Bechte Limited Vs ACIT (ITAT Delhi)
Delhi ITAT Holds No Permanent Establishment for UK Company Rendering Offshore Services; Remands ‘Make Available’ Test for FTS under India–UK DTAA
The Delhi ITAT partly allowed the appeal of a UK company by holding that no Permanent Establishment (PE) could be inferred in India merely by relying on findings from earlier assessment years, particularly after the execution of a new service agreement effective from 1 January 2020 under which the services were admittedly rendered entirely from outside India. Accordingly, the Tribunal held that the receipts could not be taxed as business income under section 44DA in the absence of a PE.
The Tribunal further observed that the Revenue could not simultaneously make substantive and protective assessments of the same income in the hands of the same assessee, terming such an approach legally irregular. It held that the Revenue must adopt only one mode of assessment, although it stopped short of declaring the entire assessment void on that ground alone.
On the alternative issue of taxation as Fees for Technical Services (FTS) under Article 13 of the India–UK DTAA, the Tribunal found that the lower authorities had failed to properly examine whether the services satisfied the “make available” condition under the revised agreement. It held that the crucial question was whether the engineering, procurement support and technical advisory services enabled the Indian recipient to independently perform similar functions in future without further assistance from the assessee. Since this factual exercise had not been undertaken, the Tribunal restored the issue to the Assessing Officer/DRP for fresh examination after considering the new agreement, the complete nature of services rendered, and the tax treatment of the receipts in the United Kingdom. The appeal was accordingly partly allowed.
Cases Discussed
- Tungsten Automation England Limited (Delhi HC), 480 ITR 93 (Del)
- Ernst & Young (EMEIA) Services Limited (Delhi – Trib), 184 taxmann.com 671 (Delhi – Trib)
- Foster Wheeler France S.A. (Chennai – Trib), 157 ITD 793 (Chennai – Trib)
- Lalit Put Power Generation Company Ltd. (Allahabad HC), 156 taxmann.com 698 (All.)
- MSD Pharmaceuticals (P.) Ltd. vs. ACIT (Delhi – Trib), [2017] 88 taxmann.com 54 (Delhi – Trib)
- Samsung India Electronics Private Limited vs. ACIT (Delhi – Trib), [2020] 121 taxmann.com 307 (Delhi – Trib)
- Mahindra & Mahindra Limited (Mumbai ITAT Special Bench), 122 ITD 216 (Mum.) (SB)
- Neyveli Lignite Corporation Ltd. (Madras HC), 109 Taxman 369 (Mad.)
- Guy Carpenter & Company Limited (Delhi HC), 346 ITR 504 (Del)
- Vodafone International Holdings (SC), 341 ITR 1 (SC)
- Intertek Testing Services India (P.) Ltd., In re (AAR), [2008] 307 ITR 418/175 Taxman 375 (AAR – New Delhi)
- Lalji Haridas vs. ITO (SC), [1961] 43 ITR 387 (SC)
- Jagannath Hanumanbox vs. ITO, 31 ITR 603 (Cal)
FULL TEXT OF THE ORDER OF ITAT DELHI
1. This is an appeal arising from order dated 29.01.2025, passed u/s 143(3)/143C(13) of the Income Tax Act, 1961 (hereafter as “the Act”), by Ld. AO which itself is in response to the directions of Ld. DRP dated 09.12.2024.
1.1 The brief facts surrounding the controversy regarding the taxability of an amount of Rs.62,11,01,636/- may be recapitulated. In this case the impugned amount has been added, on the one hand substantively on account of an alleged Permanent Establishment (PE) existing in India on the basis of findings given in earlier years, and also on a protective basis by treating this very same amount as Fees for Technical Services (FTS) under Article 13(4) of the India-UK DTAA (hereafter as “the DTAA”). The assessee is a company incorporated in the United Kingdom and is engaged in the business of providing services regarding large infrastructure and engineering projects. There is an Associated Enterprise (AE) of the assessee in the name and style of M/s Bechtel Engineering & Construction India Private Limited (BECI). This BECI engaged the assessee during the year under consideration for rendering certain support services to BECI, which in turn has entered into a contract for certain infrastructure projects in India pertaining to M/s Reliance Industries Limited (RIL). It is gleaned from the documents before us that the composite support services rendered by the assessee to BECI includes – engineering services, procurement support services, and technical advisory services. The assessee has claimed that the receipts from the supply of services under the agreement with BECI were not taxable in India as per the DTAA. Initially the Ld. AO had proposed that the impugned amount be brought to tax as FTS since it allegedly satisfied the “make available” clause under Article 13 of the DTAA. Thereafter, the Ld. DRP, following its finding in earlier years, especially AY 2016-17, has held that the assessee has a PE in India and therefore the impugned receipts should be taxed on substantive basis as business income u/s 44DA of the Act. In this very same order, the DRP in para 7.3 (as extracted on page 24 of the impugned order) has directed that the receipts would also be taxable on protective basis under Article 13 of the DTAA, as FTS. Thus, the cumulative impact of the directions of DRP, based on its findings in past years, is that the amount of Rs.62,11,01,636/- has been taxed on substantive basis u/s 44DA of the Act on the finding that there is a PE in India; and this very same amount has also been taxed on protective basis as FTS under Article 13(4) of the DTAA.
