Where the assessee conducted sophisticated and technical bioanalytical tests for its clients but did not reveal to them as to how it conducts those tests or the inputs that have gone into it, so as to enable them to carry out those tests themselves in future and the question arose whether the fees received for such services could be assessed as “fees for technical services” or as “royalty” under the India-Canada DTAA, HELD
(i) In order to consider the meaning of the term “make available” in Article 12 of the India-Canada DTAA, one can have regard to the India-USA DTAA. The term requires that the service provider should also make his technical knowledge, experience, skill, know-how etc., known to the recipient of the service so as to equip him to independently perform the technical function himself in future, without the help of the service provider. In other words, payment of consideration would be regarded as ‘fee for technical / included services’ only if the twin test of rendering services and making technical knowledge available at the same time is satisfied.
(ii) On facts, as the tests carried out by the applicant did not enable the applicant’s client to derive requisite knowledge to conduct the tests or to develop the technique by itself, it could not be considered to “make available” technical knowledge, skill etc to the payer;
(iii) The fees were also not chargeable to tax as “royalty” because the applicant used its experience and skill itself in conducting the bioequivalence tests, and provided only the final report containing conclusions to its clients and the information concerning scientific or commercial experience of the applicant or relating to the method, procedure or protocol used in conducting bioequivalence tests was not imparted to the clients.
(iv) what distinguishes a contract for provision of know-how from a contract for rendering advisory services is the concept of ‘imparting’. An adviser or consultant, rather than imparting his experience, uses it himself. All that he imparts is the conclusion that he draws from his own experience.
See Also: Diamond Services International Ltd. vs. UOI (Bom)