions of Indo-UK tax treaty are in pari-materia with the definition of the said term in Indo-US tax treaty. Therefore, the Hon’ble Tribunal held that the explanation given in Indo-US tax treaty will also apply to Indo-UK tax treaty. It was observed that “when the provisions are in pari-materia, there cannot be different meanings assigned to the provisions, unless there is anything repugnant in the context.”
Similar view has been taken by the various benches of ITAT, and also by the Authority for Advance Ruling in a large number of cases including DCIT vs. Boston Consulting Group P Ltd. [280 ITR 681] [Mum-ITAT], McKinsey & Co. Inc. (Philippines) [99 ITD 549] [Mum], Raymond Ltd. [80 TTJ 120] [Mum], NQA Quality Systems Registrar Ltd. vs. DCIT [2 SOT 249], CESC Ltd vs. DCIT [275 ITR 15] [Kol-ITAT] and National Organic Chemical Industries Ltd. [96 TTJ 765] [Mum].
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It is however, surprising that in a recent case of Perfetti Van Melle Holding B.V. [204 Taxman 166] the Authority for Advance Rulings has taken a different view. The Authority, with reference to DTAA with Netherlands, observed that the expression ‘made available’ used in DTAA with Netherlands cannot be interpreted in the same manner as the term has been interpreted in Indo-US DTAA. The Authority comprising a two-member bench effectively differed from its own ruling given by the three-member bench in Intertek Testing Services India P Ltd [307 ITR 418][AAR] without assigning any cogent reasoning.
It is clear that the Authority has also dissented from the decisions given by several benches of the Tribunal besides its own earlier decision. This can hardly be called a healthy judicial practice. With utmost respect, the decision of the Hon’ble Authority requires a review because the said decision completely upsets the principle followed in a large number of other settled cases.
H P Agrawal The author is a Sr Partner in SS Kothari Mehta & Co. e-mail: hp.agrawal@sskmin.com