1.2 The aggrieved assessee has approached the ITAT with the following grounds: –
1. “That on the facts and in the circumstances of the case and in law, the order passed by the Ld. AO u/s 143(3) read with section 144C(13) of the Act is wrong and bad in law and should be quashed and the order passed by the Hon’ble Dispute Resolution Panel-1, Delhi (‘DRP’) and the directions given therein are erroneous.
2. That on the facts and circumstances of the case and in law, the Ld. AO has erred in passing the order in a contradictory manner.
3. That on the facts and in the circumstances of the case and in law, the Ld. AO has erred in holding that the Appellant has a Business Connection and Permanent Establishment in India in accordance with Article 5 of the Double Taxation Avoidance Agreement between India and the UK (‘India-UK DTAA’).
4. Without prejudice to Ground No.3, on the facts and circumstances of the case and in law, the Ld. AO has erred in making an ad-hoc attribution of 100% of the profits to the alleged Permanent Establishment of the Appellant in India.
5. Without prejudice to Ground No.3, on the facts and circumstances of the case and in law, the Ld. AO has erred in not allowing expenses incurred by the alleged Permanent Establishment of the Appellant in relation to earning of the income from BECI.
6. That on the facts and circumstances of the case and in law, the Ld. AO has erred in proposing and the DRP has grossly erred in confirming that the same receipts of the Appellant from BECI are taxable in India s Fee for Technical Services (‘FTS’) under Article 13 of the India-UK DTAA.
7. That on the facts and circumstances of the case and in law, the DRP has erred in not appreciating that the protective and substantive additions of an income can be made only when the identity of the real owner of the income is unclear and have no applicability in the present case where both substantive and protective additions have been made on the same person.
8. That on the facts and circumstances of the case and in law, the Ld. AO has erred in computing the total income of the appellant in computation sheet attached to the assessment order passed u/s 143(3) of the Act, wherein the computation sheet the business income has been determined at Rs.62,11,01,636 and other income at Rs.62,19,31,052 resulting in incorrect total income of Rs.1,24,30,32,688 for Appellant. However, in the assessment order, only an addition amounting to Rs.62,11,01,636 has been made to returned taxable income of Rs.8,29,416.
9. That on the facts and circumstances of the case and in law, the Ld. AO has erred in computing the total income of the Appellant in computation sheet attached to the assessment order passed u/s 143(3) of the Act, wherein only interest u/s 234B amounting to Rs.6,91,05,748 (row 38 of computation sheet) has been charged. However, the total interest charged in the computed sheet is reflected at Rs.7,79,51,585 (refer row 42 of computation sheet).
10. That on the facts and circumstances of the case and in law, the Ld. AO has erred in initiating to penalty proceedings u/s 270A of the Act.
11. That on the facts and circumstances of the case and in law, the Ld. AO has erred in initiating penalty proceedings u/s 271B of the Act.
12. The above grounds of appeal are independent and without prejudice to one another.
13. The Appellant prays for leave to add, alter, amend and/or modify any of the grounds of appeal at or before the hearing of the appeal.”
1.3 The grounds of the assessee can be conceptualized as falling under the following broad themes: –
i. In the year under consideration there was no PE in India;
ii. The “make available” clause was not satisfied with respect to the services rendered to BECI by the assessee;
iii. Treating the same amount on protective basis and also on substantive basis is not permissible under law; and
iv. Grounds which are consequential in nature and would flow from the adjudication on the main themes.
2. The ld. AR argued with the help of detailed paper books and several case laws. It was the submission that the DRP erred in following its earlier years order even when the factual matrix had entirely changed on account of a new service agreement between the assessee and BECI effective from 01.01.2020. It was averred that the latest service agreement was not considered by the DRP while holding that there was a PE in existence on the basis of earlier years findings. In this respect the Ld. AR stated that while the Ld.AO had not proposed any attribution to a PE in India in the draft order dated 11.03.2024 but it was the DRP which gave binding directions for bringing to tax the receipts allegedly attributed to the PE in India on the basis of earlier years findings. It was argued that neither the latest service agreement nor the facts of the matter have been considered by the DRP while giving directions to the Ld. AO. It was mentioned by the Ld. AR that submissions were made extensively in support of the fact that no employee of the assessee visited India for the purposes of providing services under the said agreement (effective from 01.01.2020). It was pointed out that the Ld. AO has noted this fact in the shape of the assessee submissions in para 3 at page 2 of his order and also as a finding in para 6.3 at page 18 of his order. It was the argument that on this basis alone, following the order in the case of Clifford Chance Pte. Ltd. reported in 160 taxmann.com 424 (Delhi – Trib), there cannot be any “virtual PE”. It was the submission that even in the absence of any discussion by the authorities below about the contents of agreement effective from 01.01.2020, the mere fact that no employee physically visited India to give effect to any aspect of the agreement between M/s BECI and the assessee, would itself negate the possibility of any PE’s existence and thereby there can be no business income attributable to the same.
