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2010 (3) TMI 109 - AAR - Income TaxSale of design – DTAA with USA - Whether the compensation payable to Hellmuth, Obata + Kassabaum L.P., USA under clause VA of the Agreement dated October 15, 2008 can be disintegrated in three parts; viz., (a) for development and sale of designs (b) consultancy for construction documents, and, (c) for ‘Construction administration’ and ‘additional services’? - Whether payment of fees for technical advisory services to HMS/Indian Associate Architects during the Phase-2 of the Project (Construction Document) is taxable under the Art.12(4) of the Treaty even though it is to be excluded from “included services” under Art.12(5)(a) of the Treaty? - Whether fees for supervisory/advisory services during the Construction Administration phase is taxable under Art. 12(4) of the Treaty and, if so, would such fees attract tax at the rate of ten per cent as prescribed in S.115A of the Act? Held that - basic(design) services which include preparation of Master Plan, concept design, schematic design, design development and construction documents, assistance in bidding and contractors’ selection process and consultancy during construction phase are all part of architectural services undertaken the HOK as per the Agreement and the payment received by HOK for furnishing all these documents and services to the applicant fall appropriately within the meaning of ‘fees for included services’ under Article 12.4(b) of the India-US Treaty. They cannot be disintegrated and viewed in water-tight compartments. - The entire consideration receivable by HOK from the applicant is liable to be taxed in India ‘as fees for included services’ as per Article 12.4 of the Tax Treaty. However, as stated in para 11, the amount payable as consultancy fees to the consultants in USA has to be excluded while computing the chargeable income. - The entire consideration receivable by HOK from the applicant is liable to be taxed in India ‘as fees for included services’ as per Article 12.4 of the Tax Treaty. However, as stated in para 11, the amount payable as consultancy fees to the consultants in USA has to be excluded while computing the chargeable income. - As regards the payment of fees for technical advisory services at the construction document stage, it cannot be considered to be ancillary and subsidiary to the sale of property and, therefore, does not get excluded from para 4 of Article 12 by virtue of clause (a) of Article 12.5 of Treaty. The payment of amounts to the Architect – HOK by way of reimbursement of expenses actually incurred by it does not constitute chargeable income and withholding tax under section 195 is not necessary.
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