TaxTMI 
TaxTMI 
2026 (9) TMI 23
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....DRP'), erred in holding that the consideration of Rs. 30,28,99,032 received by the Appellant, for engineering design review services, is taxable as 'fees for included services' as per the provisions of Article 12(4) of the Double Tax avoidance agreement between India - Canada ('India -Canada DTAA'). The Learned AO and the Hon'ble DRP failed to appreciate the fact that the services provided by the Appellant neither satisfy the conditions of "make available" as per Article 12(4)(b) nor does it involve "development and transfer of a technical plan or technical design" to constitute the consideration received by the Appellant as fees for included services Article 12(4) of the India - Canada DTAA. Appellant prays that the consideration of Rs. 30,28,99,032 received by it should not be classified as fees for included services and consequently the same should not be taxable in India as per the provisions of India - Canada DTAA. 2) On the facts and circumstances of the case, and in law, the Learned AO based on the directions of the DRP erred in holding that the consideration received for engineering design review services be also taxed as &....
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....3), the AO has made an addition of Rs. 30,28,99,032 treating the income received from Tata Projects Ltd. (TPL) to be the Fees for Technical Services (FTS) and alternatively as royalty. 5. Being aggrieved with the aforesaid addition to the assessee is in appeal before us in the present case. 6. At the outset, learned Senior Counsel representing the assessee submitted that the amount received by the assessee for providing of services in the form of engineering design review is a technical consultancy service, which falls within the purview of fees for technical service defined u/s. 9(1)(vii) of the Act. Further, the assessee being a tax resident of Canada holds a valid residency certificate issued by the tax authorities in Canada, is eligible to the beneficial provisions in the DTAA. As per the article 12(4) of the DTA, fee for technical service is not taxable under the DTAA, in the absence of making available technical knowledge, experience, skill, knowhow or processes. Further, as per Article 5(2)(i) of the DTAA, the term permanent establishment shall include inter ala furnishing of services other than included services as defined under Article 12 of the DTAA, through employe....
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.... as per terms given below at the discretion of department. 9. Ld. A.R. further read through the functioning of Trisonic Wind Tunnel system from the said agreement having technical specification of Tunnel system to define the scope of of work of the assessee company, Tata Projects Ltd. (EPC contractor) and Indian Space Research Organisation (client). Ld. Counsel drew out attention to the scope defined in the project under investigation wherein the assessee (AIOLOS) has been entrusted with preliminary engineering and detailed engineering for various items. 10. Ld. A.R. further relied on the definitions in article 12 of the Canadian Treaty, wherein at clause no. 4 the definition of fee for included services is explained, which contemplates for the purpose of article, that 'fee for included services' means payments of any kind to any person in consideration for the rendering of any technical or consultancy service (including through the provision of service of technical and other personal), if such services, are ancillary and subsidiary to the application or enjoyment of right, proprietary or information for which a payment described in paragraph 3 is received, or make available ....
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.... that a payment made be treated as royalty for the purpose of article XIII of DTA between India and UK. We decide that the design or model etc. must retain property in them and permit use or allow right to use such patent, design models for consideration. Whether the import of design and drawing postulates and out and out transfer for sale of such design or drawing and non-resident company did not retain any property in them, consideration bad for said transfer, could not be treated as royalty falling under Article XIII of DTA between India and U.K. 12. It is further submitted by Ld. A.R. that while the assessee company is only providing design services which is not in the nature of creating any right, copyright, copyright to be kept with the assessee for taking enduring advantages in the form of any consideration depending upon uses of such technology by the recipients the same cannot be treated as royalty within the meaning of Article 12(3) of Indo -Canada DTAA. The definition of royalty on fee for included services are reproduced from the Canadian treaty which are as under: 3. The term 'royalties' as used in this Article means: (a) payment of any kind receiv....
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.... of Indian-UK DTAA, as supply was contract specific and was not made available to Indian entity to be used in any other projects in future. It is submitted that the services of assessee, herein are also similar to services provided in the case relied upon in the case of Buro Hapold Ltd. (supra) therefore, the consideration received for such services cannot be taxed in India. 14. Per contra, the ld. D.R. vehemently relied on the decisions of ld. A.O./DRP and submitted to uphold the same. 15. We have considered the rival submissions, perused the material available on record and examined the case laws and decisions relied upon by the assessee. In order to examine and analyse the nature of the services rendered by the assessee, it is pertinent to note that, as explained by the Assessing Officer himself in the assessment order, the assessee had acted in the capacity of a sub-vendor along with Tata Projects Ltd. (TPL) and had entered into an agreement with Vikram Sarabhai Space Centre (VSSC), functioning under the Indian Space Research Organisation (ISRO), in relation to the construction of a state-of-the-art Trisonic Wind Tunnel (the project).For this purpose, TPL had entered into....
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....under this SCA-I shall mean Preliminary design Review of the documents such as Preliminary Equipment List, Block diagrams and process flow diagrams, Concept Drawings. (As per clause 2.9.1 of the Contract) ii. "CDR" - CDR under this SCA-I shall mean Critical design review of the documents such as Equipment Lists including manufacturer and model numbers, Process flow diagrams and detailed system block diagrams which shall include all selected devices, Release of RFP"s for long-lead items procurement (as per clause 2.9.2 of contract) iii. "FDR" - FDR under this SCA-I shall mean final design review of the documents such as Final drawings, specifications, follow up from the intermediate design review, bid packages (for procurement / tendering) for wind tunnel components, Release of completed packages according to the deliverable/milestone schedule developed early in Engineering Design after successful FDR, Detailed layout of the complex, location of tunnel system inside the building, location of all buildings and road layout, utilities, services etc positioned within in the available land area indicated and distances between buildings & pressure vessels and within vess....
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....ny technical knowledge, experience, skill, know-how or processes to TPL. Further, the services provided by the assessee do not involve the development and transfer of any technical plan or technical design capable of being used by the Indian entity, i.e., TPL, for any other project in future, as the designs provided by the assessee are specific to the project under consideration. Therefore, respectfully following the ratio of law emerging from the decision in the case of Buro Hapold Limited (supra), we find that the services provided by the assessee are neither in the nature of Fees for Technical Services (FTS) nor royalty, consequently, cannot be taxed in India either under the provisions of the Act or under Article 12 of the DTAA between India and Canada. Further, in the case of Buro Hapold Limited (supra), the relevant finding was that where the amounts received towards consultancy and engineering services were not in the nature of Fees for Technical Services, on the ground that there was nothing on record to establish that the benefit of "make available" was bestowed upon the Indian entity for use in its future projects, apart from the project for which the assessee had rendere....