2.1 Regarding protective and substantive assessments being made on the same assessee for the same receipt it was averred that the same may not be permissible under law following these cases:
i. Lalji Haridas vs. ITO [1961] 43 ITR 387 (SC);
ii. Jagannath Hanumanbox vs. ITO 31 ITR 603 (Cal);
iii. Samsung India Electronics Private Limited vs. ACIT [2020] 121 com307 (Delhi – Trib);
iv. MSD Pharmaceuticals (P.) Ltd. vs. ACIT [2017] 88 com54 (Delhi – Trib).
2.2 The Ld. AR also argued at length about the nature of services rendered by the assessee to M/s BECI and stated that there was no “making available” of technical knowledge, experience, skill or knowhow by the assessee to M/s BECI. Also such support services did not result in the transfer of any technical plan or technical design. It was explained that M/s RIL provides its requirement to M/s BECI, on the basis of which the assessee utilizes the data provided by M/s BECI to provide inputs relevant for procurement of materials, designing, other technical specifications, etc. It was explained that the calculations processes and technical knowhow involved in rendering support services to M/s BECI is not imparted by the assessee, rather it is only the end result of such complex calculations and internal research and development that the support is given. It was the submission that such inputs do not enable M/s BECI to independently embark on consultancy exercise of its own. Thus, the “make available” condition was not satisfied in the case of the assessee and therefore the receipts could not be taxed either substantively or protectively as FTS. The ld. AR relied on a plethora of orders of ITAT and of various Hon’ble High Courts, some of which may be mentioned briefly:
i. Vodaphone International Holdings reported in 341 ITR 1 (SC) – The taxability of a transaction needs to be determined on the basis of predominant objective only;
ii. Neyveli Lignite Corporation Ltd. reported in 109 Taxman 369 (Mad) – A composite contract cannot be bifurcated artificially to tax the services of providing designs separately as royalties;
iii. Senior Manager (Finance) Bharat Heavy Electronics Ltd. reported in 77 taxmann.com 269 (P&H High Court) – Merely because certain technical services were provided under a composite contract, the consideration could not be treated as FTS. Through this case law an artificial division of a contract for the purposes of taxation was not approved;
iv. Guy Carpenter & Company Limited reported in 346 ITR 504 (Del)-The “make available” clause would be triggered once it is established that as a result of provision of services the recipient of the same is enabled to perform such services in future on its own without recourse to the service provider. The Ld. AR concluded his arguments by saying that as incidental to the overall scope of services under the Service Agreement, certain engineering design services are also provided to BECI by the assessee (i.e., certain mechanical/engineering drawings, with respect to the specific projects, are shared with BECI). Even if the development of design and its transfer is to be viewed separately, the condition of “make available” is not satisfied with respect to the development and transfer of any design(s) as part of the composite services under the Service Agreement. It was averred that BECI cannot utilize the drawings/designs received from the appellant for applying the underlying technology in future independently, rather it has to go back to the appellant each time it requires any drawing/design for its clients.
3. Per contra, the Ld. DR brought to our notice the fact that the assessments for AY 2016-17, 2017-18, 2018-19 and 2020-21 have all been set aside by the ITAT for violating the provisions of section 144C(10) of the Act. It was the submission that in none of the earlier years had the Hon’ble ITAT any occasion to visit the findings on either the existence of a PE in India and the satisfaction, or otherwise, of the “make available” clause in the DTAA. It was pointed out by the Ld. DR that for AY 2018-19 the then AO has recorded in great detail on how the engineering fees of Rs.513,10,473/- satisfied the “make available” clause. It was argued that till AY 2016-17 the assessee was accepting that the receipts were in the nature of FTS and had not claimed any refund on the same. It was pointed out that thereafter the assessee started claiming such receipts to be exempt under the DTAA, after it resiled from its earlier position.
3.1 Regarding the nature of services provided by the assessee the Ld. DR took a reference from the paper book for AY 2020-21, where the contracts had been filed, it was stated that the services provided were in the nature of engineering services to the end customer, being M/s RIL. The Ld. DR referred to the nature of services from the documents filed in the paper books etc. as involving engineering and engineering information services, procurement support services and technical services. Thereafter, the Ld. DR relied on certain orders of ITAT and High Courts, some of which have been mentioned by the Ld. AO in the impugned order. Some of these cases may be mentioned for reference: –
i. Foster Wheeler France S.A. reported in 157 ITD 793 (Chennai – Trib)- The “make available” clause was satisfied when the assessee in this case obtained details of procedures from a foreign company which was not only reviewing and tracking execution plans, but also managing the project budget and client satisfaction. It was held that the said foreign company had “made available” its technical knowledge, expertise and knowhow in the execution of contracts;
ii. Mahindra & Mahindra Limited reported in 122 ITD 216 (Mumbai) (SB)- The Special Bench of ITAT has discussed in paras 19.18 and 19.19 the scope of Services which can be held to satisfy the “make available” clause.
