By Geeta Jani | Dhishat B. Mehta
Chartered Accountants
3.
TS-76-ITAT-2019 (Mum) Buro Happold
Limited vs. DCIT A.Y.: 2012-13 Date of Order: 15th
February, 2019
Article
13(4)(c), Article 7 of India-UK DTAA – the development and supply of a
technical plan or a technical design does not amount to ‘making available’
technical knowledge, experience, skill, knowhow or process to the service
recipient; amount paid for such services does not qualify as FTS.
FACTS
Taxpayer, a company incorporated in the UK
was involved in the business of providing engineering design and consultancy
services. Taxpayer also rendered these services to its Indian affiliate, I Co.
During the year under consideration, I Co made payments to the Taxpayer towards
provision of consulting services as well as towards a cost recharge of common
expenses incurred by the Taxpayer on behalf of the group.
Taxpayer contended that the consultancy
services did not qualify as “Fee for included services (FIS)” under the treaty
in the absence of satisfaction of the ‘make available’ condition. Further, in
absence of a PE in India, such income is not taxable in India. Taxpayer also
contended that the amount received towards cost recharge is not taxable in India,
since such amount was a part of cost allocation made by the Taxpayer on a
cost-to-cost basis without any profit element.
1. Explanation to section 9(2) of the Act
provides that interest, royalty and FTS paid to a non-resident shall be deemed
to accrue or arise in India whether or not non-resident has a place of business
or business connection in India, and whether or not non-resident renders
services in India. The Tribunal appears to have not applied explanation to
section 9(2) on agency commission on the basis that it is business income and
not in the nature of interest, royalty or FTS.
AO observed that the services rendered by
the Taxpayer included supply of design/drawing. AO held that as per Article 13(4)of the India–UK DTAA,
payment received for development and transfer of a technical plan or technical
design qualifies as FIS, irrespective of whether it also makes available
technical knowledge, experience, skill, knowhow, etc. Further, the cost recharge expense which are
related to and are ancillary to the provision of consulting engineering
services held as FIS will bear same character as that of FIS and, hence,
taxable in India.
Aggrieved, the Taxpayer appealed before the
CIT(A) who upheld AO’s order. The CIT(A) concluded that provision of a specific
design and drawing requires application of mind by various technicians having
knowledge in the field of architectural, civil, electrical and electronic
engineering, and overseeing its implementation and execution at site in India
by the Taxpayer’s technical personnel, amounts to making available technical
services and hence the amount received would be in the nature of FIS.
Aggrieved, Taxpayer appealed before the
Tribunal.
HELD
- A careful reading of Article
13 of the India-UK DTAA suggests that the words “development and transfer
of a technical plan or technical design” is to be read in conjunction with
“make available technical knowledge, experience, skill, knowhow or
processes”. As per the rule of ejusdem generis, the words “or
consists of the development and transfer of a technical plan or technical
design” will take color from “make available technical knowledge,
experience, skill, knowhow or processes”.
- The technical
designs/drawings/plans supplied by the Taxpayer are project-specific and cannot
be used by ICo in any other project in the future. Thus, the Taxpayer has not
made available any technical knowledge, experience, skill, knowhow or processes
while developing and supplying the technical drawings/designs/plans to I Co.
- Reliance was placed on the
Pune Tribunal decision in the case of Gera Developments Pvt. Ltd.2,
in the context of the FTS Article under the India-US DTAA. In Gera’s case it
was held that mere passing of project-specific architectural drawings and
designs with measurements does not amount to making available technical
knowledge, experience, skill, knowhow or processes. The Tribunal also held that
unless there is transfer of technical expertise skill or knowledge along with
drawings and designs and unless the recipient can independently use the
drawings and designs in any manner whatsoever for commercial purpose, the
payment received cannot be treated as FTS.
2.
[(2016) 160 ITD 439 (Pune)]
