2022 (12) TMI 881 - AT - Income Tax

Income deemed to accrue or arise in India - Taxability of amount received for Consulting and Engineering services as Fees for technical services (FTS) - India-UK Double Taxation Avoidance Agreement - Management Fees Common Cost recharge - HELD THAT - As decided in own 2019 (4) TMI 605 - ITAT MUMBAI held the amount received towards consulting engineering services to be not in the nature of fees for technical services, the reasoning of the departmental authorities with regard to cost recharge would also fail, since, they have treated it as ancillary and incidental to consulting engineering services. The, contention of the learned Departmental Representative that the cost recharge fails various tests, such as, need test, benefit test etc. is unacceptable, it is contrary to the finding of the Departmental Authorities. Once, the Departmental Authorities have treated the amount received towards cost recharge to be in the nature fees for technical services, it implies rendering of service by the assessee. Therefore, applying the very same reason on the basis of which we have held the amount received towards consulting engineering services to be not in the nature of fees for technical services as discussed above, we hold that the amount received towards cost recharge cannot be brought to tax in India in the absence of PE. Therefore, the additions made by the Assessing Officer are hereby deleted. - Decided in favour of assessee.

Issues Involved:
1. Taxability of amount received for Consulting and Engineering services as Fees for Technical Services (FTS).
2. Taxability of amount received as management fees & common cost recharge as Royalty and Fees for Technical Services (FTS).
3. Erroneous rate of tax applied while computing tax payable.
4. Erroneous levy of consequential interest under section 234B.

Issue-wise Detailed Analysis:

1. Taxability of Amount Received for Consulting and Engineering Services as Fees for Technical Services (FTS):
The assessee, a UK-based company, received INR 15,18,250/- for consulting and engineering services from Buro Happold Engineers India Pvt Ltd (Buro India). The Assessing Officer (AO) considered this amount as Fees for Technical Services (FTS) under Article 13 of the India-UK Double Taxation Avoidance Agreement (DTAA). The assessee argued that these services did not make available any technical knowledge or skill and should be classified as Business Income under Article 7 of the DTAA, not taxable in India due to the absence of a Permanent Establishment (PE). The tribunal had previously ruled in favor of the assessee for AY 2012-13 on similar grounds. The AO, however, did not accept this decision, citing low tax effect as the reason for not appealing to the High Court. The tribunal reaffirmed its previous decision, stating that the services did not make available technical knowledge, thus not qualifying as FTS under the DTAA. Consequently, this income was not taxable in India in the absence of a PE.

2. Taxability of Amount Received as Management Fees & Common Cost Recharge as Royalty and Fees for Technical Services (FTS):
The assessee received INR 5,67,33,937/- as management fees and common cost recharge, which the AO treated as Royalty and FTS under Article 13 of the India-UK DTAA. The assessee contended that these were managerial services and did not make available any technical knowledge, skill, or process to Buro India. The AO argued that these payments were for the use of the trademark or brand name 'Buro Happold' and thus classified as Royalty under both the Act and the DTAA. Additionally, the AO considered these payments as FTS, taxable under Article 13 of the DTAA. The tribunal, referencing its decision for AY 2012-13, held that the services provided did not make available technical knowledge, skill, or processes to Buro India. Therefore, the amount received was treated as business profit and, in the absence of a PE, was not taxable in India.

3. Erroneous Rate of Tax Applied While Computing Tax Payable:
The assessee argued that the AO erroneously applied a tax rate of 15% under the India-UK DTAA instead of the beneficial rate of 10.92% under the Act. Since the tribunal ruled that the amounts received were not taxable in India, this issue became infructuous and was dismissed.

4. Erroneous Levy of Consequential Interest Under Section 234B:
The assessee challenged the levy of interest under Section 234B amounting to INR 32,32,988/-. The tribunal noted that this issue was consequential in nature and did not require specific adjudication.

Conclusion:
The tribunal allowed the appeal in part, ruling in favor of the assessee on the primary issues of taxability of consulting and engineering services and management fees & common cost recharge. The issue of the erroneous tax rate was dismissed as infructuous, and the challenge to the levy of interest under Section 234B was noted as consequential. The appeal was partly allowed, and the order was pronounced on 19/12/2022.

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