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TMI Blog2023 (8) TMI 499X X X X Extracts X X X X X X X X Extracts X X X X ..... cle 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. - Shri G.S. Pannu, Hon ble President And Ms. Astha Chandra, Judicial Member For the Assessee : Shri Deepak Chopra, Advocate And Ms. Rashi Khanna, Advocate For the Department : Shri Vizay Vasanta, CIT- DR ORDER PER ASTHA CHANDRA, JM The appeal filed by the Revenue is directed against the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sign services should not be taxed as Fees for Technical Services ( FTS ) and/or royalty in terms of Article 12 of the Double Taxation Avoidance Agreement between India and Singapore ( India-Singapore DTAA ). In response thereto, as regards taxability of such payments as FTS, the assessee submitted that it merely creates designs and transfers them to the customers and does not impart any technical knowledge or science or training or skill or experience in the field of architecture so as to enable the clients to apply the technology contained therein by themselves. And hence the payments received by the assessee from its customers in India are not taxable as FTS under Article 12(4) of the India-Singapore DTAA. 3.2 As regards taxability of the payments received by the assessee as royalty on alternate basis by the Ld. Assessing Officer ( AO ) the assessee submitted that it is engaged in creation and development of architectural designs as per the requirements of its clients in relation to its projects. The payments relate only to the services rendered in designing and developing the architectural designs which are unique to the requirements of the client and their projects. It was f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itectural design services does not qualify as FTS. Further, relying on the decision of the Pune Bench of the Tribunal in the case of Gera Developments P. Ltd. vs. DCIT (2016) 160 ITD 439 and decision of the Calcutta High Court in CIT vs. Davy Ashmore India Ltd. (1990) 190 ITR 626 submitted that the impugned payments received by the assessee could not be characterised as royalty in terms of Article 12(3) of the India-Singapore DTAA. 7. We have heard the Ld. Representative of the parties and perused the material on record. With respect to ground No. 1 and 2, the Ld. CIT(A) has recorded his detailed findings in paras 6.2 6.33 of his appellate order concluding that the payments received by the assessee fall within the purview of exclusion clause embedded in Article 12(4)(c) of the India- Singapore DTAA which provides for exclusion of service that does not enable the person acquiring the service to apply the technology contained therein. Therefore, these payments are not chargeable to tax in India as FTS. The key findings of the Ld. CIT(A) are summarised as under:- i) The Ld. CIT(A) called for additional details and documents, such as, party-wise revenue, party-wise agreements, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person acquiring them to apply the technology contained therein are excluded from the ambit of Fees for Technical Services . ix) That there is a distinction between imparting conclusions vis-a-vis imparting Knowledge and it is important to distinguish the same to decide a case of make available . x) Lastly, the instant case deals with imparting of conclusion in the form of architectural plans and designs and therefore, in view of restricted definition of FTS under the treaty, these services/ payments would not partake the character of Fees for Technical services in terms of Article 12 of the India-Singapore DTAA. 7.1 It is an undisputed fact that the assessee is a tax resident of Singapore and does not have a permanent establishment in India. Hence it has opted to be governed by the provisions of the India-Singapore DTAA being more beneficial to it. 8. Article 12(4) of India-Singapore DTAA reads as under:- Article 12 Royalties And Fees For Technical Services 4. The term fees for technical services as used in this Article means payments of any kind to any person in consideration for services of a managerial, technical or consultancy nature (includi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... designing services. 9.2 In the case of Forum Homes (P) Ltd. (supra) the Mumbai Bench of the Tribunal analysed the applicability of Article 12(4) of the India-Singapore DTAA involving similar issue on similar fact pattern as that of the assessee. In this case, the assessee, a resident company was developing a residential project in India and had availed architectural services from three non resident entities located at Singapore and paid fees to these non resident entities in consideration thereof. The Tribunal held that conditions of Article 12(4) of the India-Singapore DTAA were not fulfilled and the said fee could not be qualified as FTS since while providing architectural services neither any technical knowledge, skill, experience, know-how etc. was made available for utilising them in future independently nor any developed drawing or design have been provided to the assessee which could be applied by the assessee independently. The relevant observations and findings of the Tribunal is reproduced below:- 9. A reading of article 12(4) of the tax treaty would make it clear that payment made to a resident of one of the contracting state can be regarded as FTS, if, in course ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abase and spreadsheets and other derivation that are part of the ITA 5804/Mum/2018 project will remain the intellectual property of the service provider and are intended for use solely with respect to the project. It further restrains the assessee from utilizing such intellectual property for any other project or for addition to the subject project or for completion of the project by any other entity. Similar is the scope of work and terms and conditions in respect of Web Structures Pte Ltd, another non-resident entity. 