3.2 Regarding the issue of PE it was stated that there is no fresh finding in the impugned order regarding the existence, or otherwise, of any PE. It was stated that the issue of PE has not been adjudicated by the Hon’ble ITAT in earlier years either. Regarding the issue of substantive and protective assessment of the same receipt, it was stated that to safeguard the interest of Revenue this method has been adopted and in case the substantive addition fails then the protective needs to be upheld as a substantive addition.
3.3 It was also argued that the assessee has got deduction of tax at source in India but has not mentioned whether the receipt from this contract has been offered to tax in the country where it is a tax resident of.
4. We have carefully considered the rival submissions and have gone through the documents before us. We have also perused the case laws relied upon by either of the parties. Right at the outset, it deserves to be mentioned that the Ld. DRP has based its directions to tax Rs.62,11,01,636/- substantively as business income u/s 44DA of the Act, by holding that the finding of a PE’s existence has already been established in earlier years. Furthermore, the basis for determining that the exact same amount held to be business income u/s 44DA of the Act is also, alternatively, to be taxed as FTS under Article 13 of the DTAA, albeit on a protective basis, is based on a discussion for AY 2016-17 which has been extracted in para 12 at page 24 of the Ld. AO’s order. The relevant findings deserve to be extracted: –
“6.5 In the instant case the technical services did not merely involve one time “making available” any technical knowledge or know-how but development and transfer of technical plans and technical designs on a continuous basis for 35 months, besides rendering project management and control services. The argument that the RIL based on the plan, design and documents for the construction of the PROJECT will not be in a position to construct another project of similar nature is inconsequential and irrelevant. RIL is not in the business of earning income from development of plants for third parties. However, for its own business of operating and maintaining the plant and the equipment and systems at J-3 Programme Jamnagar the plans and the designs and operating manuals for such plant and machinery was been made available. We, therefore, uphold that the services rendered by the assessee to RIL are taxable in terms of Article 13 of India UK DTAA also. AO’s action is therefore upheld and assessee’s objection is rejected.”
Thus, it is seen that the Ld. AO had proposed that Rs.62,11,01,636/-should be taxed as FTS only, but it was after the Ld. DRP’s directions that the situation gets altered and the impugned amount is directed to be taxed as business income substantively and only as FTS on protective basis. We may discuss the issues theme wise.
4.1 The Ld. AR has claimed that one single amount cannot be legally taxed on substantive as well as protective basis in the hands of the same assessee. We may examine this proposition in the light of judicial rulings. It is understood that the concept of “substantive” and “protective” assessments has evolved through judicial rulings only and even till date there is no provision for the same in the Act. In the case of Lalji Haridas (supra) the ground work for a workable solution to a situation where the ownership of income was disputed was laid down: (a) a substantive assessment was made on the person who was primarily believed to be the true owner of the income; and (b) at the same time a protective assessment was made on the alternative person just to keep the option open in case the first assumption turned out to be wrong. The Ld. AR has also brought to our notice the case of MSD Pharmaceuticals (P) Ltd. reported in 88 taxmann.com 54 (Delhi – Trib) where in para 6 of this order it has been observed that the very concept of protective addition is relevant only when an income is to be added in the hands of more than one taxpayer, in a situation in which there is an element of ambiguity as to in whose hands the said income can be rightly brought to tax. That is not the case before us. In our humble understanding, therefore, the concept of ‘protective assessment’, as is known to the Income Tax law, has no application in the cases like the one before us. However, it is observed that the matter before the ITAT, in the MSD Pharmaceutical case (supra), was that the application of the bright line test method for making arm’s length adjustments in respect of AMP expenses needed to be kept alive, as per the contention of Revenue, in spite of a binding judgment of the Jurisdictional High Court, merely on the ground that said judgment had been challenged before the Hon’ble Supreme Court. The Revenue had made a protective addition simply to keep the issue alive. This action of Revenue had not been approved in the MSD Pharmaceutical case (supra) and thereafter the mandate for making protective assessments has been enunciated as extracted above. A review of judicial literature on the subject would clearly reveal that substantive and protective assessments cannot be made in the hands of the same assessee by merely defining a particular receipt as business income or alternatively as FTS. Unfortunately, no case law has been pointed out by either side, nor have we had occasion to determine whereby such an exercise would lead to a legal fatality and would reduce an assessment exercise to a nullity in case the same receipt is proposed to be taxed substantively and protectively at the same time. Thus, while not approving of the action of Revenue Authorities in assessing the impugned receipt, in the case of the same assessee, both substantively and protectively, we are unable to be persuaded to strike down both actions as illegal. We hasten to add, that such exercise is certainly irregular.
