2023 (8) TMI 499 - AT - Income Tax

Income taxable in India - Fees for Technical Services ( FTS ) and/or royalty - receipt from customers in India for rendering design services - India Singapore DTAA - HELD THAT - Considering all the material details and documents involving party-wise agreements sample emails reflecting the delivery of services, duration of project party-wise on sample basis etc. for evaluating the true nature of services rendered by the assessee and held that these services would not partake the character of FTS in terms of Article 12(4) of India- Singapore DTAA. The findings of the Ld. CIT(A) remain uncontroverted by the Revenue. We therefore, find no reason to interfere with the order of the Ld. CIT(A). As following the decision of Forum Homes (P.) Ltd. 2021 (10) TMI 356 - ITAT MUMBAI we are of the considered view that the payments received by the assessee in view of architectural design services rendered to its clients in India are not chargeable to tax as FTS in terms of Article 12(4) of the India-Singapore DTAA. Accordingly, we uphold the order of the Ld. CIT(A) on the impugned issue and dismiss ground No. 1 and 2 raised by the Revenue. Whether payments made to the assessee could also be not characterised as royalty under India-Singapore - DTAA? - CIT(A) has considered this issue in an exhausted manner and after considering the facts of the assessee s case in the light of the decisions in the case of Gera Developments P. Ltd. 2016 (8) TMI 1009 - ITAT PUNE and Devi Ashmore India Ltd. 1990 (12) TMI 51 - CALCUTTA HIGH COURT held that payments made to the assessee in consideration of architectural design services could not be classified as royalty under Article 12(3) of India- Singapore DTAA. Hence, we do not find any reason to interfere with the findings of the Ld. CIT(A) and accordingly dismiss ground No. 3 of the Revenue.

Summary

Issues Involved:
1. Taxability of payments received by the assessee as Fees for Technical Services (FTS) under Article 12(4) of the India-Singapore DTAA.
2. Taxability of payments received by the assessee as royalty under Article 12(3) of the India-Singapore DTAA.

Summary of Judgment:

Issue 1: Taxability as Fees for Technical Services (FTS)
The Revenue contended that the payments received by the assessee for rendering architectural design services should be taxed as FTS under Article 12(4) of the India-Singapore DTAA. The assessee argued that it merely creates designs and transfers them to customers without imparting any technical knowledge or skills that would enable the clients to apply the technology contained therein. The CIT(A) examined the issue in detail and concluded that the payments fall within the exclusion clause of Article 12(4)(c) of the India-Singapore DTAA, as the services do not enable the clients to apply the technology independently. The Tribunal upheld the CIT(A)'s findings, noting that the services provided were project-specific and did not involve the transfer of technical knowledge or skills that could be applied by the clients independently. Therefore, the payments were not chargeable to tax in India as FTS.

Issue 2: Taxability as Royalty
The Revenue alternatively argued that the payments should be taxed as royalty under Article 12(3) of the India-Singapore DTAA, claiming that the designs constituted intellectual property. The CIT(A) disagreed, stating that the contracts were for the development and conceptualization of unique designs specific to the client's projects, and the ownership of the designs was transferred to the clients. The CIT(A) referenced clauses from agreements with clients like L&T and S&P Foundation, which indicated that the ownership of the designs vested with the clients, and the designs were not to be used for other projects without prior approval. The Tribunal upheld the CIT(A)'s decision, noting that the payments could not be characterized as royalty since the designs were developed specifically for the clients and did not involve the transfer of the right to use existing intellectual property.

Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming that the payments received by the assessee for architectural design services were neither taxable as FTS nor as royalty under the India-Singapore DTAA. The order was pronounced in the open court on 10th July, 2023.