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TMI Blog2019 (4) TMI 605X X X X Extracts X X X X X X X X Extracts X X X X ..... whether the amount received towards consulting engineering services can be treated as fees for technical services under the India-United Kingdom (UK). Double Taxation Avoidance Agreement (DTAA). 4. Brief facts are, the assessee, a company, is registered in UK is a tax resident of UK. The assessee is basically involved in the business of providing engineering design and consultancy services. As a part of such services, the assessee provides structural and MEP (Mechanical, Electrical and Public Health) engineering for various buildings. For the assessment year under dispute, the assessee filed its return of income on 31st March 2014, declaring nil income. In course of assessment proceedings, the Assessing Officer after calling for necessary information and details and examining them found that in the previous year relevant to the assessment year under dispute the assessee has earned an amount of Rs. 1,09,03,039, from the provision of consulting engineering services to Buro Happold Engineers India Pvt. Ltd. (BHEI). Further, the assessee has also received an amount of Rs. 1,01,44,808, from BHEI as a cost recharge towards Head Office expenses. Being of the view that the aforesaid amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n / drawing and the provision of other services are ancillary to supply of designs and drawings. The Assessing Officer observed, as per Article-13(4)(c) of the India-UK tax treaty, payment received for development and transfer of a technical plan or technical design would be in the nature of fees for technical services, irrespective of the fact, whether it also makes available technical knowledge, experience, skill, knowhow, etc. Interpreting the provisions of Article-13(4)(c), the Assessing Officer observed that the words "make available" go with technical knowledge, experience, skill, knowhow, etc., but do not go with "the development and transfer of a technical plan or a technical design". He observed, the second limb of clause-(c) of Article-13(4) of India-U.K. tax treaty can be invoked when the amount is paid in consideration for rendering of any technical and consultancy services consisting of development and transfer of a technical plan or technical design. Thus, he held that the amount received of Rs. 1,09,03,039, being in the nature of fees for technical services under Article-13(4)(c) of the India-UK DTAA is taxable in India and levied tax @ 15% on the gross amount as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sites in India, the amount received towards such services is in the nature of fees for technical services under section 9(1)(vii) of the Act. Referring to Article-13 of the India-UK tax treaty, the learned Commissioner (Appeals) observed that provision of specific design and drawing for each project requires application of mind by various technicians having knowledge in the field of architectural, civil, electrical, electronic faculties and even making a specific project related drawing and design will amount to provision of architectural services. Further, overseeing its implementation and execution at site in India by technical personnel from London will amount to making available the technical services consisting of providing drawing and design would be fees for technical services both under section 9(1)(vii) of the Act as well as Article-13 of India-U.K. tax treaty. Thus, he held that the amount received towards consulting engineering services is in the nature of fees for technical services and taxable in India. As regards the amount received towards cost recharge, learned Commissioner (Appeals) agreed that such amount is ancillary and incidental to consulting engineering serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the Assessing Officer. The learned Authorised Representative submitted, even assuming but not admitting that the assessee had not produced any evidence towards apportionment / allocation of cost, in worst case scenario, the amount received towards cost recharge can be treated as business profit. However, in the absence of a PE in India such amount cannot be brought to tax. He submitted, the departmental authorities have not established that there is any element of provision of technical service in the cost recharge. Therefore, under no circumstances, it can be treated as fees for technical services. 10. The learned Departmental Representative orally as well as through written submission dated 20th November 2018, submitted that since the assessee has neither supplied any agreement with BHEI regarding consulting engineering services, an adverse inference has to be drawn against the assessee. He submitted, the assessee has also not disclosed the complete facts of its business model. In this context, he brought to our notice certain documents filed in the paper book to indicate that the same person has signed both on behalf of the assessee and BHEI. He submitted, as per the material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Article-13(4)(c) of the India-U.K. tax treaty. In this context, he heavily relied upon the observations of the first appellate authority. Further, in support of his contention, the learned Departmental Representative relied upon certain judicial precedents as mentioned in the written submissions. 11. As regards the amount received by the assessee towards cost recharge, the learned Departmental Representative submitted, the assessee has failed to lead any evidence to prove that services have actually been rendered for the cost recharge. Further, he submitted, the assessee failed to furnish any document to satisfy the need test. He submitted, no documentary evidence was furnished by the assessee to establish that BHEI had actually required such services. He submitted, no documentary evidences were also filed indicating the manner in which the services to be provided to BHEI were identified. He submitted, BHEI has no knowledge and say in finalization of names, qualifications of persons allegedly working for it. It has no say or control over the foreign company making the expenses. He submitted, the Indian company was incorporated on 15th February 2008, whereas, the cost sharing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Revenue. * The corresponding expenditure has been debited and claimed as common cost recharge by Buro Happold India which has been allowed by the Revenue in 143(3) assessment for A.Y. 2013-14 and 2014-15 whereas for A.Y. 2012-13 the same has been accepted by Revenue u/s. 143(1) of the Act. As undertaken during the course of the hearing, the assessee is enclosing the copies of scrutiny assessment order for A.Y. 2013-14 and 2014-15. (Exhibit 1& Exhibit 2) * In any case, non-furnishing of further evidence does not lead to the conclusion that the receipt is on account of rendering of engineering consultancy services. * Need test, evidence test and benefit test are relevant for the person incurring the expenditure not for recipient. 