Article 12(4) — India-US DTAA: Fees for Included Services

Article 12(4) of the India-US Double Taxation Avoidance Agreement (DTAA) deals with the taxation of 'fees for included services'. This provision specifies that fees for included services arising in one contracting state and paid to a resident of the other contracting state may be taxed in the state in which they arise. However, such fees may also be taxed in the state of residence according to its laws, but if the beneficial owner is a resident of the other state, the tax so charged shall not exceed a specified percentage of the gross amount of the fees. The article defines 'fees for included services' as payments for services that make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or design. The significance of this article lies in its impact on cross-border service transactions, where the determination of whether a service 'makes available' technical knowledge is often a point of contention. The burden of proof typically lies with the taxpayer to demonstrate that the services fall within the scope of this article.

Common Litigation Flashpoints

1. Interpretation of 'make available' clause
2. Classification of services as technical or consultancy
3. Determination of beneficial ownership
4. Application of reduced tax rates under DTAA

Judgments on Article 12(4) — India-US DTAA: Fees for Included Services

• Income Tax Officer (Exemption) vs Wrestling Federation of India — ITAT,
  The proviso to Section 2(15) does not apply if the receipts are incidental to the fulfillment of the charitable objectives and not used as business receipts.
• Myntra Inc. vs Assistant Commissioner of Income Tax — ITAT,
  The 'make available' condition under Article 12(4)(b) of the India-US DTAA is not satisfied if the services do not involve a transfer of technical knowledge or skills.
• Union of India & Anr. vs M/s. Ganpati Dealcom Pvt. Ltd. — SC,
  The 2016 Amendment Act cannot be applied retrospectively as it creates new offences and substantive changes, which cannot be applied to past transactions.
• Radhasoami Satsang, Saomi Bagh, Agra vs Commissioner of Income Tax — SC,
  A fundamental aspect permeating through different assessment years, if sustained by not being challenged, should not be changed in a subsequent year without material change.