AAR Ruling: Architectural services provided by a limited partnership is liable to tax as “fees for technical / included services” as per the provisions of India- US Double Taxation Avoidance Agreement [HMS Real Estate Pvt. Ltd. (A.A.R. No. 832 of 2009)].
Facts:
HMS Real Estate Pvt. Ltd. (applicant) is an Indian company engaged in the business of development and management of commercial real estate. The applicant proposed to construct an international quality commercial office/ hotel complex in Gurgaon. For this purpose, the applicant has entered into an agreement with Hellmuth, Obata + Kassabaum L.P. (HOK), a limited partnership, which is a resident of USA, for provision of Architectural Design Services. Pursuant to the said agreement, M/s RSP Architects Planners and Engineers Pvt. Ltd. (RSP) have been appointed as an associate architect. HOK and RSP are to work jointly and on a co-operative basis in order to perform the entire design, construction documents and construction administration for the Project. Each of them would be responsible for their share of work but jointly responsible for providing the entire design, construction documents and construction administration services necessary to complete the Project.
The scope of work under the agreement can be summarised as follows:
a) Development of program and master plan concept Design;
b) Development of Schematic design concepts;
c) Preparation of Design Development drawings;
d) Coordination and drawing review of documents;
e) Assisting the owner in bidding and contractor selection process;
f) Observing construction progress;
g) Review of cost saving and alternative proposals; and
h) Additional services as may be required.
In respect of the above items of work, HOK will be compensated a fixed fee (net of taxes) as per the terms of the agreement on raising of the monthly invoices and the fees will be received by HOK in USA. Item nos. (a) to (c) above broadly fall under the first stage lead to finalisation of designs and drawings. Item no. (d) falls under the second stage which relates to construction documents and item nos. (e) to (g) above fall under the third stage i.e. technical consultancy and supervisory services. The compensation for each of the above stages has been separately identified in the Agreement. It is conceded by the applicant that payment received for the services rendered in the third stage i.e. during the construction are liable to be taxed as ‘fees for technical services’ (FTS). In addition to this compensation, a further amount is payable at various stages which is by way of reimbursement of compensation payable to the consultants in USA.
The services except the construction administration are to be performed outside India. The designs and drawings are transferred electronically to the applicant and the ownership including the copyrights of the drawings and designs vests in the applicant. Development of designs will be carried out by means of by-weekly tele-conferencing and video-conferencing. For the purpose of developing the designs, HOK will engage specialist consultant outside India. After the delivery of designs, the preparation of detailed construction documents will take place in India by the Indian Architects in consultation with HOK. HOK will provide advisory for preparation of construction documents. Employees of HOK have come to India for a maximum period of 50 days for providing supervisory services.
The schematic design and design development work has already been completed. Question before the Authority for Advance Rulings (AAR):
