2021 (10) TMI 356 - AT - Income Tax

Income accrued in India - Rendering services to non-resident entities - Disallowances of consultancy fees and architect fees - non-resident entities have provided technical/consultancy services which enabled the assessee to apply them in its business - whether the payment made by the non-resident entities can be termed as FTS under Article 12(4) of India Singapore Tax Treaty? - whether not only the fees paid comes within the purview of FTS under section 9(1)(vii) of the Act, but also under Article 12(4) of the tax treaty as the services provided by the non residents made available technical knowledge, skill, know-how, process to the assessee to utilize in its business - HELD THAT - As from the nature of services provided by the non-resident entities and the terms and conditions under which it was provided, it is clear that whatever services were provided are project specific and cannot be used for any other project by the assessee. Further, while providing such services neither any technical knowledge, skill, etc is made available to the assessee for utilizing them in future, independently nor any developed drawing or design have been provided to the assessee which can be applied by the assessee independently. Thus, it is very much clear, the conditions of Article 12(4) of the tax treaty are not fulfilled. Though, the assessing officer has generally observed that in course of providing services to the assessee, the non-resident entities have made available technical knowledge, know-how, processes to the assessee. However, no substantive material has been brought on record by him to back such conclusion. Even, before us, learned departmental representative has not brought any material to demonstrate that conditions of Article 12(4) have been fulfilled in the facts of the present case. No valid reasons to interfere with the decision of learned Commissioner (Appeals). Accordingly, we uphold the order of learned Commissioner (Appeals) on the issue by dismissing ground raised.

Summary

Issues:
Disallowance of consultancy and architect fees under section 40(a)(i) of the Income Tax Act for alleged failure to deduct tax at source.

Analysis:

1. Issue 1 - Disallowance of Consultancy and Architect Fees:
- The appellant, a resident company in the real estate business, remitted an amount to non-resident entities in Singapore for consultancy and architect fees related to a residential project. The assessing officer disallowed the amount under section 40(a)(i) for not deducting tax at source, considering it as fees for technical services (FTS) under section 9(1)(vii) of the Income Tax Act. The appellant argued that the India-Singapore Double Taxation Avoidance Agreement (DTAA) applied, and the services did not qualify as FTS under the treaty.

2. Issue 2 - Applicability of FTS under DTAA:
- The Commissioner (Appeals) concluded that the fees did not qualify as FTS under the tax treaty as no technical knowledge enabling independent application was made available. The Departmental Representative contended that the services provided technical knowledge, skill, and know-how for the appellant's business, falling under FTS. However, the appellant argued that the services were project-specific and did not provide technical knowledge for independent use.

3. Decision and Analysis of the Tribunal:
- The Tribunal examined the nature of services provided by the non-resident entities and the terms of the agreements. It found that the services were project-specific and did not empower the appellant with technical knowledge for independent application. The Tribunal upheld the Commissioner (Appeals) decision, stating that the conditions of Article 12(4) of the tax treaty were not fulfilled. No substantive evidence was presented to support the claim that technical knowledge was made available. As a result, the Tribunal dismissed the appeal, upholding the decision of the Commissioner (Appeals) on the issue.

4. Conclusion:
- The Tribunal allowed the appeal to the extent indicated, emphasizing that the services provided by the non-resident entities did not qualify as fees for technical services under the India-Singapore Tax Treaty. The decision highlighted the importance of fulfilling the conditions outlined in the treaty for payments to be considered as FTS. The Tribunal's analysis focused on the specific nature of the services provided and their applicability under the tax treaty, ultimately leading to the dismissal of the appeal.