4.2 Regarding the issue of PE it is seen that the genesis of the Ld. DRP’s directions appeared to be a factual determination for AY 2016-17. However, the Ld. AR has taken pains to point out that such a finding emanated from an agreement between the assessee and M/s RIL dated 16.10.2012, which stood substituted by another service agreement between the assessee and M/s BECI effective from 01.01.2020. The Ld. AR has also pointed out that the Ld. AO’s clear finding that the assessee’s employees did not visit the premises [para 6.3, 2nd part at page 18 of the impugned order]. In this regard the reliance of the Ld. AR on the case of Ernst & Young (EMEIA) Services Limited reported in 184 taxmann.com 671 (Delhi – Trib) that there cannot be a “virtual” PE, has substantial persuasive value. However, a close reading of the impugned order reveals that the Ld. AO has not touched upon the existence, or otherwise, of a PE as he has been content to hold that the nature of services rendered by the assessee would qualify as FTS. Unfortunately, again the latest contract between the assessee and M/s BECI effective from 01.01.2020 has not been examined at all by the DRP and has been done only in broad terms by the Ld. AO, that too from the point of view of FTS. Thus, it deserves to be held that the DRP has fallen in error in assuming that an identical situation is still prevailing in AY 2022-23 (present year) as it would be for AY 2016-17. Therefore, it is held that merely on the basis of a finding for AY 2016-17 no PE can be understood to exist in the present year since the agreements have evolved and changed during the intervening period between AY 2016-17 and 2022-23. Also, while the assessee has given a clear statement to the effect that services were rendered to M/s BECI from outside India [last paragraph on page 2 of the impugned order where the assessee’s submissions are extracted], the finding of the Ld. AO on page 18 para 6.3 (2nd part) is puzzling due to the language employed. It may be extracted as under: –
“It is understood that the assessee is providing plant designs to BECI, consequent to which the contract is executed by BECI. In absence of these plant designs, the contract cannot be fulfilled by BECI. It is also to be noted that the assessee’s employees do not visit the premises, and the technical inputs provided by the assessee are employed by BECI [sic]. The technical know-how is thus made available to the Indian customer, and is thus chargeable to tax under the DTAA.”
The exact nature of the arrangement between the assessee and M/s BECI cannot be readily understood from this finding, even though the absence of any employee of the assessee visiting M/s BECI pursuant to the agreement effective from 01.01.2020 would certainly preclude the assumption of a PE. However, for a receipt to be taxable as FTS a PE is not necessary.
4.3 Regarding the taxability as FTS the facts that are before us are either those available for AY 2016-17 at page 24 of the impugned order (supra), or the finding given by Ld. AO on page 18 para 6.3, first part, as under:
“6.3 In the instant year, i.e. AY 2022-23, from the submissions of the assessee and the agreement with BECI, is the clear that the scope of these services is providing technical inputs in the form of plant design, standard documents, bidding documents evaluation criteria, checklists, schedules and quality assessment criteria. These technical inputs once given can be used by the customer in India in future as well without any recourse to the assessee. The assessee has only claimed that revenue received in respect of these services is not taxable in India as per India-UK DTAA as these services do not ‘make available’ any technical knowledge, skill, know-how, experience and expertise to the service recipients. Thus, we have only to examine whether these services ‘made available’ any technical knowledge, skill etc. or not. From the reply of the assessee itself it is apparent that there is no dispute regarding these services being technical services under the Act. The assessee has only claimed that revenue received in respect of these services is not taxable in India as per India-UK DTAA as these services do not qualify as fee for technical services under Article 13 of the said DTAA. Thus, we have only to examine whether these services qualify as fee for technical services as per Article 13 or not.”
