By Geeta Jani, Dhishat B. Mehta, Chartered Accountants
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Bio-equivalence study to enable registration with a regulatory authority is not covered under Article 12 of the India-USA and India-Canada DTAA as there is no ‘make available’ of technical skill, knowledge or expertise nor does it involve transfer of plans or designs, hence covered under Article 7 of the DTAAs.
Facts: • The Taxpayer, engaged in the business of manufacturing, trading and exporting of and research and development of bulk drugs and pharmaceuticals, was required to obtain approvals from the US and Canada regulatory authorities for marketing its products therein.
• The Taxpayer made payments to Contract Research Organizations (CRO) in USA and Canada for conducting ‘bio-equivalence studies’ and the report provided by the CRO was submitted to the regulatory authorities for patent registration.
• The Tax authority contended that such payments should be treated as FTS under the DTAAs.
Held:
• The study conducted by CROs to comply with the regulations in USA and Canada does not involve transfer of technical plan or design nor does it make available any technical knowledge, experience or know-how to the Taxpayer.
• The taxpayer did not get any benefit out of the said services and was only getting a report in respect of field study conducted on its behalf, which would help it in getting registration with the Regulatory Authority.
• AAR’s decision in the case of Anapharm Inc. [305 ITR 394], supports that income from bioequivalent studies was not taxable in India, in terms of the treaty as the fees not taxable in India were business income which did not satisfy ‘make available’ test.
