2010 (6) TMI 795 - AT - Income Tax

Summary

Issues involved: Whether the fee for design and engineering documentation received by the assessee company is taxable in India.

Summary:

Issue 1: Taxability of fee for design and engineering documentation

The appeal was against the order relating to the assessment year 1991-92, specifically on the taxability of the fee received by the assessee company for design and engineering services provided to establish a compressor house. The assessee claimed that the payment was not taxable under the Indian Income Tax Act as it was a transaction of sale of goods outside India. The AO and CIT (A) rejected this claim.

Issue 2: Offshore supply of goods

The Tribunal examined the clauses in the agreement between the assessee company and the purchaser, which indicated that the preparation and delivery of design and drawings were to take place in Japan. Citing the Supreme Court's decision in Ishikawajima Harima Heavy Industries Ltd. case, the Tribunal held that if all parts of the transaction occur outside India, the transaction cannot be taxed in India. As the design and engineering drawings were prepared and delivered in Japan, the transaction fell outside Indian taxation.

Issue 3: Nature of payment

The assessee argued that the payment for design and drawing constituted a plant and not a fee for technical services. They relied on Supreme Court decisions to support this argument. The Tribunal agreed with this view, stating that since the payment was for the outright purchase of design and engineering drawings, it did not fall under the definition of fee for technical services in the Income Tax Act.

Issue 4: Comparison with precedent

The Tribunal distinguished the present case from a previous decision of the Delhi ITAT Bench, where design and drawing charges were considered fee for technical services. In that case, it was held that the fee could be taxed in India if some part of the work originated from Indian territories. However, in the current case, since the preparation and delivery of the design and engineering drawings occurred outside India, the amount received by the assessee could not be subjected to tax in India.

In conclusion, the Tribunal allowed the appeal of the assessee, setting aside the order of the CIT (A) and directing the AO to delete the addition on the issue of taxability of the fee for design and engineering documentation.