Composite architectural contracts taxable as included services, with only actual reimbursements excluded from withholding.

An architectural agreement was treated as a composite contract for design and consultancy services, so the consideration could not be split into separate sale and service components. The architect's services, including concept development, schematic designs, design development, construction documents, bidding assistance, and construction-phase consultancy, were regarded as fees for included services under Article 12 of the India-US DTAA, with section 115A applying as the lower rate. Reimbursements on actuals and pass-through payments to US consultants were excluded from taxable receipts, subject to verification, because they were not treated as chargeable income and no withholding was required on those amounts.

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Issues: (i) Whether the architectural agreement had to be read as a whole or whether the consideration could be split into independent components for sale of designs, consultancy, and construction services; (ii) whether the consideration paid to the non-resident architect, including the design and consultancy portions, was taxable in India as fees for included services under Article 12 of the India-US DTAA and the applicable rate under section 115A; (iii) whether reimbursement of actual expenses and amounts passed on to US consultants were chargeable to tax and subject to withholding under section 195.

Issue (i): Whether the architectural agreement had to be read as a whole or whether the consideration could be split into independent components for sale of designs, consultancy, and construction services

Analysis: The agreement was treated as a composite arrangement for architectural and consultancy services. The separate description of stages and fee allocation did not convert the transaction into a standalone sale of designs. The transfer of drawings and designs was found to be part of the overall service package and could not be isolated into water-tight compartments.

Conclusion: The agreement had to be construed as a whole, and the contract could not be disintegrated into separate sale and service components.

Issue (ii): Whether the consideration paid to the non-resident architect, including the design and consultancy portions, was taxable in India as fees for included services under Article 12 of the India-US DTAA and the applicable rate under section 115A

Analysis: The services comprised development of concepts, schematic designs, design development, construction documents, bidding assistance, and construction-phase consultancy. These were held to fall within Article 12(4)(b) as development and transfer of technical plan or technical design, and also as architectural services contemplated by the treaty commentary. The contention that the amounts were outside Article 12 because the designs were sold outright was rejected. The rate prescribed under section 115A was held applicable because it was lower than the treaty rate.

Conclusion: The entire consideration receivable by the non-resident architect, except the excluded consultant reimbursements, was taxable in India as fees for included services, and the rate under section 115A applied.

Issue (iii): Whether reimbursement of actual expenses and amounts passed on to US consultants were chargeable to tax and subject to withholding under section 195

Analysis: Amounts reimbursed on actuals and sums payable to US consultants were not treated as income in the hands of the architect on the facts presented. Such sums were directed to be excluded from the taxable receipts, though subject to verification by the department. Since they did not constitute chargeable income, withholding was not attracted.

Conclusion: Reimbursement of actual expenses and pass-through payments to US consultants were not chargeable to tax in India and did not require withholding under section 195.

Final Conclusion: The ruling upheld taxability of the architectural and consultancy consideration in India while granting exclusion only for actual reimbursable consultant payments and similar non-income items.

Ratio Decidendi: Where architectural and consultancy obligations form an integrated composite contract, the consideration is taxable as fees for included services if the services involve development and transfer of technical plans or designs, and pure reimbursement on actuals is not chargeable income.

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