ITAT elucidates “make available” in Article 12 of
Indo-US DTAA

Facts of the Case:

• The Assessee is a company incorporated and fiscally domiciled in United States of America and had received fees towards advisory assistance for design and construction of hotel (inspection of the hotel, reviewing the facilities, comparing the same with Assessee’s own standards and suggesting improvements/change wherever required to meet the standards) from Indian hotel company.
• The Assessing Officer (AO) was of the view that the amount so received by the Assessee was taxable in the hands of the Assessee as “fees of included services” under Article 12 of the Indo-US DTAA and also as fees for technical services u/s. 9(1)(vii) of the Income Tax Act, 1961 (Act).
• However, the Assessee was of the view that fees so received by it was not covered under the purview of “fees of included services” in Indo-US DTAA as it does not satisfy the make available clause and the CIT(Appeals) upheld the view of the Assessee.
• Aggrieved an appeal was filed by the AO before ITAT:
• Whether the fees so received by the Assessee covered under the ambit of fees of included service as per Article 12 of Indo-US DTAA?

ITAT Held:

• The ITAT relied on the observations of an identical payment made by Viceroy Hotels to the Assessee which came up before a coordinated bench of the Tribunal.
• As per Article 12(4) of the DTAA “‘fees for included services’ means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including through the provision of services of technical or other personnel) if such services;(a) Are ancillary and subsidiary to the application and enjoyment of the right, property or information for which a payment is received or (b) Make available technical knowledge, experience, skill, knowhow or processes or consist of the development and transfer of a technical plan or technical design.”
• The services rendered by the Assessee do not fit into either of the categories defined in 12(4)(a) or 12(4)(b) since the services do not involve technical expertise nor does it make available any technical know-how plan, design etc.
• Here technical or consultant services rendered should be of such nature that ‘makes available’ to the recipient of technical knowledge, know-how and the like should result in transmitting the technical knowledge, etc. so that the payer of services could derive an enduring benefit and utilise the knowledge or knowhow in future on its own without the aid of the service provider. In other words, to fit into the terminology ‘fees for included services’, the technical knowledge and skills etc., must remain with the person receiving the services even after the particular contract comes to an end.
• It should also be noted that the provision of service may require technical input by the person providing the service does not per se mean the technical knowledge, skill etc., are made available to the person acquiring the service within the meaning of Article 12(4)(b).

• Further, examples were quoted to say that a prescription and an advice given by the doctor after examining the patient, the service rendered by the doctor cannot said to have made available to the patient, the knowledge and expertise possessed by the doctor just because of the mere fact that a service rendered requires immense technical knowledge and expertise and skills on part of service provider. On the other hand, if the same doctor teaches or trains student on the aspect of diagnosis or techniques of surgery, that will amount to making available the technical knowledge and experience of the doctor.
• Therefore, ITAT upheld in the present case, that what was made available to the Assessee was advisory services and opinion for improvement of the existing facilities and the Assessee himself was not preparing and transferring any drawing, designs, technical plan etc. Assessee was simply reviewing, what was being done by the parties engaged for designing & upgrading the Hotel. In view of this, the fees paid to Assessee will not fall within the ambit of fees for included services as per Article 12 of DTAA.
• Thus, the ITAT dismissed the appeal of the AO on the grounds that a coordinated bench of the Tribunal had in the Assessee’s own case come to the conclusion that such services were not taxable in terms of the provisions of the applicable tax treaty.

SW Point of View:

Commercial information was being provided in this case; however, it did not fall within the ambit of fees for included services as it did not fulfill the make available clause. This was due to the fact that the Assessee did not provide technical, experience and skill nor did it transfer a technical plan or design.

Case Reference – Deputy Commissioner of Income-tax (International Taxation) v. Marriott International Design & Construction Services [2022] 139 taxmann.com 494 (Mumbai – Trib.)

Lakshay Prakash Jonwal, Tax Associate, SW India