CIT (I). v ABB INC. [2023]

⚙️ CIT (I) vs. ABB Inc. – Karnataka High Court: Project-Specific Risk Review Services Not Royalty or FIS under India–USA DTAA (2024)

📌 Background

Under Indian tax law, income of a non-resident may be deemed to accrue or arise in India if it constitutes royalty or fees for technical services (FTS) under Section 9(1)(vi)/(vii). However, when a Double Taxation Avoidance Agreement (DTAA) applies, Section 90 mandates that treaty provisions override domestic law if more beneficial.

The India–USA DTAA uses the concept of “Fees for Included Services (FIS)” under Article 12, which requires that technical or consultancy services must “make available” technical knowledge, experience, skill, know-how, or processes in such a manner that the recipient can apply it independently in the future.

In CIT (I) v. ABB Inc. (2024), the Karnataka High Court reaffirmed that project-specific technical evaluation that does not equip the recipient to apply the same technology independently in the future does not qualify as FIS and is not taxable in India.

📂 Facts of the Case

• Assessee: ABB Inc., a U.S.-based company.
• Nature of Services:
  Technical evaluation and review of risk factors relating to a specific project for ABB India Ltd.
• Purpose:
  The assessee provided an evaluation report enabling ABB India to refine, modify, and submit its bid for a particular project.
• Remuneration:
  Payment received for review, assessment, and recommendations relating to that specific bid.
• Revenue’s View:
  • The services constituted fees for included services (FIS) under Article 12 of the India–USA DTAA.
  • Alternatively, the services were FTS under Section 9(1)(vii).
  • The assessee indirectly enabled ABB India to use the knowledge later within the group.
• Assessee’s Stand:
  • Services were project-specific and did not “make available” any technical knowledge.
  • No transfer of skill, know-how, or process took place.
  • The work was limited to reviewing and preparing a risk evaluation report for one project only.
  • Therefore, income was not taxable in India in absence of a PE.

❓ Point of Dispute

Whether the project-specific risk review services rendered by ABB Inc. to ABB India constitute “fees for included services” or “royalty” under the DTAA or taxable FTS under domestic law?

📑 Submissions by the Assessee

• One-time project advice:
  The evaluation report was tailored exclusively for a single project and terminated once ABB India submitted its bid.
• No technical know-how transferred:
  ABB India did not acquire the ability to perform such risk evaluation independently in the future.
• “Make available” test not satisfied:
  Article 12 requires that the recipient must be enabled to apply the technology on its own subsequently, which was not the case here.
• DTAA protection:
  Article 12 of India–USA DTAA overrides Section 9(1)(vii) due to Section 90(2).

📑 Submissions by the Revenue

• The report provided technical guidance and analytical insights.
• ABB India could theoretically use this knowledge for other group projects.
• This, according to Revenue, meant that the assessee made available technical knowledge.
• Payments should therefore qualify as FIS or FTS.

⚖️ Legal Principles & Court’s Findings

1. “Make Available” under Article 12 is not satisfied

The Court emphasized:

For a service to be considered FIS, the technical knowledge, experience, or skill must be transferred such that the Indian recipient can apply it independently without further assistance.

In ABB’s case, the evaluation was project specific, and ABB India:

• could not reuse the evaluation,
• did not learn any method or process,
• and did not acquire any technical capability to perform similar evaluations in the future.

Thus, Article 12 was not triggered.

2. Merely receiving a report ≠ technology transfer

The Court noted that the evaluation report:

• was an end-product of consultancy,
• did not impart any technical skill,
• and was not reusable in perpetuity by ABB India.

Hence, the Revenue’s argument that ABB India could use the report for guidance in future group projects was rejected.

3. No “royalty” element under Section 9(1)(vi)

There was no use of:

• copyright,
• patent,
• trademark,
• scientific work,
• or any process.

Therefore, royalty characterization was untenable.

4. Project-specific services do not create taxable FTS

Section 9(1)(vii) defines FTS broadly, but DTAA narrows the scope.
Since DTAA prevails, payments cannot be taxed in India if they fail the “make available” test.

5. No income accrued or arose in India

Given the above findings and in absence of a PE, the Court held:

“No income accrued or arose to the assessee in India.”

Revenue’s appeal was dismissed.

🏁 Held

✔ Project-specific risk evaluation services are not FIS under India–USA DTAA.

✔ No royalty arises under Section 9(1)(vi).

✔ No FTS taxation under Section 9(1)(vii).

✔ Income does not accrue or arise in India.

✔ Revenue’s appeal dismissed.

✅ Practical Impact

• Reinforces that one-time project-based services rarely qualify as FIS.
• Protects cross-border service providers offering bid support, feasibility analysis, or project reviews.
• Ensures DTAA overrides prevent overreach under domestic law.
• Clarifies the application of the “make available” test for consultancy services.

🔑 Key Takeaways

1. Project-specific advisory services do not constitute technology transfer.
2. Simply delivering a report does not satisfy the “make available” requirement.
3. DTAA protection prevails over domestic deeming provisions.
4. No taxation in India where the service does not impart enduring technical capability.
5. Strong reaffirmation of India–USA DTAA principles.

📢 Why This Case Matters

This judgment is a significant reaffirmation of India’s treaty obligations, particularly the “make available” doctrine in the India–USA DTAA. It brings greater certainty for multinational consulting, engineering, and technology firms providing short-term, project-specific advisory services to Indian affiliates.

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