2023 (4) TMI 679 - AT - Income Tax

Income deemed to accrue or arise in India - taxing the fabrication charges as Fees for Technical Services u/s 9(1)(vii) of IT Act and Article 12 of India-Singapore DTAA - Assessee stated it is an admitted fact that the assessee being tax resident in Singapore avails the benefit of Indo-Singapore DTAA and contends that it does not have a permanent establishment in India thereby stating that the fabrication charges is not liable to be taxed in India - HELD THAT - Tribunal has held that the charges received by the assessee for carrying out of re-fabrication of the bushings does not tantamount to make available of technical knowledge, experience, skill, know-how or process . The Tribunal has also held that as there is no transfer of technology involved in the said process, it cannot be taxed under Article 12 of the Indo-Singapore tax treaty. By respectfully following the said decisions in 2022 (7) TMI 1396 - ITAT MUMBAI we hereby allow the grounds raised by the assessee. A.O. is directed to grant credit for taxes paid by way of TDS for the fabrication charges received by the assessee. Appeal filed by the assessee is allowed.

Summary

Issues Involved:
1. Taxation of fabrication charges as "Fees for Technical Services" under the Income Tax Act, 1961 and DTAA between India and Singapore.
2. Non-granting of credit for taxes paid by way of TDS.

Summary:

Issue 1: Taxation of Fabrication Charges as "Fees for Technical Services"

The assessee, a company incorporated in Singapore and a tax resident there, challenged the assessment order which taxed fabrication charges amounting to Rs.18,96,94,367/- as "Fees for Technical Services" (FTS) under section 9(1)(vii) of the Income Tax Act, 1961 and Article 12 of the DTAA between India and Singapore. The assessee contended that the fabrication charges received were for a works contract/manufacturing contract and did not fall under the category of FTS, as the process did not involve making available technical knowledge, experience, skill, know-how, or process. The Assessing Officer (AO) and the Dispute Resolution Panel (DRP) held that the services were ancillary and subsidiary to the right to use patented alloys and technology, thus taxable as FTS.

The Tribunal, referencing its decisions in the assessee's case for previous years, held that the charges for re-fabrication of bushings do not amount to making available technical knowledge or process, as there is no transfer of technology. Thus, the fabrication charges do not fall under the purview of FTS as per Article 12 of the Indo-Singapore tax treaty. Consequently, the Tribunal deleted the addition made by the AO.

Issue 2: Non-Granting of Credit for Taxes Paid by Way of TDS

The assessee also challenged the non-granting of credit for taxes paid by way of TDS amounting to Rs.1,89,69,455/-. The Tribunal directed the AO to grant credit for the taxes paid by way of TDS for the fabrication charges received by the assessee.

Conclusion:

The appeal filed by the assessee was allowed. The Tribunal upheld that the fabrication charges are not taxable as "Fees for Technical Services" under the Indo-Singapore tax treaty and directed the AO to grant credit for the taxes paid by way of TDS.