TaxTMI 
TaxTMI 
2023 (8) TMI 499
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....ile transferring the all encompassing design including concept designs, schematic designs architectural design etc. and ignoring specific clauses of agreements which clearly indicate make available (eg Clauses 14&23 of agreements with L&T). 3. Whether on the facts and circumstances of the case Ld. CIT(A) was correct in holding that receipts from Indian clients of the assessee were alternatively not taxable as royalty as royalty under Singapore DTAA. The CIT(A) ignored the fact that receipts were for use and right to use of technical design." 3. Briefly stated, the facts are that the assessee is a company incorporated under the laws of Singapore and is a tax resident of Singapore. The assessee is engaged in the profession of rendering project specific architectural design services. The architectural designs provided by the assessee are executed in Singapore. These designs are highly technical in nature and require a great degree of technical knowledge and expertise. During the AY 2015-16, the assessee earned revenue amounting to Rs. 10,81,68,728/- from customers in India from rendition of architectural design services. For the AY 2015-16 the assessee filed its return of ....
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....ion 9(1)(vii) of the Act vide his draft assessment order dated 29.12.2017. The assessee did not file objections before the Ld. DRP consequent to which the Ld. AO passed the final assessment order under section 144C(3)/144 of the Act on 20.02.2018. Aggrieved the assessee preferred appeal before the Ld. CIT(A). The Ld. CIT(A) examined the issue in details and held that the payments received by the assessee from its customers in India through rendition of architectural design services could not be characterised as FTS and /or royalty in terms of Article 12 of India Singapore DTAA for the reasons recorded in his appellate order. 4. Dissatisfied, the Revenue is in appeal before the Tribunal. Ground No. 1 and 2 relate to the taxability of the payments received by the assessee as FTS in terms of Article 12(4) of the India-Singapore DTAA and ground No. 3 relates to the taxability of these payments as royalty under Article 12(3) of the India-Singapore DTAA on an alternate basis. 5. The Ld. DR strongly supported the order of the Ld. AO. He referred to work order/agreement between L&T and the assessee specifically clause 14 and clause 23 thereof (page 145 and 154 of the Paper Book) rela....
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....nes to complete the task and its follow-up sharing of PDF of design intent. The emails nowhere indicated the fact of sharing step wise process of preparing such design / plan. iii) Secondly, scope of work as per agreement with the clients did not include transfer of technology / knowledge / skill set to the client and that there was no clause regarding capacity building of client's resources in the agreement. iv) Thirdly, the agreements bound the client to separately engage the services of independent Local architect who, in turn, assisted the client in putting such designs provided by the assessee to use by aiding in construction of building and thus, the deliverables could not have been independently applied by the client for their immediate or any other project. v) Fourthly, the agreements could not be said to be all-encompassing as the assessee only addressed the preliminary requirement of its clients, viz., conceptualising the designs and in no manner met the be all and end all requirement of the client so as to enable the client to undertake construction solely based on the services provided by the assessee. Rather, the client had to additionally en....
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....lan or technical design, but excludes any service that does not enable the person acquiring the service to apply the technology contained therein. For the purposes of (b) and (c) above, the person acquiring the service shall be deemed to include an agent, nominee, or transferee of such person." 9. From the above, it is apparently clear that a mere rendering of technical service is not roped in the purview of Article 12(4)(c) unless the person utilising such services is enabled to apply the technology contained therein. It is a matter of fact that the assessee has rendered project specific architectural design services to its customers in India which services require highly technical expertise and hence these services partake the nature of technical services. It is however the case of the assessee that though the assessee has rendered technical services to its clients in India in terms of Article 12(4) of India-Singapore DTAA, it has not 'made available' any technical knowledge and skill etc. to its Indian clients and hence it falls within the exception clause embedded in Article 12(4)(c) of the India- Singapore DTAA and thus the impugned payments received by it could no....
