TMI Blog2019 (4) TMI 605X X X X Extracts X X X X X X X X Extracts X X X X ..... annot 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i, for assessment year 2012 13. 2. In ground no.1, the assessee has challenged the taxability of amount received of ₹ 1,01,44,808, towards common cost recharge as fees for technical services. Whereas, in ground no.2 the assessee has challenged taxability of the amount of ₹ 1,09,03,039, received towards consulting engineering services as fees for technical services. 3. Since, the Assessing Officer and the first appellate authority have treated the common cost recharge as part of consulting engineering services, hence, is in the nature of fees for technical services, we propose to address the preliminary issue whether the amount received towards consulting engineering services can be treated as fees for technical services under the India United Kingdom (UK). Double Taxation Avoidance Agreement (DTAA). 4. Brief facts are, the assessee, a company, is registered in UK is a tax resident of UK. The assessee is basically involved in the business of providing engineering design and consultancy services. As a part of such services, the assessee provides structural and MEP (Mechanical, Electrical and Public Health) engineering for various buildings. For the assessment yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m BHEI is a part of cost allocation on a cost to cost basis without any profit element, it is not taxable in India. 5. The Assessing Officer after considering the submissions of the assessee did not find merit in them. As regards receipt from engineering consultancy services, the Assessing Officer observed that the amount received falls broadly under the category of fees for technical services as per Article 13 of India UK tax treaty. Referring to consulting services agreement for MEP engineering services design executed on 6th May 2011, the Assessing Officer observed that the services rendered by the assessee includes supply of design / drawing and the provision of other services are ancillary to supply of designs and drawings. The Assessing Officer observed, as per Article 13(4)(c) of the India UK tax treaty, payment received for development and transfer of a technical plan or technical design would be in the nature of fees for technical services, irrespective of the fact, whether it also makes available technical knowledge, experience, skill, knowhow, etc. Interpreting the provisions of Article 13(4)(c), the Assessing Officer observed that the words make available go with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng could not have been rendered by the assessee without locating technical personnel in India for execution of the designs and drawing. He observed, planning, designing and execution are the three cornerstones of the technical services irrespective of the way an agreement is worded and drafted. He observed, since in assessee s case an entire team of experts from London arrived for nearly a month for every project executed during the year and assisted and guided the team of customers and clients in execution of the project at the site of the clients through discussion, dialogue, assistance, guidance, instructions and supervision of the customers project sites in India, the amount received towards such services is in the nature of fees for technical services under section 9(1)(vii) of the Act. Referring to Article 13 of the India UK tax treaty, the learned Commissioner (Appeals) observed that provision of specific design and drawing for each project requires application of mind by various technicians having knowledge in the field of architectural, civil, electrical, electronic faculties and even making a specific project related drawing and design will amount to provision of archite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll, knowhow or processes to the service recipient, the amount received cannot be treated as fees for technical services. The learned Authorised Representative submitted, since the technical plan or design provided by the assessee is project specific, there is no scope for the service recipient to use such plan or design subsequently in any other project. Thus, he submitted, the amount received towards consulting engineering services cannot be treated as fees for technical services. 9. As regards the amount received towards cost recharge, the learned Authorised Representative submitted, except the agreement, the assessee had produced all other evidences before the Assessing Officer. The learned Authorised Representative submitted, even assuming but not admitting that the assessee had not produced any evidence towards apportionment / allocation of cost, in worst case scenario, the amount received towards cost recharge can be treated as business profit. However, in the absence of a PE in India such amount cannot be brought to tax. He submitted, the departmental authorities have not established that there is any element of provision of technical service in the cost recharge. Therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... experience of the assessee. He submitted, the employees of the assessee work closely with the employees of the Indian company and supports/advises them and provide assistance to them on various technical and engineering matters. Therefore, technical knowledge, experience, etc., are made available to the Indian company. He submitted, the technical services provided by the assessee are of such nature that they are capable of being used in future. He submitted, there is no bar under the agreement for the Indian company for using such knowhow, knowledge in future. Thus, he submitted, the amount received by the assessee is in the nature of fees for technical services under Article 13(4)(c) of the India U.K. tax treaty. In this context, he heavily relied upon the observations of the first appellate authority. Further, in support of his contention, the learned Departmental Representative relied upon certain judicial precedents as mentioned in the written submissions. 11. As regards the amount received by the assessee towards cost recharge, the learned Departmental Representative submitted, the assessee has failed to lead any evidence to prove that services have actually been rendered f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he following decisions: i) Mahindra Mahindra v/s DCIT, 313 ITR (AT) 263 (Mum.) (SB); ii) CIT v/s Prakash L. Shah, 115 ITD 167 (Mum.) (SB); iii) ACIT v/s Aishwarya Rai, 127 ITD 204 (Mum.); and iv) ITO v/s Anant Y. Chavan, 126 TTJ 984 (Pune). 13. Without prejudice to the aforesaid submission, the learned Authorised Representative has given parawise rebuttal to the written submissions filed by the Department in the following manner: Sl. No. Paragraph No. of written sub Our comments 1. 1 and 2 No comments. 2. 