2023 (8) TMI 432 - AT - Income Tax

Income taxable in India - Treating fabrication charges received as 'fees for technical services - India and Singapore DTAA - HELD THAT - We find the facts in the present case, are similar and identical as discussed in in OWENS-CORNING (SINGAPORE) PTE. LTD. 2022 (12) TMI 1397 - ITAT MUMBAI and the fabrication charges received by the assessee from its AE does not fall under the purview of fees for technical services and accordingly follow the judicial precedence and direct the Assessing officer to delete the addition and we allow the grounds of appeal in favour of the assessee.

Summary

Issues Involved:
1. Treating fabrication charges received as 'fees for technical services'.
2. Taxing income from fees for technical service at the rate specified under the Act.
3. Levy of interest u/s 234B of the Income-tax Act, 1961.
4. General grounds for appeal.

Issue-wise Comprehensive Details of the Judgment:

1. Treating Fabrication Charges Received as 'Fees for Technical Services':
The assessee contested the AO's and DRP's classification of Rs. 15,75,67,856 received as fabrication charges as 'fees for technical services' (FTS) u/s 9(1)(vii) of the Income-tax Act, 1961 and Article 12 of the India-Singapore Tax Treaty. The assessee argued that these charges do not qualify as FTS under either the Act or the Treaty, as they do not involve any right, property, or information transfer. The Tribunal found that the fabrication charges do not fall under FTS as per the judicial precedents in the assessee's own cases for earlier years (ITA Nos. 6529/Mum/2018 and 460/Mum/2022), and directed the AO to delete the addition.

2. Taxing Income from Fees for Technical Service at the Rate Specified Under the Act:
The AO taxed the FTS income at 10% plus surcharge and cess u/s 115A of the Act. The assessee argued that, per section 90(2) of the Act and Article 12 of the India-Singapore Tax Treaty, the rate should be 10%. Given the Tribunal's decision that the fabrication charges do not qualify as FTS, this issue became academic and infructuous.

3. Levy of Interest u/s 234B of the Income-tax Act, 1961:
The AO levied interest u/s 234B, which the assessee contested as misconceived and erroneous. The Tribunal's finding that the fabrication charges are not taxable as FTS rendered this issue academic and infructuous.

4. General:
The Tribunal allowed the appeal, directing the AO to delete the addition and re-compute the tax liability accordingly. The appeal was decided in favor of the assessee, aligning with previous judicial decisions.

Conclusion:
The Tribunal concluded that the fabrication charges received by the assessee do not qualify as 'fees for technical services' and directed the AO to delete the addition of Rs. 15,75,67,856. Consequently, issues related to the tax rate and interest u/s 234B became academic and were dismissed as infructuous. The appeal was allowed in favor of the assessee.