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Issues: (i) Whether the amounts received under the architectural consultancy contract were consideration for sale of designs and drawings or were fees for technical services. (ii) Whether the applicant had a permanent establishment in India.
Issue (i): Whether the amounts received under the architectural consultancy contract were consideration for sale of designs and drawings or were fees for technical services.
Analysis: The contract, read as a whole, described the engagement as consultancy for preparation of conceptual drawings, detailed drawings, designs, specifications and project reports, and imposed continuing responsibilities extending beyond the initial concept stage. The applicant remained accountable for the work, had to provide technical and supervisory assistance throughout the project, and the supply of drawings and designs was only an integral part of the consultancy. The involvement of a sub-consultant did not alter the essential character of the arrangement. The payments therefore fell within the statutory and treaty definition of fees for technical services under Explanation 2 to section 9(1)(vii) of the Income-tax Act, 1961 and Article 12.4 of the DTAA.
Conclusion: The receipts were fees for technical services and not consideration for an outright sale of designs and drawings, against the applicant.
Issue (ii): Whether the applicant had a permanent establishment in India.
Analysis: On the facts placed before the Authority, the applicant's activities in India were limited and did not show a fixed place through which the enterprise carried on its business in India. The presence of personnel was for limited periods and the sub-consultant's place could not be treated as the applicant's permanent establishment on the material available.
Conclusion: The applicant had no permanent establishment in India, in favour of the applicant.
Final Conclusion: The consultancy receipts were taxable as fees for technical services, but the applicant did not have a permanent establishment in India, so the questions dependent on a PE did not survive for determination.
Ratio Decidendi: A composite architectural consultancy contract that imposes continuing technical and supervisory obligations cannot be treated as an outright sale of drawings merely because drawings are electronically delivered or part of the work is subcontracted; such receipts are fees for technical services, while a limited and temporary presence does not by itself establish a permanent establishment.
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