We paid a UK merchant bank commission for managing our GDR issue. Does 'fees for technical services' in the treaty catch it, so that we had to deduct tax under section 195?
No, on the Tribunal's reading of the treaty. The Mumbai Tribunal held that Article 13.4(c) of the India-UK treaty is not satisfied by merely rendering technical or consultancy services. The services must also make available technical knowledge, experience, skill, know-how or processes, meaning the recipient must be able to apply them himself afterwards without going back to the provider. The lead manager's work on the GDR issue left Raymond with nothing of that kind once the issue closed. The Tribunal also rejected the argument that the managers had bought the GDRs and resold them, and held that the UK treaty applied.
Decided by the ITAT (Income Tax Appellate Tribunal, Mumbai; R.V. Easwar, Judicial Member (author, as the source names the bench)) on 2002-04-24, reported as (2003) 86 ITD 791 (Mum); (2003) 80 TTJ (Mum) 120. It bears on section 9(1)(vii), section 195, section 90, section 201(1A) of the Income Tax Act 1961, in TDS Defaults and How Tax Law Is Read matters.
This is the decision that fixed the meaning of 'make available' in Indian treaty practice, and it is still the starting point for any argument that a cross-border services payment escapes withholding. Three moves in it are done nowhere else so carefully. It grounds the test in the grammar of the article, showing that the relative pronoun 'which' adds a requirement to the rendering of services rather than describing it. It insists on durability: something must remain with the payer in concrete shape after the engagement ends. And it holds that the memorandum of understanding to the India-US treaty and the language of the India-Singapore treaty are legitimate aids to construing the UK article, because India would not have meant identically worded definitions to bear different meanings. It also shows why the wider domestic definition in section 9(1)(vii), which covers managerial services, cannot be read into a treaty that dropped that word.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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Raymond, which made suitings, steel files and cement, raised about US $58 million through Global Depositary Receipts in November 1994. Merrill Lynch International Ltd of the United Kingdom was lead manager, with Goldman Sachs (Asia), DSP Financial Consultants, Barclays, Banque Paribas, Bear Stearns and Swiss Bank Corporation as managers. A subscription agreement, a managers' agreement, a deposit agreement with Citibank as depositary, a deed poll and an offering circular were all executed on 9 November 1994. Raymond paid management, underwriting and selling commission totalling about Rs 5.93 crore, and reimbursed legal fees, road show and printing costs, taking the total to about Rs 7.75 crore. It deducted no tax. The assessing officer held the payments were fees for technical services under section 9(1)(vii), passed an order under section 195(1) treating the company as an assessee in default for Rs 1.93 crore, and charged interest of Rs 1.55 crore under section 201(1A). The Commissioner (Appeals) upheld him on both counts.
On the readable part of the order, the Tribunal decided as follows. The arrangement was not a sale of the GDRs to the managers followed by a resale to investors; the managers rendered services in connection with the issue. The India-UK treaty applied: the assessing officer had himself applied it without objection, and on merits the appointment, the subscription agreement and the payment were all with Merrill Lynch International Ltd of the United Kingdom, the Hong Kong office having acted only in the preliminary negotiations. On the central question, Article 13.4(c) requires more than the rendering of technical or consultancy services. The services must make available technical knowledge, experience, skill, know-how or processes, so that the person paying can use them himself in his business afterwards without recourse to the provider. Something durable must remain with him. Nothing of that kind remained with Raymond once the GDRs were issued; it went on manufacturing cement and suitings as before. Payments to managers based in Hong Kong, with which India had no treaty, stood on a different footing.
The Tribunal read the article as written and against its history. The earlier India-UK treaty had defined technical services in language close to section 9(1)(vii), including managerial services. The 1993 treaty dropped 'managerial' and added the make-available words, which is a deliberate departure; reading the article as though it meant what the domestic section means would ignore that. It then took the words apart grammatically. Section 9(1)(vii) stops at the rendering of services, while the treaty qualifies the rendering with 'which make available'. The Revenue's reading, that the words mean allowing somebody to make use of the services whether used or not, collapses into the idea of rendering itself, because rendering already presupposes use. The relative pronoun 'which' must do additional work, and the work it does is to require transmission: the knowledge, experience or skill must pass to the payer and stay with him after the engagement ends, in concrete shape. On the aids to construction, the Tribunal accepted that the memorandum of understanding to the 1990 India-US treaty and the corresponding article in the 1994 India-Singapore treaty can be looked at, because they deal with the same subject and India is a party to all three; it is hard to suppose India intended identically defined services to be treated differently depending on the counterparty, and the Revenue produced no evidence of such an intention. The examples in the memorandum, contrasting manufacture for a customer with the supply of modified software, supported the assessee's reading.
