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2019 (4) TMI 605 - AT - Income TaxTaxability of Fees for technical services - amount received towards common cost recharge and consulting engineering services - PE in India - India–UK tax treaty(DTAA) - Whether development and transfer of a technical plan or technical design simplicitor without making available technical knowledge, experience, skill, knowhow or processes, etc., would be in the nature of fees for technical services? - HELD THAT:- In the present case, the amount received by the assessee, which has been treated as fees for technical services is towards supply of technical drawings/designs/plans. On a careful reading of Article–13(4)(c) of the India–UK tax treaty it becomes clear that the words “or consists of the development and transfer of a technical plan or technical design”, appearing in the second limb has to be read in conjunction with “make available technical knowledge, experience, skill, knowhow or processes”. The reasoning of the Assessing Officer that the second limb of Article–13(4)(c) of the India– UK tax treaty has to be read independently, in our view, cannot be the correct interpretation of the said Article. Whether by supply of technical, designs, drawing, plans, the assessee has made available technical knowledge, experience, skill, knowhow or processes? - HELD THAT:- As per the settled principle of law, technology is considered to have been made available when the recipient of such technology is competent and authorised to apply the technology contained therein independently as an owner without depending upon the service provider. The recipient of technology should be able to make use of technical knowledge, experience, skill, knowhow or processes by himself in his business or for his own benefit and without recourse to the service provider in future and for this purpose a transmission of the technical knowledge, experience, skill, knowhow or processes, from the service provider to the service recipient is necessary. Undisputedly, in the present case, as revealed from the material on record, the technical design/drawings/plans supplied by the assessee to the Indian entity are project specific, hence, cannot be used by the Indian entity in any other project in future. Therefore, the claim of the assessee that it has not made available any technical knowledge, experience, skill, knowhow or processes while developing and supplying the technical drawings/designs/plans has to be accepted. It is worth mentioning, while deciding a dispute of identical nature concerning fees for technical services as per India–USA tax treaty under which definition of fess for included services as per Article–12(4)(b) is identically worded like Article 13(4)(c) of the India–UK tax treaty, the Tribunal, Pune Bench, in Gera Developments Pvt. Ltd. v/s DCIT [2016 (8) TMI 1009 - ITAT PUNE] has held that mere passing off project specific architectural, drawings and designs with measurements does not amount to making available technical knowledge, experience, skill, knowhow or processes. The Tribunal held that unless there is transfer of technical expertise skill or knowledge along with drawings and designs and if the assessee cannot independently use the drawings and designs in any manner whatsoever for commercial purpose, the payment received cannot be treated as fees for technical services - Thus the amount received by the assessee has to be treated as business profit and in the absence of a PE in India, it cannot be brought to tax in India. Since, we have held the amount received towards consulting engineering services to be not in the nature of fees for technical services, the reasoning of the departmental authorities with regard to cost recharge would also fail, since, they have treated it as ancillary and incidental to consulting engineering services. Once, the Departmental Authorities have treated the amount received towards cost recharge to be in the nature fees for technical services, it implies rendering of service- amount received towards consulting engineering services to be not in the nature of fees for technical services we hold that the amount received towards cost recharge cannot be brought to tax in India in the absence of PE. - Decided in favour of assessee.
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