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....lify as FTS. In the facts of the present appeal, the payments made and the nature of services rendered are as under:- Sr.No. Name of the party Country Amount (Rs.) Nature of services 1. Arc Studio Architecture + Urbanism Pte Ltd Singapore 2,85,35,269/- Architectural drawing / design in relation to BKC project. 2 Web Structures Pte Ltd Singapore 68,57,342/- GFC drawing /design in relation to BKC project 3 RMR Engineers Pte Ltd Singapore 12,24,464/- MEP drawing /design in relation to BKC project Total 3,66,17,075/- 10. Thus, as could be seen, the scope of work is limited to various types of drawings and designs for the residential project being developed at BKC. On further verification of facts on record, it is evident that insofar as Arc Studio Architecture + Urbanism Pte Ltd is concerned, it will provide an illustrative site/roof plan showing all the components of the project, general landscape, recommendation and overall infrastructure elements, such as, entry driveways and service circulation, Diagram showing each of the major public at 1:200 scale, image board to describe the....
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....l the material details and documents involving party-wise agreements sample emails reflecting the delivery of services, duration of project party-wise on sample basis etc. for evaluating the true nature of services rendered by the assessee and held that these services would not partake the character of FTS in terms of Article 12(4) of India- Singapore DTAA. The findings of the Ld. CIT(A) remain uncontroverted by the Revenue. We therefore, find no reason to interfere with the order of the Ld. CIT(A). 10. In view of the above factual matrix and following the decision of the Tribunal in Forum Homes (P.) Ltd. (supra), we are of the considered view that the payments received by the assessee in view of architectural design services rendered to its clients in India are not chargeable to tax as FTS in terms of Article 12(4) of the India-Singapore DTAA. Accordingly, we uphold the order of the Ld. CIT(A) on the impugned issue and dismiss ground No. 1 and 2 raised by the Revenue. 11. In ground No. 3 the Revenue is aggrieved that the Ld. CIT(A) held that the payments made to the assessee could also be not characterised as royalty under India-Singapore DTAA. 11.1 The Ld. AO, on an alte....
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....tual property right since there has been a transfer of such right from the Appellant to its client and the right to use such intellectual property lies with the client. Accordingly, the Learned AO has held the receipts of Rs. 10,81,68,728/- to be taxable as Royalty income on alternate basis. 7.5 At this stage, it may be relevant to reproduce the relevant extract of Article 12 of the India - Singapore DTAA which provides the definition of 'royalty' as under: "3. The term "royalties" as used in this Article means payments of any kind received as a consideration for the use of or the right to use: (a) any copyright of a literary, artistic or scientific work, including cinematograph film or films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right, property or information; (b) any industrial, commercial or scientific equipment, other than payments derived by an enterprise from activities described in paragraph 4(b) or 4(c) of Article 8." ....
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....me is handed over to the client in an as is manner', therefore, it would tantamount to 'rendition of services' as against royalty. 7.9 In this regard, the appellant placed reliance on the decision of ITAT, Pune in the case of Gera Developments Pvt. Ltd. (72taxmann.com238) wherein it is held that "the payments made by Assessee to Gensler were for making architectural drawings & designs for its particular commercial complex. The drawings & designs made by Gensler were project specific and there was no transfer of copyright in scientific work. The Assessee by no means could have benefitted by commercial exploitation of the designs and drawings of the particular building." 7.10 Further, the Appellant placed reliance on the following extract form the commentary to the Organization for Economic Co-operation and Development (OECD) Model Convention [2010 version]: "10.2 A payment cannot be said to be "for the use of, or the right to use" a design, model or plan if the payment is for the development of a design, model or plan that does not already exist. In such a case, the payment is made in consideration for the services that will result in the development of th....
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....ent with "S&P Foundation" reads as under "13. Ownership of intellectual property rights:- The Intellectual property Rights of this project shall solely vest with the Company. The architectural designs, plans drawings, documents, sketches, specification, etc. made by the AEDAS shall not be used for any other project or publication in any manner whatsoever, except by the prior written approval of the company". 7.13 It flows from the above clauses that the ownership of the design lies with client for whom it has been developed. Thus, it is a case where the developed design/drawing is meant for the client and the developer does not retain any right on it. Effectively, it is a case of rendering technical services as against a case of Royalty. 7.14 Hon'ble Kolkata High Court in the case of CIT v/s Davy Ashmore India Ltd. [1990] (190 ITR 626) (Calcutta HC) held that Consideration for outright sale of drawings and designs (where the non- resident seller does not retain any property in them) cannot be characterized as "royally" as defined in Article 13 of the India-UK DTA. Further, AAR held in the case of Pro-quip Corporation v/s CIT [2001] (255 ITR 354) ....