We do not find, as has already been observed earlier in this order, any discussion specifically on the basis of the clauses contained in the latest agreement effective from 01.01.2020. Rather the Ld. AO has embarked on placing reliance on several authorities to canvass the point that the receipts were indeed qualifying as FTS. At this stage, we need to examine the value of the arguments of the Ld. AR regarding the non-applicability of the “make available” condition. It has been averred that the services rendered by the assessee to M/s BECI do not qualify as FTS since the assessee does not “make available” technical knowledge, experience, skill, etc. to M/s BECI. It was further averred that such services do not consist of the development and transfer of a technical plan or technical design. It was explained that the assessee provides engineering services, procurement support services and technical services to M/s BECI. M/s BECI provides details on the particular geographical area of the project and other details pertaining to materials, equipment and installations at the specific project sites. Based on inputs provided by M/s BECI the assessee prepares procurement schedules, engineering modules, technical documents, review reports and has provided other technical advisory services to M/s BECI in relation to the particular project. It was emphasized by the Ld. AR that the underlying bases for calculations, technical knowhow and skills required for rendering the requisite advisory is not imparted to M/s BECI at any stage. Notably the Ld. AR points out that the advisory provided to M/s BECI can be used by that entity only with respect to the project with M/s RIL, and thereafter M/s BECI cannot use such advisory for implementing any other project than the one under consideration. The ld. AR also drew our attention to the fact that the service agreement was a composite one and it would not be possible for bifurcating such services like providing of designs with other services of a more mundane nature to bring the entire quantum of receipt under the category of FTS. The Ld. AR argued with the help of several case laws [Vodaphone International Holdings, reported in 341 ITR 1 (SC); Neyveli Lignite Corpn. reported in 109 Taxman 369 (Mad.); Lalit Put Power Generation Company Ltd. reported in 156 taxmann.com 698 (All.), etc.] that it may be true that certain technical services had been provided under this composite contract but the entire gamut of services could not be labelled as “FTS”. Thereafter, the Ld. AR cited some other authorities to canvass the point that the knowledge or skill provided by the assessee to M/s BECI could not enable M/s BECI to use such knowledge for any project other than the one with M/s RIL. It is felt that howsoever persuasive the arguments of Ld. AR may be in this regard, we need to consider some authorities who have discussed the nature and scope of the “make available” clause and also FTS within the ambit of the UK-DTAA and also generally.
4.4 In the case of Mahindra & Mahindra Limited reported in 122 ITD 216 (Mum.) (SB) [2010] these concepts have been explained as under: –
“19.18 We have considered the rival submissions in the light of material placed before us and precedents relied upon. We find that clauses (1) and (2) of Article 13 in the DTAA with U.K. clearly provide that the fees for technical services is taxable in India. Now we have to consider the meaning of the term “fees for technical services” as employed in this Article. As noted above clause (4) of Article 13 defines the meaning of the term “fees for technical services”. The entire quarrel is about the applicability or otherwise of sub-clause (c) of clause 4 of Article 13 as per which fees for making available of the technical knowledge, experience, skill etc., is included in the definition of this sub-clause. In other words the technical knowledge, experience or skill etc., must be made available to the assessee so as to be covered within its scope and mere providing of such services without making them available to the assessee will not serve the purpose and hence will be outside the ambit of Article. The assessee has ab initio contended before the authorities below that even if the services rendered by the lead managers were held to be technical services but those were not “made available” to the assessee. “Rendering of any technical or consultancy services” is followed by “which make available technical knowledge, experience, skill, know-how”. In this context it becomes imperative to understand the meaning of the expression “make available” as used in this Article. Make available means to provide something to one, which is capable of use by the other. Such use may be for once only or on a continuous basis. In our context to make available the technical services means that such technical information or advice is transmitted by the non-resident to the assessee, which remains at its disposal for taking the benefit there from by use. Even the use of such technical services by the recipient for once only will satisfy the test of making available the technical services to the assessee. If the non-resident uses all the technical services at its own end, albeit the benefit of that directly and solely flows to the payer of the services, that cannot be characterized as the making available of the technical services to the recipient.
19.19 The meaning of the expression “make available” has been aptly considered in the case of Intertek Testing Services India (P.) Ltd., In re [2008] 307 ITR 418/175 Taxman 375 (AAR – New Delhi) as under:-
“Now, we shall proceed to analyse further clause (c) of article 13(4). Rendering of service and making use of service go together. They are two sides of the same coin. But clause (c) of article 13(4) does not stop at that. It carves out a qualification thereto by employing the words “which make available technical experience, skill, know-how or processes”. Rendering technical or consultancy service is followed by a relative pronoun “which” and it has the effect of qualifying the services. That means, the technical or consultancy service rendered should be of such a nature that “make available” to the recipient technical knowledge, know-how and the like. The service should be aimed at and result in transmitting the technical knowledge, etc., so that the payer of service could derive an enduring benefit and utilize the knowledge or know-how in future on his own without the aid of the service provider. By making, available the technical skills or know-how, the recipient of the service will get equipped with that knowledge or expertise and be able to make use of it in future, independent of the service provider. In other words, to fit into the terminology “make available”, the technical knowledge, skills, etc., must remain with the person receiving the services even after the particular contract comes to an end. The services offered may be the product of intense technological effort and a lot of technical knowledge and experience of the service provider would have gone into it. But that is not enough to fall within the description of services which make available the technical knowledge, etc. The technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in future without depending on the provider. Taking some examples, the training given to a commercial aircraft pilot or training the staff in particular skills such as software development would fall within the ambit of the said expression in clause (c). Supposing, a prescription and advice is given by the doctor after examining the patient and going through the clinical reports. The service rendered by the doctor cannot be said to have made available to the patient, the knowledge and expertise possessed By the doctor. On the other hand, if the same doctor teaches or trains students on the aspects of diagnosis or techniques of surgery, that will amount to making available the technical knowledge and experience of the doctor.”
