2026 (2) TMI 1379 - AT - Income Tax

Fees for Technical Services: fabrication charges held not to constitute FTS under India Singapore DTAA and not taxable in India.

The note examines whether fabrication charges from an Indian associated enterprise constitute Fees for Technical Services under Article 12(4) of the India ... Treating fabrication charges received as 'fees for technical services' - section 9(1)(vii) of the Income-tax Act, 1961 as well as Article 12 of the DTAA entered between India and Singapore - role of Article 9 - Taxing income from fees for technical service at the rate specified under the Act - assessee submitted that in the instant case, no Royalty is received by the assessee under Article 12(3) of the India-Singapore DTAA. HELD THAT:- The issue arising in the present appeal is thus recurring in nature and has been decided in favour of the assessee by the decisions of the Co-ordinate Benches of the Tribunal for the preceding assessment years [2022 (7) TMI 1396 - ITAT MUMBAI] as held that the scope of Article 9 thus is to neutralize the impact of intra- AE relationship vis-à-vis the profits made in dealings with such an AE. Beyond this limited scope, the application of Article 9 cannot restructure the transaction. OC-US and the assessee, a Singapore-based entity, are distinct entities and, they have distinct legal existences. The mere fact that these entities are part of the same multinational group does not require, or justify, ignoring the distinct identities of these entilies, or the fact that the operations of these entities are in different jurisdictions. It is also not even the case of the revenue authorities that the refurbishing work is not carried out in Singapore. While a lot of emphases is paid by the revenue authorities on the fact that on the same transaction the assessee had paid taxes in India In the immediately preceding year, and the fact that it is part of overall common arrangements that the leasing is done from one jurisdiction and the refurbishing or bushing is done is another jurisdiction. Nothing, however, turns on these arguments also. We are satisfied that so far as the income of the assessee from the refurbishing of the bushes is concerned, it is not taxable in India as the provisions of Article 12(3) cannot be invoked in this case, and that, so far as the provisions of Article 12(4)(a) are concerned, these provisions cannot be invoked as the assessee has not rendered these services in connection with the services 'for which a payment described in paragraph 3 is received by the assessee. Thus, respectfully following the orders passed by the Co-ordinate Bench of the Tribunal in assessee's own case we uphold the plea of the assessee and delete the impugned addition in respect of fabrication charges received by the assessee. Assessee appeal allowed. Issues: Whether fabrication charges received by the assessee from its Indian associated enterprise are taxable in India as 'fees for technical services' under Section 9(1)(vii) of the Income-tax Act, 1961 and Article 12 of the India-Singapore DTAA.Analysis: The issue concerns application of Article 12(4) of the India-Singapore DTAA and Section 9(1)(vii) of the Income-tax Act, 1961 to fabrication charges. Article 12(4)(a) requires that services be ancillary and subsidiary to the application or enjoyment of property for which a payment described in Article 12(3) is received; Article 12(4)(b) requires that services 'make available' technical knowledge, skill or know-how. Article 9's role is limited to neutralising effects of commercial or financial conditions between associated enterprises and does not permit recharacterising transactions beyond the treaty text. On the facts, no payment falling within Article 12(3) was received by the assessee, the fabrication services did not transfer or make available technical knowledge, skill, experience or processes to the Indian recipient, and the alloy/royalty payments cited were received by a different group entity. Coordinate Benches of the Tribunal have examined identical facts for prior assessment years and consistently held that such fabrication/refurbishing receipts do not constitute fees for technical services under Article 12(4).Conclusion: The fabrication charges received by the assessee are not taxable in India as fees for technical services under Section 9(1)(vii) of the Income-tax Act, 1961 read with Article 12 of the India-Singapore DTAA; the impugned addition is deleted and the appeal is allowed in favour of the assessee.