3. 4 * The expenditure against the title „unknown Barclay Card‟ represents expenditure through Barclay Credit Card. The word „unknown‟ is due to typographical error. * The Revenue has concluded in para 4.5 that the sum represents „markup‟ and not the cost. If this is correct, then only a markup can be considered for the purpose of taxation. In any case, the conclusion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orrelation between the amounts of consultancy/engineering services and cost recharge. * In subsequent years, the Assessing Officer has accepted that cost recharge is separate and not on account of consultancy and engineering services. It is submitted that this is the only year wherein the Assessing Officer has alleged that cost recharge is not separate but part of consultancy services. 5. 6 * The revenue has not brought any evidence on record to conclude that cost allocation receipts are part of consultancy engineering services. 6. 7 * This issue would arise if it is held that cost allocation receipt is not in nature of reimbursement but taxable as consultancy services. In any case, the same would not fall within the definition of Fees for Technical Services as per Article 12 of India UKDTAA. 7. 8 * It is submitted that the revenue has picked up certain clauses from the agreement to contend that the assessee is making available technical knowledge to the Indian company by providing certain services. It is submitted that if the agreement is read as a whole, it is evident that services provided under cost allocation agreement are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia for other projects. It is submitted that without bringing any positive evidence on record, it cannot be alleged that the services would be used by employees of Buro India in future especially when the services are not general but specific to a particular project. * Use of design and drawings is incidental to providing the consultancy services. * The revenue has relied merely on the payment schedule to conclude that the assessee is transferring the designs and drawings rather than looking at the scope of work mentioned in the agreement. * Assessee and Buro India work together on a project but on different aspects. In-fact Assessee is hired by Buro India to specifically work on certain specialised services (like master planning, Acoustics Engineering, Environmental engineering, etc) where Buro India does not have necessary skills. These are specialised services gained over years of working in this field by Assessee and the same cannot be transferred to Buro India merely because they are part of joint meetings with client or they are jointly working on a project. Further, as stated above, these are project specific services and cannot be used by Buro I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such provided to Buro India which is being used by it to render any future services * Shell India Markets Pvt Ltd (2012) 345 ITR 206 (AAR) In this case Shell India received advise and support from its group company in UK for business support services which were then implemented by Shell India. Also, employees of UK Company were working closely with the employees of Shell India and the know-how generated in the services was transferred to the India company as per the agreement. In the present case, Assessee is providing specialised services on a project to project basis and hence the same cannot result is transferring of knowledge. 14. We have considered rival submissions and perused material on record. We have also applied our mind to the decisions relied upon by both the parties. The core issue which needs to be addressed is, whether the amount received by the assessee towards supply of technical designs, drawings, plans, etc., under the consulting engineering services is to be treated as fees for technical services under the India-UK tax treaty. Once this issue is decided, the issue whether cost recharge is in the nature of fees for technical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the assessee under contract are project specific. 17. Keeping in view the aforesaid factual position, we need to examine the taxability of the amount received by the assessee under the India-UK tax treaty. As per Article-13 of the India-UK tax treaty, royalty and fees for technical services arising in a contracting State and paid to a resident of other contracting State may be taxed in that other State. However, such royalty and fees for technical services can also be taxed in the contracting State in which they arise subject to certain restrictions and conditions as enumerated in Article-13(2) of the India-UK tax treaty. Since, in the present appeal the departmental authorities have treated the amount received by the assessee as fees for technical services, we have to look to the meaning of fees for technical services under India-UK tax treaty. Article-13(4) of the India-U.K. tax treaty defines fees for technical services as under:- "4. For the purposes of paragraph 2 of this Article, and subject to paragraph 5, of this Article, the term "fees for technical services" means payments of any kind of any person in consideration for the rendering of any technical or consultanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... technical design" will take colour from "make available technical knowledge, experience, skill, knowhow or processes". 20. Having held so, now it is necessary to examine whether by supply of technical, designs, drawing, plans, the assessee has made available technical knowledge, experience, skill, knowhow or processes. As per the settled principle of law, technology is considered to have been made available when the recipient of such technology is competent and authorised to apply the technology contained therein independently as an owner without depending upon the service provider. The recipient of technology should be able to make use of technical knowledge, experience, skill, knowhow or processes by himself in his business or for his own benefit and without recourse to the service provider in future and for this purpose a transmission of the technical knowledge, experience, skill, knowhow or processes, from the service provider to the service recipient is necessary. In other words, the technical knowledge, experience, skill, knowhow or processes, must remain with the service recipient even after rendering of the services has come to an end. The service recipient must be at lib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ived within the meaning of fees for technical services under Article-13(4)(c) of the India-UK Tax Treaty. Therefore, in our considered opinion, the amount received by the assessee has to be treated as business profit and in the absence of a PE in India, it cannot be brought to tax in India. 21. Since, we have 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 te ..... X X X X Extracts X X X X X X X X Extracts X X X X
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