11. Thus, from the nature of services provided by the non-resident entities and the terms and conditions under which it was provided, it is clear that whatever services were provided are project specific and cannot be used for any other project by the assessee. Further, while providing such services neither any technical knowledge, skill, etc is made available to the assessee for utilizing them in future, independently nor any developed drawing or design have been provided to the assessee which can be applied by the assessee independently. Thus, it is very much clear, the conditions of article 12(4) of the tax treaty are not fulfilled. 12. Though, the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and held that these payments could not be characterised as royalty in terms of Article 12(3) of India-Singapore DTAA for the reason that the assessee does not retain the designs and the ownership of the design gets transferred to the client and that the contracts entered by the assessee with the clients are for development / conceptualisation of the designs and not for transfer of mere right to use of an existing design. For the sake of clarity, the observations and findings of the Ld. CIT(A) in para 7.2 to 7.15 of his appellate order are reproduced hereunder: 7.2 I have gone through the facts of the case, appellant submission and assessment order of the AO. The relevant facts of the case are that the appellant company is engaged in creation and development of architectural designs as per the specific requirements of its clients in relation to its projects. The payments relate only to the services rendered in designing and developing the architectural designs which are unique to the requirements of the customers and their projects. Therefore, the appellant contended that the revenues earned by the Appellant cannot be termed as Royalty in accordance with Article 12 of the In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that Article 12(4) of India- Singapore DTAA is a specific clause dealing with FTS and therefore, if the nature of payments is specifically excluded by virtue of a narrower j scope, the AO cannot seek to bring the same under an alternate definition of Royalty I contained under Article 12(3) of India-Singapore DTAA. The appellant averred that it is a cardinal principal of law that specific provisions override the general provision. The appellant contended that the question whether a payment under an agreement is Royalty or FTS, must be decided strictly in accordance with the provisions of the Articles, based on the facts and circumstances of the case and the terms of the agreement. 7.7 The Appellant made reference to the various terms of the Service Agreement between M/s S P Foundation Limited and the Appellant which has been referred to by the Learned AO. The appellant highlighted following points based on a holistic reading of the terms of Service Agreement: the customer has engaged the Appellant as a consultant to undertake Master Planning Architectural Design Consultancy Services for a specific project. The Appellant has the obligation and responsibilities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ually performing any additional work, the payment received by that owner in consideration for granting the right to such use of the plans would constitute royalties 7.11 It may be relevant to take note of the relevant clauses of the agreement entered into with the clients to appreciate the correct position regarding transfer of copyright and ownership of the intellectual property. The clause ownership of documents copyright as per agreement with L T reads as under:- After the completion of the project or the termination of the design consultant s employment, copyright in all documents, drawings, reports and specifications prepared by the Design consultant (soft copies as well as editable versions including ACAD, REV IT, 3DS Max, MAYA, Wire meshes/ Sketch-ups etc.) in any works executed from those documents shall remain the property of the Client whether the works for which they have been prepared are executed or not. However, the Drawings, specifications, Electronic Data, renderings, fly-throughs, sketches and other documents prepared by the Design consultant for this project are deliverables for use solely with respect to this Project only. The Design Consultant is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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