2019 (11) TMI 1552 - AT - Income Tax

Income accrued in India - PE In India - Taxability of Consulting Engineering Services - taxability of cost recharge which were stated to be ancillary and incidental to consulting engineering services - HELD THAT - Tribunal in assessee s own case for AY 2012-13 2019 (4) TMI 605 - ITAT MUMBAI held that the amount received by the assessee on account of consulting engineering services were to be treated as business profit and in the absence of assessee s PE in India, it could not be brought to tax. Consequently, the cost recharge which was considered to be ancillary and incidental to consulting engineering services, was also held to be not taxable in the absence of assessee s PE in India. However, in the year before us, the assessee has already offered the consulting engineering fees to tax which has been accepted by the revenue. Since we have admitted additional ground of appeal on this point, the issue of taxability of consulting engineering services would go back to Ld. AO for adjudication. Therefore, logically, the issue of taxability of cost recharge, which has been treated as ancillary and incidental to consulting engineering services, would also go back to Ld. AO for re-adjudication in the light of stand taken qua consulting engineering services. Therefore, we deem it fit to restore both the grounds to the file of Ld. AO for re-adjudication de-novo - Assessee appeal stands allowed for statistical purposes

Summary

Issues:
1. Taxability of amount received as common cost recharge as Royalty and Fees for technical services (FTS)
2. Taxability of consulting and engineering service fee under India-UK DTAA

Issue 1 - Taxability of amount received as common cost recharge:
The appeal contested the final assessment order for AY 2014-15 regarding the taxability of common cost recharge as royalty and FTS under India-UK DTAA. The appellant raised grounds related to cost allocation declaration and the entire cost allocation amount towards income for using the brand name. An additional ground of appeal was filed concerning the taxability of consulting and engineering service fees. The appellant argued that the issue was covered in their favor by a previous tribunal decision for AY 2012-13. The revenue authorities considered the cost recharge as royalty and FTS, leading to the dispute. The AO opined that the income was taxable under Section 9 of the Act and Article 13 of India-UK DTAA as royalty and fees for technical services. The DRP upheld this view, stating the services were subsidiary to the brand right application and hence taxable. The Tribunal decided to send both issues back to the AO for re-adjudication based on the previous decision and directed the appellant to substantiate their claim.

Issue 2 - Taxability of consulting and engineering service fee under India-UK DTAA:
The appellant, a non-resident entity providing engineering and consultancy services, was assessed for AY 2014-15. The dispute arose regarding the taxability of consulting and engineering service fees received. The appellant argued that these services did not make available technical knowledge or skill as per India-UK DTAA, hence not taxable. The AO considered the income taxable under Section 9 and Article 13 of the DTAA as royalty and fees for technical services. The DRP affirmed this view, stating the services were ancillary to the brand right application. The Tribunal, based on a previous decision for AY 2012-13, decided to send both issues back to the AO for re-adjudication, instructing the appellant to demonstrate the identical nature of facts between the two assessment years.

In conclusion, the Tribunal allowed the appeal for statistical purposes and directed the issues of taxability of common cost recharge and consulting and engineering service fees under India-UK DTAA to be re-adjudicated by the AO, considering the previous decision for AY 2012-13.