Buro Happold Limited Vs DCIT (ITAT Mumbai)
ITAT Mumbai held that mere passing off project specific architectural, drawings and designs with measurements does not amount to making available technical knowledge, experience, skill, knowhow or processes. Accordingly, cannot be brought to tax as ‘Fee for Technical Services’.
Facts- The assessee is a company registered in the United Kingdom and was a tax resident of that State. The assessee is an international, integrated engineering and consultancy company. The assessee is engaged in the business of providing structural and MEP (Mechanical, Electrical and Public Healthy) Engineering and consultation services for various buildings and projects in India. During the year under consideration assessee receive various amounts from India.
AO observed that amount of Rs. 15,18,250/- received by the assessee towards consulting engineering services is in the nature of Fee for Technical Services (FTS) and brought to tax the same as per Article 13(2)(a)(ii) of the India UK DTAA in the hands of the assessee.
AO also concluded that payment received under the head ‘cost recharge’ is royalty as per Act and as per India UK DTAA. Therefore, the amount of Rs 5,67,33,937/- received by the assessee under the head ‘Cost Recharge’ was treated by the ld. AO as Royalty u/s 9(1)(vi) of the Act as well as under Article 13 of India UK DTAA.
DRP upheld the action of AO. Being aggrieved, the present appeal is filed.
Conclusion- We find that the issue in dispute is squarely covered in favour of the assessee by the order of this tribunal in AY 2012-13 in ITA No. 1296/Mum/2017 dated 15/02/2019 wherein it was held that mere passing off project specific architectural, drawings and designs with measurements does not amount to making available technical knowledge, experience, skill, knowhow or processes. In any case of the matter, the Department has failed to establish on record that through development and supply of technical designs / drawings / plans the assessee has made available technical knowledge, experience, skill, knowhow or processes to the service recipient so as to bring the amount received 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.
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.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal in ITA No. 1690/Mum/2022 for A.Y.2019-20 preferred by the order against the final assessment order passed by the Assessing Officer u/s.143(3) r.w.s. 144C(13) of the Income Tax Act, hereinafter referred to as Act, pursuant to the directions of the ld. Dispute Resolution Panel-III, Mumbai (DRP in short) u/s.144C(5) of the Act dated 30/03/2022 for the A.Y.2019-20.
2. The assessee has raised the following grounds of appeal before us:-
Ground No. I- Taxability of amount received for Consulting and Engineering services as Fees for technical services (FTS)
1.1. On the facts and in the circumstances of the case and in law the learned DRP (Dispute Resolution Panel) and DCIT have erred in considering income from consulting and engineering services amounting to INR 15 18 250/- as Fees for technical services (FTS) as per Article 13 of India-UK Double Taxation Avoidance Agreement (DTAA)
2. Ground No. II- Taxability of amount received as management foos & common cont recharge as Royalty and Fees for technical services (FTS)
2.1 On the facts and in the circumstances of the case and in law, the leamed DRP (Dispute Resolution Panel) and DCIT have erred in considering management fees & common cost recharge amounting to INR 5,67 33.937/- as Royalty and Fees for technical services (FTS) as per Article 13 of India-UK Double Taxation Avoidance Agreement (DTAA)
3. Ground No. III-Erroneous rate of tax applied while computing tax payable
3.1.Without prejudice to the above grounds on facts and circumstances of the case and in law, the learned DCIT has erroneously applied a tax rate of 15% as per India-UK DTAA instead of applying a beneficial rate of 10 92% under the Act while computing the amount of tax payable by the Appellant.
4. Ground No. IV-Erroneous levy of consequential interest under section 234B.
4.1. On facts and circumstances of the case and in law, the learned DCIT has erred in levying consequential interest under Section 234B of the Act amounting to INR 32,32,988/-
The appellant craves leave to add alter amend modify or amplify any of the above stated Grounds of Appeal
3. We have heard the rival submissions and perused the materials available on record. The assessee is a company registered in the United Kingdom and is a tax resident of that State. The assessee is an international, integrated engineering and consultancy company. The assessee is engaged in the business of providing structural and MEP (Mechanical, Electrical and Public Healthy) Engineering and consultation services for various buildings & projects in India. During the year under consideration, the assessee has received amounts from India from the following streams:-
a) Consulting Engineering Services – Rs 15,18,250/-
This amount is received from Buro Happold Engineers India Pvt Ltd (Buro India). The assessee provides structural and MEP engineering and consultancy services for various buildings and projects in India to Buro India and other clients. Buro India enters into agreements with various Indian clients for design and consultancy services in relation to various projects. Typically, Buro India renders designing and engineering services to its client. However, wherever it does not have the requisite expertise or requires highly specialized services like master planning, Acoustics Engineering, Environmental Engineering etc, then the said services are availed from the assessee company. Since these are specialized services and Buro India is not in a position to provide these services independently, hence on a year on year basis, they avail services from the assessee to different projects / buildings. Typically, for each of the project of Buro India, it enters into a specific agreement with assessee, based on the services required. It was submitted that services provided by assessee to Buro India does not make available any technical knowledge or skill etc and accordingly the services would not qualify as fees for technical services under the India-UK Tax Treaty (DTAA in short) and the same should be characterized as Business Income falling under Article 7 of the DTAA. Such business income shall not be taxable in India in the absence of Permanent Establishment (PE) of the assessee in India. The assessee also submitted that similar issue was decided in assessee’s favour for the AY 2012-13 by this tribunal.
The ld. AO observed that the decision of this tribunal in AY 2012-13 has not been accepted by the revenue and an appeal against the same could not be preferred before the Hon’ble High Court due to low tax effect. Accordingly, the ld. AO observed that the amount of Rs 15,18,250/-received by the assessee is in the nature of Fee for Technical Services (FTS) and brought to tax the same as per Article 13(2)(a)(ii) of the India UK DTAA in the hands of the assessee.
b) Management Fees & Common Cost recharge – Rs 5,67,33,937/-
This is the amount charged to Buro India towards various costs incurred. The same has not been offered to tax by the assessee on the contention that these being management cost recharges does not make available any knowledge, skill, process, know-how and experience to Buro India as per the terms of the India UK DTAA. The assessee made the following submissions before the ld. AO :-
The Assessee has incurred certain common expenses in relation to Information Technology Business Development, Finance, Human Resource Management etc. for the Buro Group entities and the cost for the same is charged to various Buro Group entities based on a predetermined cost allocation/apportionment key (including Buro India) along with 5% mark- up. The sample copies of the invoices pertaining to cost recharge raised by the assessee during the year is attached for your reference
The broad functions performed by the assessee for the Buro group (including Buro India) includes following