The technical knowledge, experience, skill, etc. must remain with the person utilising the services even after the rendering of the services has come to an end.
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Handle my notice → Ask a CA on WhatsAppNo, on the Tribunal's reading of the treaty. The Mumbai Tribunal held that Article 13.4(c) of the India-UK treaty is not satisfied by merely rendering technical or consultancy services. The services must also make available technical knowledge, experience, skill, know-how or processes, meaning the recipient must be able to apply them himself afterwards without going back to the provider. The lead manager's work on the GDR issue left Raymond with nothing of that kind once the issue closed. The Tribunal also rejected the argument that the managers had bought the GDRs and resold them, and held that the UK treaty applied. This was decided by the ITAT (Income Tax Appellate Tribunal, Mumbai; R.V. Easwar, Judicial Member (author, as the source names the bench)) and bears on section 9(1)(vii), section 195, section 90, section 201(1A) of the Income Tax Act 1961. It is reported as (2003) 86 ITD 791 (Mum); (2003) 80 TTJ (Mum) 120. This is the decision that fixed the meaning of 'make available' in Indian treaty practice, and it is still the starting point for any argument that a cross-border services payment escapes withholding. Three moves in it are done nowhere else so carefully. It grounds the test in the grammar of the article, showing that the relative pronoun 'which' adds a requirement to the rendering of services rather than describing it. It insists on durability: something must remain with the payer in concrete shape after the engagement ends. And it holds that the memorandum of understanding to the India-US treaty and the language of the India-Singapore treaty are legitimate aids to construing the UK article, because India would not have meant identically worded definitions to bear different meanings. It also shows why the wider domestic definition in section 9(1)(vii), which covers managerial services, cannot be read into a treaty that dropped that word. If it applies to you, the first step is this: Frame the question in two stages: were technical or consultancy services rendered, and did they leave the payer able to do the same thing himself next time. Only the second stage decides a make-available treaty.
Raymond, which made suitings, steel files and cement, raised about US $58 million through Global Depositary Receipts in November 1994. Merrill Lynch International Ltd of the United Kingdom was lead manager, with Goldman Sachs (Asia), DSP Financial Consultants, Barclays, Banque Paribas, Bear Stearns and Swiss Bank Corporation as managers. A subscription agreement, a managers' agreement, a deposit agreement with Citibank as depositary, a deed poll and an offering circular were all executed on 9 November 1994. Raymond paid management, underwriting and selling commission totalling about Rs 5.93 crore, and reimbursed legal fees, road show and printing costs, taking the total to about Rs 7.75 crore. It deducted no tax. The assessing officer held the payments were fees for technical services under section 9(1)(vii), passed an order under section 195(1) treating the company as an assessee in default for Rs 1.93 crore, and charged interest of Rs 1.55 crore under section 201(1A). The Commissioner (Appeals) upheld him on both counts. The matter was decided on 2002-04-24 by the ITAT (Income Tax Appellate Tribunal, Mumbai; R.V. Easwar, Judicial Member (author, as the source names the bench)). On those facts the ITAT held as follows. On the readable part of the order, the Tribunal decided as follows. The arrangement was not a sale of the GDRs to the managers followed by a resale to investors; the managers rendered services in connection with the issue. The India-UK treaty applied: the assessing officer had himself applied it without objection, and on merits the appointment, the subscription agreement and the payment were all with Merrill Lynch International Ltd of the United Kingdom, the Hong Kong office having acted only in the preliminary negotiations. On the central question, Article 13.4(c) requires more than the rendering of technical or consultancy services. The services must make available technical knowledge, experience, skill, know-how or processes, so that the person paying can use them himself in his business afterwards without recourse to the provider. Something durable must remain with him. Nothing of that kind remained with Raymond once the GDRs were issued; it went on manufacturing cement and suitings as before. Payments to managers based in Hong Kong, with which India had no treaty, stood on a different footing.
