2023 (7) TMI 850 - AT - Income Tax

Fees for included services under India-US DTAA: architectural drawings not 'make available', payments not taxable as FIS.

Analysis concerns taxation of cross-border payments under the India-US DTAA for fees for included services (FIS). The article reasons that provision of ... Income taxable in India - Fees for included services (‘FIS’) under Article 12(4)(b) of the India-US DTAA - ‘make available’ clause satisfied - HELD THAT:- In Gera Development (P.) Ltd. [2016 (8) TMI 1009 - ITAT PUNE] on issue of payments made by the assessee, an Indian company, engaged in the business of property development to US company for architectural design and drawings of different building and facilities in respect of its commercial project ‘IQ Business Park’ held that mere passing of project specific architectural drawings and design with measurement did not amount to ‘make available’ technical knowledge, know-how or process and that the assessee has not transferred any technical expertise, skill or knowledge along with the drawing and designs of the particular building to the assessee. We are of the view that the consideration received by the assessee for services rendered to the AOP does not fall within the purview of FIS under Article 12(4)(b) of the India-USA DTAA as the same does not satisfy the ‘make available’ clause envisaged therein. Accordingly, we allow the ground of appeal raised by the assessee in both the AYs. Issues involved:1. Whether the consideration received by the assessee qualifies as Fees for Included Services (FIS) under Article 12(4)(b) of the India-US DTAA.2. Whether the tax rate applied by the AO on the assessed income is correct.Summary:Issue 1: Fees for Included Services (FIS) under Article 12(4)(b) of the India-US DTAAThe assessee, a tax resident of the USA, provided design services to an AOP in India and received Rs. 4,67,60,000/- for AY 2014-15 and Rs. 57,12,000/- for AY 2015-16. The AO classified these amounts as FIS under Article 12(4)(b) of the India-US DTAA, asserting that the services provided by the assessee made available technology, skill, and experience to the AOP. The assessee contended that the 'make available' clause was not satisfied as the services were project-specific and did not transfer any technical design or technology to the AOP.The Tribunal, after examining the facts and the nature of services provided, concluded that the services involved creating conceptual designs and descriptions that guided the EPC contractor for the project's execution. The Tribunal noted that the services were project-specific and did not involve transferring any technical knowledge, skill, or process that the AOP could utilize independently in the future. The Tribunal relied on similar decisions in the cases of Forum Homes (P) Ltd. and Gera Developments P. Ltd., where it was held that project-specific architectural services do not qualify as FIS under the respective DTAAs.Issue 2: Tax Rate on Assessed IncomeThe assessee also raised an additional ground regarding the tax rate applied by the AO, arguing that the tax rate on income in the nature of 'fees for technical services' should be 10% plus applicable surcharge and education cess as per section 115A of the Income Tax Act, 1961, instead of 20% under the India-US DTAA.Since the Tribunal decided the primary issue in favor of the assessee, the additional ground regarding the tax rate became infructuous and was not adjudicated upon.Conclusion:The Tribunal allowed the appeals for both AYs 2014-15 and 2015-16, holding that the consideration received by the assessee did not qualify as FIS under Article 12(4)(b) of the India-US DTAA as the 'make available' clause was not satisfied. Consequently, the additional ground regarding the tax rate was rendered moot.