FTS: Services for future use can be regarded as ‘made available’ under Article 12 of treaty – Mum ITAT

SARGENT & LUNDY v ADIT [ITA No.8986/Mum/2010 (Mum ITAT)] dtd 24.07.2013


The assessee is tax resident of USA. It is a consulting firm engaged in providing services to the power industry by providing engineering based services. The assessee received a sum of Rs.2,22,16,154/- from L&T Limited for rendering consulting and engineering services in relation to Ultra Mega Power projects. The assessee entered into agreement to provide ‘consulting and engineering services’ required by L&T “in the preparation of technical designs” for Ultra Mega Power Projects. L&T was to bid for setting up power projects. It engaged the services of the assessee for technical evaluation and preparation of necessary designs and documents. The assessee did not offer this income in the return on the pretext that such sum was not taxable as the services do not make available technical knowledge, experience, skill or know how within the meaning of FIS as per Article 12(4) of the DTAA between India & USA. 

However, the AO held that the services rendered were in the nature of ‘consulting and engineering services in preparation of the technical designs basis in the form of review of designs for Ultra Mega Power Projects and therefore was covered u/s 9(i)(vii) of the Act as well as includible in the scope of ‘Fees for included services’ under Article 12 of the DTAA.


  • As per the Exhibit to the Agreement, the assessee was assigned the job of evaluation of several aspects including Boiler and Auxiliaries, Determine plant configuration, Design criteria for Cimney with Reference Specification, etc
  • All the above activities, without any hesitation, are in the realm of technical services.
  • However, the case of the assessee largely hinges on the aspect of the definition, being ‘making available’ such technical or consultancy services under Article 12 of the India-USA treaty.
  • The expression ‘make available’ in the context of ‘fees for technical services’ contemplates that the services are of such a nature that the payer of the services come to possess the technical knowledge so provided which enables it to utilize the same in future.
  • Reliance is place on the following decisions:
    CIT & Ors. Vs. De Beers India Minerals Pvt. Ltd. [2012 (346 ITR 467) (Karn)]
    Mahindra & Mahindra Ltd. VS. DCIT (2009) 122 TTJ (MUM)(SB) 577
  • From the above decisions, it appears that the technical knowledge will be considered as ‘made available’ when the person acquiring such knowledge is possessed of the same enabling him to apply it in future at his own.
  • The technical services provided by the assessee in the shape of technical plans, designs, projects, etc. are nothing but blueprints of the technical side of mega power projects.
  • Such services are rendered at a pre-bid stage. It is quite natural that such technical plans etc. are meant for use in future alone if and when L&T takes up the bid for the installation of the power project.
  • When the otherwise technical services provided by the assessee are of such a nature which are capable of use in future alone, we fail to comprehend as to how the same can be considered as not made available to L&T.
  • In our considered opinion, there is no infirmity in the impugned order holding that the assessee received consideration for ‘making available’ technical services within the meaning of Article 12 of the DTAA.


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