3 * The assessee has submitted invoice, break-up of expenditure etc. Without anything further, the same cannot be disbelieved by the Revenue. * The corresponding expenditure has been debited and claimed as common cost recharge by Buro Happold India which has been allowed by the Revenue in 143(3) assessment for A.Y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roject. * The fact of cost sharing agreement was raised at the fag end of assessment proceedings on 17.03.2015 as a result of which the cost sharing agreement was produced for the first time before CIT(A). * In initial years, as per the group policy, common costs were not recovered from entities, to support the initial years of operations. * The assessee has entered into similar bilateral agreements with other group companies as well and a sample copy of the agreement was produced before CIT(A). * There is no legal requirement of registering the inter-company agreement. * Mr. Michael Williamson was appointed as director on 26.02.2014. However he was employed as CFO of the company since 2011. The designation mentioned as director in the agreement is b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... * This issue would arise if it is held that cost allocation receipt is not in nature of reimbursement but taxable as consultancy services. In any case, the same would not fall within the definition of Fees for Technical Services as per Article 12 of India UKDTAA. 7. 8 * It is submitted that the revenue has picked up certain clauses from the agreement to contend that the assessee is making available technical knowledge to the Indian company by providing certain services. It is submitted that if the agreement is read as a whole, it is evident that services provided under cost allocation agreement are general managerial services such as managing IT infrastructure, creation and development of banking relationships, provision and management of insurance, etc and do not make available‟ any technical knowledge to Indian company. 8. 9 * ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rought on record by the revenue, upon whom onus lay, to contend that service provided by assessee are not project specific and can be used by Buro India for other projects. It is submitted that without bringing any positive evidence on record, it cannot be alleged that the services would be used by employees of Buro India in future especially when the services are not general but specific to a particular project. * Use of design and drawings is incidental to providing the consultancy services. * The revenue has relied merely on the payment schedule to conclude that the assessee is transferring the designs and drawings rather than looking at the scope of work mentioned in the agreement. * Assessee and Buro India work together on a project but on different aspects. In-fact Assessee is hired by Buro India to specifically work on certain specialised services (like master planning, Acoustics Engineering, Environmental engineering, etc) where Buro India does not have necessary skills. These are specialised services gained ove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t it provides certain specialised services directly to the customers in India * Sargent Lundy, LLC, USA vs. Additional Commissioner of Income Tax (IT) (2013) 37 taxmann.com 134 (Mum) In this case L T had taken a bid for installation of power project and to support the bid Sargent Lundy had provided technical plan, design, projects, etc. which were to be used by L T to install the power project. In the present case, the consultancy services provided is directly to the ultimate customer and nothing is as such provided to Buro India which is being used by it to render any future services * Shell India Markets Pvt Ltd (2012) 345 ITR 206 (AAR) In this case Shell India received advise and support from its group company in UK for business support services which were then implemented by Shell India. Also, employees of UK Company were working closely with the employees of Shell India and the know-how generated in the services was transferred to the India company as per the agreement. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er understanding of the dispute, it is necessary to look into the scope of work to be undertaken by the assessee under the relevant agreements. On a perusal of the sample copies of the agreements, it is noticed that the assessee was entrusted the work of providing consulting services for a twin city project by the Pune Municipality as well as other building projects in Mumbai. Further, on perusal of the sample copies of the agreement filed in the paper book, it is seen that the work of the assessee is basically to provide consultancy services relating to the projects and in that context to provide technical designs/drawings/plans. It is a fact on record that technical designs/drawings/plans supplied by the assessee under contract are project specific. 17. Keeping in view the aforesaid factual position, we need to examine the taxability of the amount received by the assessee under the India UK tax treaty. As per Article 13 of the India UK tax treaty, royalty and fees for technical services arising in a contracting State and paid to a resident of other contracting State may be taxed in that other State. However, such royalty and fees for technical services can also be taxed in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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 colour from make available technical knowledge, experience, skill, knowhow or processes . 20. Having held so, now it is necessary to examine whether by supply of technical, designs, drawing, plans, the assessee has made available technical knowledge, experience, skill, knowhow or processes. As per the settled principle of law, technology is considered to have been made available when the recipient of such technology is competent and auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gns in any manner whatsoever for commercial purpose, the payment received cannot be treated as fees for technical services. Though, we have taken note of other decisions cited by the learned Authorised Representative we do not intend to deliberate further on them. As regards the decisions cited by the learned Departmental Representative, we find them to factually distinguishable, hence, not applicable to the present appeal. In any case of the matter, the Department has failed to establish on record that through development and supply of technical designs / drawings / plans the assessee has made available technical knowledge, experience, skill, knowhow or processes to the service recipient so as to bring the amount received within the meaning of fees for technical services under Article 13(4)(c) of the India UK Tax Treaty. Therefore, in our considered opinion, 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. 21. 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 aut ..... X X X X Extracts X X X X X X X X Extracts X X X X
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