Bombardier India - Ahmedabad Income Tax Appellate Tribunal finds that technical services under the Canada–India Treaty, Art. 12 must entail know-how transfers

Art. 12(4)(b) of the Canada-India Treaty assimilates to royalties “payments of any kind… in consideration for the rendering of any technical or consultancy services…if such services…make available technical knowledge, experience, skill, know-how, or processes….” Bombardier Canada provided a wide range of administrative and management services to Bombardier India through use of its broad platform of software. In finding that Bombardier India’s payments for these IT-related services were not deemed to be royalties, the ITAT applied a statement in a 2012 decision of the Karnataka High Court that:

[T]o fit into the terminology "making available", the technical knowledge, skill, etc., must remain with the person receiving the services even after the particular contract comes to an end.…

The technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider.

Since there was no such transmission of know-how to Bombardier India, the fees paid by it were not royalties under Art. 12, and were free of withholding tax.

Neal Armstrong. Summary of DCIT vs. Bombardier Transportation India Pvt. Ltd, ITA No.555/Ahd/2016 under Treaties – Art. 12.