The Tribunal read the article as written and against its history. The earlier India-UK treaty had defined technical services in language close to section 9(1)(vii), including managerial services. The 1993 treaty dropped 'managerial' and added the make-available words, which is a deliberate departure; reading the article as though it meant what the domestic section means would ignore that. It then took the words apart grammatically. Section 9(1)(vii) stops at the rendering of services, while the treaty qualifies the rendering with 'which make available'. The Revenue's reading, that the words mean allowing somebody to make use of the services whether used or not, collapses into the idea of rendering itself, because rendering already presupposes use. The relative pronoun 'which' must do additional work, and the work it does is to require transmission: the knowledge, experience or skill must pass to the payer and stay with him after the engagement ends, in concrete shape. On the aids to construction, the Tribunal accepted that the memorandum of understanding to the 1990 India-US treaty and the corresponding article in the 1994 India-Singapore treaty can be looked at, because they deal with the same subject and India is a party to all three; it is hard to suppose India intended identically defined services to be treated differently depending on the counterparty, and the Revenue produced no evidence of such an intention. The examples in the memorandum, contrasting manufacture for a customer with the supply of modified software, supported the assessee's reading. In the words reproduced by the source cited on this page: "The technical knowledge, experience, skill, etc. must remain with the person utilising the services even after the rendering of the services has come to an end."
It was decided by the ITAT on 2002-04-24 and is reported as (2003) 86 ITD 791 (Mum); (2003) 80 TTJ (Mum) 120. Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 9(1)(vii), section 195, section 90, section 201(1A), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. On the readable part of the order, the Tribunal decided as follows. The arrangement was not a sale of the GDRs to the managers followed by a resale to investors; the managers rendered services in connection with the issue. The India-UK treaty applied: the assessing officer had himself applied it without objection, and on merits the appointment, the subscription agreement and the payment were all with Merrill Lynch International Ltd of the United Kingdom, the Hong Kong office having acted only in the preliminary negotiations. On the central question, Article 13.4(c) requires more than the rendering of technical or consultancy services. The services must make available technical knowledge, experience, skill, know-how or processes, so that the person paying can use them himself in his business afterwards without recourse to the provider. Something durable must remain with him. Nothing of that kind remained with Raymond once the GDRs were issued; it went on manufacturing cement and suitings as before. Payments to managers based in Hong Kong, with which India had no treaty, stood on a different footing. It arises in TDS Defaults and How Tax Law Is Read matters, on section 9(1)(vii), section 195, section 90, section 201(1A) of the Income Tax Act 1961, and was decided by Income Tax Appellate Tribunal, Mumbai; R.V. Easwar, Judicial Member (author, as the source names the bench). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Put on record what the payer was left with after the engagement ended; if the answer is nothing transferable, say so plainly and in detail. Do not let the officer read section 9(1)(vii) into the treaty article. Point out that the article deliberately dropped 'managerial' services and added the make-available requirement. If the make-available test fails, run the fallback: the receipt is business profits, and without a permanent establishment in India nothing is chargeable, so section 195 does not bite. Check where the payee is actually resident before relying on a treaty. Payments to entities in a jurisdiction with no treaty get no treaty protection at all.
Still good law. The source page records it as followed in a substantial line of later Tribunal and High Court decisions on the make-available test, and the reading has since become the standard one. Its later history was not separately traced in this session, and it is a Tribunal decision, so it binds nobody outside its own appeal. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The harvested page is clipped in the middle, with about 65,000 characters not reproduced, and it then stops at a truncation marker at 110,000 characters. What is missing is the whole of the Tribunal's treatment of section 9(1)(vii) itself, its findings on whether there was payment or credit attracting section 195(1), on whether an order can be made under section 195(1) or only under section 201, on the demand notice, on the interest under section 201(1A) and on the reimbursed expenses, together with the operative paragraphs. The result on those issues is therefore not stated here, and 'favours' is recorded as mixed for that reason. The batch line gave the year as 2003, which is the year of the reports; the order is dated 24 April 2002 and that date is used. The source names only R.V. Easwar in the bench line, so the full composition could not be given. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
On the readable part of the order, the Tribunal decided as follows. The arrangement was not a sale of the GDRs to the managers followed by a resale to investors; the managers rendered services in connection with the issue. The India-UK treaty applied: the assessing officer had himself applied it without objection, and on merits the appointment, the subscription agreement and the payment were all with Merrill Lynch International Ltd of the United Kingdom, the Hong Kong office having acted only in the preliminary negotiations. On the central question, Article 13.4(c) requires more than the rendering of technical or consultancy services. The services must make available technical knowledge, experience, skill, know-how or processes, so that the person paying can use them himself in his business afterwards without recourse to the provider. Something durable must remain with him. Nothing of that kind remained with Raymond once the GDRs were issued; it went on manufacturing cement and suitings as before. Payments to managers based in Hong Kong, with which India had no treaty, stood on a different footing.
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