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2023 (7) TMI 850

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..... le 12(4)(b) of the India-USA DTAA as the same does not satisfy the make available clause envisaged therein. Accordingly, we allow the ground of appeal raised by the assessee in both the AYs.
Shri G.S. Pannu, Hon'ble President And Ms. Astha Chandra, Judicial Member For the Assessee : Shri Niraj Seth, Advocate And Ms. Bansi Patel, CA For the Department : Shri Sanjay Kumar, Sr. DR ORDER PER ASTHA CHANDRA, JM The appeals filed by the assessee are directed against the orders dated 11.10.2017 and 27.07.2018 of the Ld. Assessing Officer ("AO") passed under section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (the "Act") pertaining to Assessment Year ("AY") 2014-15 and AY 2015-16 respectively. Since the issue involved in both the appeals is common, the same were heard together and are being disposed of by this common order. 2. The assessee has raised the following grounds of appeal:- AY 2014-15 "1. The Assessing Officer ('AO')/Dispute Resolution Panel ('DRP') grossly erred in holding Rs. 4,67,60,000/- to be Fees for included services ('FIS') under Article 12(4)(b) of the India-US DTAA." AY 2015-16 "1. The Assessing Officer ('AO')/Dispute Resolution Panel ('DRP') grossl .....

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..... d for the first time before the Tribunal. Following the principle of law enunciated in the decisions (supra) we have admitted the additional ground taken by the assessee before us. 6. Briefly stated, the facts are that the assessee is a privately held multifaceted and multi-discipline firm headquartered in Princeton, New Jersey, USA. The firm provides design services for its clients all over the world including India. The assessee is a tax resident in USA. During AYs 2014-15 and 2015-16 the assessee provided certain specified services to one of its clients in India, AOP (formed by Turner Project Management India Pvt. Ltd., Meinhardt India Pvt. Ltd., Michael Graves & Associates Inc.) under an agreement executed on 19.08.2013. The assessee received Rs. 4,67,60,000/- in AY 2014-15 and Rs. 57,12,000/- in AY 2015-16 in consideration of rendering services to AOP. The scope of services contained in the agreement between the assessee and AOP is as under:- NO. ACTIVITY A. PRE-DESIGN PHASE / ADMISTRATION A.l Assist SVPRET in selecting Master Planner, upon request, and manage The Master Planner Consultant. A.4 Assist in the preparation of the Project Management Plan (PMP) A.7 .....

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..... for the reasons recorded by him in para 3.2 to 3.5 of his draft assessment order dated 26.12.2016 for AY 2014-15 and 07.12.2017 for AY 2015-16. For the sake of clarity, the findings of the Ld. AO are reproduced below:- "3.2 The assessee has also relied on the Memorandum of Understanding signed between government of India and U.S.A to elaborate on the ^make available clause, which is reproduced as below: "Attention is also invited to the Memorandum of Understanding signed between Government of India and United State of America wherein the concept of make available clause has been further elaborated. Relevant paragraphs as well as the example relevant to this matter are re-produced below: Article 12: Royalties and Fees for Included Services Paragraph 4(b): Paragraph 4(b) of Article 12 refers to technical or consultancy services that make available to the person acquiring the service technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design to such person. (For this purpose, the person acquiring the service shall be deemed to include an agent, nominee, or transferee of such person.) T .....

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..... scribed in paragraph 4(b), include: (1) engineering services (including the subcategories of bioengineering and aeronautical, agricultural, ceramics, chemical, civil, electrical, mechanical, metallurgical, and industrial engineering); (2) architectural services: and (3) computer software development." 3.4 The perusal of the agreement between the assessee and the AOP, clearly, shows that the assessee provides services in the form of drawings, designs, Master plans which are purely technical and architectural in nature. The agreement also mentions that the assessee has assisted in selecting the master planner, assisted in preparation of the project management plan (PMP), has also assisted in procurement phase by preparing documents participating in post tender meetings, and preparing architectural drawings and specification for EPC contract tender. These drawings, designs etc. cannot be made by a layman and requires specific technical knowledge and that is why they qualify as technical services. Further, these drawings and designs when passed on to the client for use by them in the specific project as agreed by the assessee and the client, may also be used in future by t .....

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..... vailable' clause as envisaged under Article 12(4)(b) of the India- USA DTAA. In rebuttal to the findings of the Ld. AO/DRP, the Ld. AR drew our attention to the scope of services provided under agreement between the assessee and the AOP and submitted that it is merely a conceptual design that is being provided by the assessee from USA and does not lead to transfer of any technical design/technology to AOP. There is no technical design contained within the drawings provided to AOP and that the technical designs are prepared by the EPC and not the assessee. The main job of the assessee was to provide architectural design and master plan for the entire project which was done from USA and hence the fee received for doing the work was not taxable in India in the absence of there being a Permanent Establishment ("PE") of the assessee in India. The Ld. AR relied on the decisions of the Mumbai Bench of the Tribunal in the case of DCIT vs. Forum Homes (P) Ltd. (2022) 192 ITD 184 (Mum. Trib.) and Pune Bench of the Tribunal in the case of Gera Developments P. Ltd. vs. DCIT (2016) 160 ITD 439 wherein the Tribunal on the similar fact pattern has held that the payment received in lieu of archite .....

