2025 (3) TMI 867 - AT - Income Tax

Income accrued in India or not - Treating fabrication charges received as fees for technical services - DTAA between India and Singapore - AO charged tax @ 10% on fees for technology services - HELD THAT - We find that the claim of fabrication charges is the recurring issue in the case of the assessee in the A.Y. 2015-16 to 2020-21 and the ITAT in all these years has decided the issue in favour of the assessee. During the course of appellate proceedings before us assessee has submitted the copies of orders of ITAT as discussed above wherein it is held that receipt towards fabrication of bushings cannot be treated as fees for technical services under Article 12(4)(a) of India-Singapore DTAA as no royalty as per Article 12(3) of India-Singapore DTAA was received by the assessee - Decided in favour of assessee.

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

1. Whether the fabrication charges received by the assessee should be classified as 'fees for technical services' under section 9(1)(vii) of the Income-tax Act, 1961, and Article 12 of the India-Singapore Tax Treaty.

2. Whether the tax rate applied to the income from fees for technical services, as per section 115A of the Income-tax Act, should be 10% plus surcharge and cess, or whether the beneficial tax rate under Article 12 of the India-Singapore Tax Treaty should apply.

3. The appropriateness of the levy of interest under sections 234A and 234B of the Income-tax Act, 1961.

ISSUE-WISE DETAILED ANALYSIS

1. Classification of Fabrication Charges as 'Fees for Technical Services'

Relevant Legal Framework and Precedents: The assessment hinges on the interpretation of section 9(1)(vii) of the Income-tax Act, 1961, and Article 12 of the India-Singapore Tax Treaty. The key question is whether the services rendered qualify as technical services, which would involve the transfer of technical knowledge or skill.

Court's Interpretation and Reasoning: The Tribunal considered that the fabrication charges were for refabrication/refurbishment of bushings and did not involve the transfer of any technical knowledge or technology to the payer. The Tribunal relied on previous ITAT decisions in the assessee's case for earlier assessment years, which held that such charges do not qualify as 'fees for technical services' under Article 12(4)(a) of the India-Singapore Tax Treaty.

Key Evidence and Findings: The assessee argued that no technical knowledge or technology was made available to the Indian entity, OCIPL, and the process involved was purely a manufacturing activity. The Tribunal noted that similar issues in earlier years were decided in favor of the assessee.

Application of Law to Facts: The Tribunal found that the fabrication process did not involve any transfer of technology or technical know-how, thus not meeting the criteria for 'fees for technical services' under the relevant treaty provisions.

Treatment of Competing Arguments: The Assessing Officer's view that the services were technical due to the involvement of Owens Corning Inc.'s technology was not accepted. The Tribunal emphasized that there was no transfer of technology to OCIPL.

Conclusions: The Tribunal concluded that the fabrication charges should not be classified as 'fees for technical services' and allowed the assessee's appeal on this ground.

2. Tax Rate on Income from Fees for Technical Services

Relevant Legal Framework and Precedents: The issue involves the interpretation of section 115A of the Income-tax Act and Article 12 of the India-Singapore Tax Treaty, particularly the application of the beneficial tax rate under section 90(2) of the Act.

Court's Interpretation and Reasoning: Since the Tribunal allowed the first ground, the question of applying a specific tax rate to 'fees for technical services' became academic and infructuous.

Conclusions: The Tribunal dismissed this ground as it became moot following the decision on the first issue.

3. Levy of Interest under Sections 234A and 234B

Relevant Legal Framework and Precedents: Sections 234A and 234B of the Income-tax Act pertain to the levy of interest for defaults in furnishing return of income and advance tax, respectively.

Court's Interpretation and Reasoning: The Tribunal noted that the issue of interest is consequential to the main issues and does not require separate adjudication.

Conclusions: The Tribunal dismissed this ground as it was consequential and did not require independent consideration.

SIGNIFICANT HOLDINGS

Core Principles Established: The Tribunal reaffirmed the principle that for income to be classified as 'fees for technical services' under the India-Singapore Tax Treaty, there must be a transfer of technical knowledge or technology. Mere manufacturing or refurbishment activities do not qualify as technical services.

Final Determinations on Each Issue: The Tribunal allowed the appeal concerning the classification of fabrication charges, rendering the tax rate issue moot, and dismissed the interest levy issue as consequential.

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