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2016 (8) TMI 1009 - AT - Income TaxTDS u/s 195 - P.E. in India - Whether the payments made by the assessee in lieu of designs, drawings, plans made by Gensler is in the nature of royalty/fee for included services and thus the assessee was liable to deduct tax at the time of making such payments? - Held that - As from the facts and circumstances of the case and documents on record, we hold that the payment made by assessee to Gensler, USA are not in the nature of Royalty or Fee for Technical Services . No technical know-how was made available to the assessee so as to bring the payments made by assessee within the meaning of Fee for Included Services . The payments made by assessee to Gensler-USA were merely for project specific drawings & designs without transfer of technology or know-how or even title in drawing & designs. The impugned order is set aside and the appeal of the assessee is allowed.
Issues Involved:
1. Condonation of delay in filing appeals. 2. Nature of payments made to Gensler and taxability under the Income Tax Act and India-US DTAA. 3. Whether the payments qualify as "Fee for Technical Services" or "Royalty". 4. Determination of Permanent Establishment (PE) in India. 5. Application of Article 12(4)(b) of the India-US DTAA. Detailed Analysis: 1. Condonation of Delay in Filing Appeals: The assessee filed the appeals with a delay of 816 days due to initially filing a single appeal for two assessment years. The Tribunal condoned the delay, considering it bona fide and supported by the Supreme Court's precedent in Ram Nath Sao @ Ram Nath Sahu and Others, emphasizing that explanations for delay should generally be accepted unless negligence or inaction is evident. 2. Nature of Payments Made to Gensler and Taxability: The assessee engaged Gensler for architectural services for a commercial project. Payments of ?40,60,000 and ?2,37,48,685 were made without withholding tax. The Assessing Officer (AO) deemed these payments as "Fee for Technical Services/Royalty" under Section 201(1) and 201(1A) of the Income Tax Act, resulting in a demand for ?67,64,754. The CIT(A) upheld this view, categorizing the services under Section 9(1)(vii)(b) of the Act and Article 12(4)(b) of the India-US DTAA. 3. Whether Payments Qualify as "Fee for Technical Services" or "Royalty": The Tribunal analyzed whether the payments for designs and drawings constituted "Fee for Technical Services" or "Royalty." It concluded that the payments were not for the transfer of any technology, technical know-how, or copyrighted scientific work. The designs were project-specific and did not allow the assessee to commercially exploit them. Thus, the payments did not fall under the definitions of "Royalty" or "Fee for Included Services" as per Article 12 of the DTAA. 4. Determination of Permanent Establishment (PE) in India: The Tribunal noted that Gensler did not have a PE in India as its employees' total stay was only 5 days, far less than the 90-day threshold required under Article 5(2)(l)(i) of the DTAA. Therefore, Gensler's income could not be taxed in India under Article 7(1) of the DTAA. 5. Application of Article 12(4)(b) of the India-US DTAA: The Tribunal held that the payments did not qualify as "fees for included services" under Article 12(4)(b) because no technical knowledge, experience, skill, know-how, or process was made available to the assessee. The services provided were limited to project-specific drawings and designs without transferring any technology or know-how. Conclusion: The Tribunal allowed the appeals, setting aside the impugned orders. It concluded that the payments made by the assessee to Gensler were not taxable as "Fee for Technical Services" or "Royalty" under the Income Tax Act or the India-US DTAA. The payments were for specific project drawings and designs without any transfer of technology or know-how, and Gensler did not have a PE in India.
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