Furthermore, in the case of Tungsten Automation England Limited reported in 480 ITR 93 (Del), the Hon’ble Delhi High Court has given a ruling as under to explain what could, or not, constitute as FTS: –
“33. This brings us to the central controversy – whether the services rendered by the Assessee “make available” any technical knowledge, experience, skill or know-how to GIPL and/or its customers.—–
36. On the tests as expounded by the Division Bench of the Karnataka High Court for determining whether the technical or consultancy services qualify the ‘make available criteria’ is whether the rendering of services results in technical knowledge or skill being imparted to the recipient in order for the recipient to deploy the same technology or techniques in future on its own without any recourse to the service provider. The fact that the services rendered by the service provider requires high degree of technical knowledge or skill is not sufficient to qualify the services rendered as services that ‘make available technical knowledge, experience, skill or know-how and/or process or development or transfer of any technical plan or technical design’ if the same do not result in the service recipient absorbing the same and enables it to use the same on its own. The services rendered must entail, the service recipient acquiring the right to use the technical knowledge, experience, skill and the know-how involved in rendering the services.
43. Merely availing of services that may require technical expertise, technical inventions or technology would not qualify the consideration paid for such services as FTS under Article 13 of the India-UK DTAA. First of all, the services, rendered must fall within the broad rubric of technical and consultancy services. Additionally, the said services must also satisfy either of the three clauses as are specified under Paragraph 4 of Article 13 of the India-UK DTAA, that (i) the same are ancillary or subsidiary to the application or enjoyment of the right, property or information for which royalty within the definition of Clause (a) of Paragraph 3 of Article 13 of the India-UK DTAA, is received; or (ii) the services are ancillary or subsidiary application to the enjoyment of the property for which royalty within the meaning of Paragraph 3(b) are received; or (iii) the services rendered make available technical knowledge, experience, skill, know how, or process or consist of development and transfer of technical plan or technical design.
44. If the services rendered do not qualify any of the three clauses of Paragraph 4 of Article 13 of the India-UK DTAA, the consideration received would not qualify as FTS for the purposes of India-UK DTAA. Notwithstanding, such consideration may fall within the definition of FTS under Explanation 2 to section 9(1)(vii) of the Act.
45. Additionally, under Paragraph 4 of Article 13 of the India-UK DTAA, FTS would also exclude the amount paid for services that are referred to in Paragraph 5 of the India-UK DTAA.
46. The expression ‘make available’ entails service recipient acquiring technical knowledge, expertise, skills, know how or the process as involved in rendering the services. It must entitle the service recipient to use the technology, technical skills or experience as involved in rendering of the technical services on its own. The ability of the service recipient to perform the services or use the technical knowledge as involved in rendering of the services on its own in future, is vital and the ‘make available’ condition is sine qua non for FTS under the India-UK DTAA. The consideration paid for development and transfer of technical plan or technical design should also transfer the right to use the technical plans or design, which is provided by service provider, to the recipient.”
Furthermore, in the case of Foster Wheeler France S.A. reported in 157 ITD 793 (Chennai – Trib) it has been held as under: –
“14. It is an admitted position that the assessee-company also engaged in the business of engineering and construction contract, engineering equipment and power equipment supplier. For the purpose of carrying out the business in India, the assessee received the above services from Foster Wheeler USA. In fact, the assessee has received execution plans with schedules, specifications, etc. Foster Wheeler USA reviewed the working of the assessee in respect of its plans, execution and also provided time schedule with emphasis on key milestones. The assessee has also received systems for meeting the project budget and client satisfaction. The job specification was also given by the foreign company Foster Wheeler USA.
16. We have also carefully gone through the judgment of the Karnataka High Court in Dee Beers India Minerals (P.) Ltd. (supra). In fact, this judgment was also considered by the Cochin Bench of this Tribunal in the case of US Technology Resources (P) Ltd. (supra) In the case of Dee Beers India Minerals (P.) Ltd. (supra), the assessee engaged in the business of mining for diamonds and other minerals. In the course of its business activity, the assessee before Karnataka High Court entered into an agreement with Netherland. company to engage its services in airborne survey for high quality, high resolution, geophysical data suitable for selecting the available minerals. The Netherland company gave data, maps and photographs by air borne survey and located the exact area for mining. On the basis of survey made by Netherland company, the assessee excavated the mines. In the case before Karnataka High Court, the technology of locating the diamonds by air borne survey was not given to the assessee. Only the result of the survey was furnished by the Netherland company. In the case before us, the foreign company reviewed the execution plans, emphasis on key milestones, provided the best practices available in the form of written procedures and specifications and details When the procedures and specifications are provided to the assessee, which is also a specialized company in engineering and execution of construction, this Tribunal is of the considered opinion that the specifications and details provided by foreign company can very well be used in the business of engineering and construction. It is not a case of air borne survey or providing guidelines for locating or identifying the Potential area to locate centres which could not be done by the assessee. It is a case of providing specifications and details, execution of engineering and construction contract. These specifications and procedures made available to the assessee by foreign company can very well be used by the assessee-company for execution of other projects also. But, in the case before Karnataka High Court the air borne survey done by the Netherland company can be used for locating diamonds and other minerals and technology adopted by the Netherland company for locating the diamonds and other minerals was not transferred. Locating diamonds cannot be done by the assessee-company independently. The assessee-company before the Karnataka High Court is expertise only in excavation and not in performing air borne survey or locating the availability of the minerals. In this case, the assessee is also an expertise company in engineering and construction works. Therefore, when the specifications and other procedures are made available to the assessee-company and the foreign company is reviewing and tracking the execution plans periodically, not only the execution but also the project budget and client satisfaction, this Tribunal is of the considered opinion that Foster Wheeler USA has made available its technical knowledge, expertise, knowhow in execution of the contract by the assessee in India. Therefore, this judgment of Karnataka High Court is not applicable to the facts of the case.—–
21. In view of the above discussion, this Tribunal is of the considered opinion that the technical knowledge, expertise, knowhow, provided by Foster Wheeler USA were very much made available to the assessee. Hence, the assessee is liable to deduct tax while making payment. Therefore, the assessee is also liable to pay Interest under Section 234a and 234B of the Act. Accordingly, this Tribunal do not find any reason to interfere with the order of the lower authority and the same is confirmed.”