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..... the assessee undertook to perform as consultant for supply of architectural designs and drawings which required the use of special knowledge, skill and expertise possessed by the assessee. The drawings and specifications were required to be developed and concluded by EPC contractor. The drawings and designs such concluded by EPC contractor were to be utilised by Sardar Vallabhbhai Patel Rashtriya Ekta Trust for the purposes of construction of "Statue of Liberty". Perusal of the agreement outlining the scope of services (referred to in para 6 above) supported by the invoices raised by the assessee on AOP (placed at pages 21 to 24 of the Paper Book) reveals that the services provided by the assessee were only with regard to master planning, preliminary concept design, review of bidding documents etc. for the project. By doing so, according to the Ld. AO/DRP the assessee rendered technical and architectural design services which made available the technology, skill, experience etc. to AOP and thus fell within the ambit of FIS under Article 12(4)(b) of the India-USA DTAA. 11. We have considered the detailed submissions of the assessee before the lower authorities. The case of the ass .....

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..... the assessee was only a concept not a design that could be executed. The EPC contractor designed the building the way they are going to be constructed including the aesthetic and the technical design. 13. The Revenue has raised an objection that the ownership of the drawings and designs etc. are passed on to the AOP. Hence the same could be utilised by the AOP for the purposes of its business in future. The relevant clause of the agreement on 'Ownership' reads as under:- "14.0 Ownership 14.1 Title to all written material, originated and prepared for the Consortium under this Agreement, shall belong to the Consortium. However, Subconsultant's working papers shall belong to Sub consultant. The Consortium shall have the right to refer and access to the working papers/Calculation Sheets of Sub-consultant to verify and recommendations made." 13.1 In our humble opinion, the Revenue has missed an important fact that the designs, drawings, lay-outs etc. provided to AOP by the assessee are project specific which are specifically made for the construction of "Statue of Liberty" and therefore even if the ownership of such drawings etc. are transferred to the AOP the same could not be ut .....

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..... the party Country Amount (Rs.) Nature of services 1. Arc Studio Architecture + Urbanism Pte Ltd Singapore 2,85,35,269/- Architectural drawing/ design in relation to BKC project. 2. Web Structures Pte Ltd Singapore 68,57,342/- GFC drawing / design in relation to BKC project 3. RMR Engineers Pte Ltd Singapore 12,24,464/- MEP drawing / design in relation to BKC project Total 3,66,17,075/- 10. Thus, as could be seen, the scope of work is limited to various types of drawings and designs for the residential project being developed at BKC. On further verification of facts on record, it is evident that insofar as Arc Studio Architecture + Urbanism Pte Ltd is concerned, it will provide an illustrative site/roof plan showing all the components of the project, general landscape, recommendation and overall infrastructure elements, such as, entry driveways and service circulation, Diagram showing each of the major public at 1:200 scale, image board to describe the architectural character of the project etc. The scope of work also requires the entity to prepare schematic design drawings, approved by the client, in case of minor adjustment. The terms of the agreement make it .....

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..... DTAA. The Tribunal held that mere passing of project specific architectural drawings and design with measurement did not amount to 'make available' technical knowledge, know-how or process and that the assessee has not transferred any technical expertise, skill or knowledge along with the drawing and designs of the particular building to the assessee. The relevant findings of the Tribunal are reproduced below:- "25. Further, the payments made by assessee do not fall within the scope of expression "fee for included services" as defined under Article 12(4) of the DTAA. There was no transfer of any technology or technical know-how, skill or process by Gensler. The AO in his order has categorically mentioned that the CD which was passed on to the assessee by Gensler contain drawings, designs and layouts of different buildings and facilities. It also contained the designs of interior buildings, walls, windows along with the measurements. The designs, drawings, layouts of buildings does not fall within the ambit of transfer of technical know-how or technical designs. Mere passing of project specific architectural drawings & designs with measurements does not amount to 'makin .....

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..... ownership on eth drawings, specifications and documents have not passed on to the assessee and are the property of Gensler; 28 The Bangalore Bench of the Tribunal in the case of Abishek Developers {supra) under similar circumstances where there was transfer of drawings and designs, held that it is not a case of rendering / technical services u/s. 9(l)(vii). In the said case the assessee was engaged in real estate development. The assessee entered into agreement with one of the overseas company based at Singapore for the development and transfer of designs & drawings in connection with real estate development. As per the agreement entire designs and drawings were transferred at Singapore. The entire work was carried outside India. The assessee/ made payment to overseas company without deducting any tax at source. The AO issued notice u/s. 201 of the Act on the premise that payments made by assessee to overseas company were 'fees for technical services and hence the income is chargeable to tax in India u/s. 9(l)(vii) of the Act. The assessee carried the matter appeal to CIT(A). The C1T(A) upheld the order of AO. The matter travelled to Tribunal. The Tribunal appreciating the fa .....

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