4.5 A holistic consideration of the facts surrounding the issue of FTS reveals that while the Ld. DRP has been guided by situations prevailing in AY 2016-17 to hold that the “make available” clause is satisfied, the Ld. AO has initiated the discussion on the subject by relying on some finding given for AY 2018-19 and AY 2020-21 [page 18 of the impugned order]. Thereafter, there is a certain undesirable economy of fact-finding but still the conclusion has been drawn on page 21 of the impugned order that “technical inputs in the form of plant design, standard documents, bidding documents evaluation criteria, checklists, shareholders and quality assessment criteria have all been made available to the customer in India”. Also, it has not been brought on record that the assessee, being a tax resident of the UK, would have offered the impugned receipts to tax in the UK in case he bonafidely believed that the said receipt was not taxable in India and in case this is the situation then the issue of taxability of the said receipt would be more or less settled in favour of the assessee. In our humble opinion the DTAAs are intended to prevent taxation of an amount twice over in cases where the tax resident of one country does business in another country, where both have signed a DTAA. It cannot be the intention that an amount goes untaxed in either of the contracting geographies. We find that there is absolutely no fact finding in respect of this critical aspect about the tax treatment being given by the assessee to the impugned receipts. We also find that while the Ld. DRP has been content to rely on findings applicable for situations prevailing before 1.1.2020, the Ld. AO has made a passing mention of the latest contract between M/s BECI and the assessee [para 2 at page 2 of the impugned order] only. We have also been made aware that the cases for AYs 2016-17, 2017-18, 2018-19 and 2020-21 have been set aside by the ITAT specifically on the ground that there was a violation of section 144C(10) of the Act. Thereby, there is no fact finding in regard to either the PE issue or the issue of taxability as FTS for these earlier years.
5.0 As a result of the discussion above, the following is held as under:
i. There cannot be substantive and protective assessments on the same assessee. Accordingly, the Revenue would need to hold firm to one method only.
ii. From a reading of the facts regarding the PE it is seen that the directions of Ld. DRP are outdated since they are based on facts prevailing prior to 1.1.2020. In this regard the Ld. AO’s findings that the services have been rendered by the assessee to M/s BECI from remote locations outside India only would tilt the balance of convenience in favour of the assessee regarding the claim that no PE exists in India, as the concept of virtual PE has not been approved as per the case of Ernst & Young (supra). Thus, it is held that business income cannot be taxed u/s 44DA of the Act as there is no PE in existence.
iii. Regarding the nature of services rendered, it deserves to be held that there is not enough material in the orders of authorities below, specifically in the impugned order, that the services rendered would satisfy the “make available” clause in the UK-DTAA, especially in light of the agreement between the assessee and M/s BECI (w.e.f. 1.1.2020) and more importantly the agreement that M/s BECI has with M/s RIL. The “make available” clause has to be examined holistically to determine if the technical services provided by the assessee to M/s BECI have enabled it to independently provide services to M/s RIL on a continuing basis or, alternatively, the services are such that M/s BECI is not being empowered in any way to execute its contractual obligations with M/s RIL absolutely without the help of the assessee every time that any activity has to be carried out. We remand this matter to the file of Ld. AO/DRP for examining the entire gamut of services from this angle and thereafter arriving at a definite conclusion whether the receipt is taxable in India as FTS or not. The Ld. AO would give ample opportunity of being heard and the assessee would also provide the status of tax treatment of the impugned receipt in its return of income in the UK.
6.0 It is seen that grounds 9,10 and 11 are consequential, while grounds 12 and 13 are general. These grounds are not specifically adjudicated.
7.0 In the result, appeal is partly allowed.
Order pronounced in the open court on 28.07.2026
