Owens Corning Inc. Vs DCIT (ITAT Mumbai)
ITAT Mumbai held that fabrication charges received from Associate Enterprise doesn’t fall under the purview of fees for technical services (FTS) and accordingly not taxable in India.
Facts- The assessee company is incorporated in Singapore and a group concern of Owens Corning Group of Companies, a leading manufacturer of glass. The assessee is engaged in the business of manufacturer and sale of glass fibers in India.
AO found that there are receipts on account of fabrication charges of Rs. 15,75,67,856/- from its Indian Associate Enterprises namely OCIPL as non-taxable. The assessee has claimed the income as exempted as the assessee has neither any Permanent Establishment (“PE”) in India as per Article 5 of India-Singapore Treaty nor any business connection in India. The Assessing Officer (AO) found in the earlier years, the income was treated as FTS and was taxed.
AO was not satisfied with the contentions of assessee and treated assessee’s receipts as FTS as per Article-12(4)(a) of the DTAA between India and Singapore. Consequently taxed the same u/s. 9(1)(vii) of the I.T. Act read with Article-12(4)(a) of the DTAA between India and Singapore and made addition of Rs.15,75,67,856/- and passed order u/s 143(3)r.w.s 144C of the Act dated 23.03.2022. Subsequently, against the draft assessment order passed by the AO, the assessee has filed objections in Form No .35A with the DRP. Whereas the DRP considered the findings of the AO, the DTAA between India and Singapore, objections and earlier years decisions and has rejected the contentions of the assessee and passed order u/s 144C(5) of the Act dated 28.11.2022. Subsequently, the AO has assessed the total income at Rs.15,75,67,860/-and passed the final assessment order u/s 143(3) r.w.s 144C(13) of the Act dated 21.12.2022. Aggrieved by the order of AO, the assessee has filed appeal before the Hon’ble Tribunal.
Conclusion- Held that the fabrication charges received by the assessee from its AE does not fall under the purview of fees for technical services and accordingly fallow the judicial precedence and direct the Assessing officer to delete the addition and we allow the grounds of appeal in favour of the assessee.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The assessee has filed the appeal against the order of Assessing Officer (“AO”) passed under section 143(3)r.w.s144C(13) of the Income Tax Act, 1961 (“the Act” ) in pursuance to the directions of Ld. Dispute Resolution Panel (“DRP”) u/s 144C(5) of the Act dated 28.11.2022.
2. The assessee has raised following grounds of appeal:-
1.0 “Re: Treating fabrication charges received as ‘fees for technical services’:
1.1 The Assessing Officer (AO)! Dispute Resolution Panel (DRP) has erred in taxing the fabrication charges received by the Appellant of Rs. 15,75,67,856 during the year under consideration by treating the same as ‘fees for technical services’ in terms of section 9(1)(vii) of the Income-tax Act, 1961 as well as Article 12 of the Double Taxation Avoidance Agreement entered between India and Singapore (“India-Singapore Tax Treaty”).
1.2 The Appellant submits that considering the facts and circumstances of the case and the law prevailing on the subject, the fabrication charges received by it are not ‘fees for technical services’ either under the Income-tax Act, 1961 or under the provisions of the India-Singapore Tax Treaty. The stand taken by the AO/DRP in this regard is erroneous, misconceived and not in accordance with the law.
1.3 The Appellant submits that the AO be directed to delete the addition of Rs. 15,75,67,856 so made and to re-compute its total income accordingly.
2.0 Re: Taxing income from fees for technical service at the rate specified under the Act:
2.1 Without prejudice, The AO erred in charging tax at the rate of 10% plus surcharge and health and education cess under section 11 5A of the Act on income from fees for technical services of Rs. 15,75,67,856. 2.2 The Appellant submits that considering the facts and circumstances of the case and the law prevailing on the subject, as per section 90(2) of the Act, the income from fees for technical services ought to have been taxed at the beneficial tax rate of 10% under Article 12 of India-Singapore Tax Treaty and the stand taken by the AO in this connection is misconceived, incorrect, erroneous and illegal.
2.3 The Appellant submits that the AO be directed to re-compute the tax liability accordingly.
3.0 Re: Levy of interest under section 234B of the Income-tax Act, 1961:
3.1 The AO has erred in levying interest under section 234B of the Income-tax Act, 1961.
3.2 The Appellant submits that considering the facts and circumstances of the case and the law prevailing on the subject, no interest under section 234B is leviable and the stand taken by the AO in this regard is misconceived, incorrect, erroneous and illegal.
3.3 The Appellant submits that the AO be directed to delete the interest under section 234B so levied on it and to re-compute its tax liability accordingly.
4.0. Re: General
4.1. The Appellant craves leave to add, alter, amend, substitute and/or modify in any manner whatsoever all or any of the foregoing grounds of appeal at or before the hearing of the appeal.”
3. The brief facts of the case are that the assessee company is incorporated in Singapore and a group concern of Owens Corning Group of Companies, a leading manufacturer of glass. The assessee is engaged in the business of manufacturer and sale of glass fibers in India. The assessee has filed return of income for Assessment Year (“AY”) 2020-21 on 16.10.2020 disclosing a total income of Rs.NIL. Subsequently, the case was selected for scrutiny under CASS and notice u/s 143(2) and 142(1) of the Act along with questionnaire was issued. In compliance of the notice, the assessee has filed the information/details through e-proceedings. The AO found that there are receipts on account of fabrication charges of Rs. 15,75,67,856/- from its Indian Associate Enterprises namely OCIPL as non-taxable. The assessee has claimed the income as exempted as the assessee has neither any Permanent Establishment (“PE”) in India as per Article 5 of India-Singapore Treaty nor any business connection in India. The Assessing Officer (AO) found in the earlier years, the income was treated as FTS and was taxed. The assessee has filed the details/information vide letter dated 07.03.2022 referred at Para 2.2 of the order. Whereas for the manufacturing process of glass fibres, the assessee uses “Bushings” made of precious metals such as platinum, and rhodium. The ‘Bushings’ are electrically heated crucibles containing numerous tiny holes (orifices) through which the molten glass is converted into very fine glass filaments at a very high speed and cooled simultaneously. Further due to the process involved, the orifices of the bushings get enlarged affecting the required diameter/texture of the filaments, thereby leading to glass leakage. The average life of the bushing is around 250 days approx. however premature failures are common in the manufacturing process/operation. Therefore the bushings are required to be furbished/fabricated periodically (ideally after 250 days).Hence Owens Corning India Pvt. Ltd (OCIPL) (hereinafter to be read as OCIPL) sends the bushings by air to ‘Owens Corning (Singapore) Pte Ltd for fabrication.
4. In the process of re-fabrication, the existing bushing is melted, additional alloy is added to the extent required to form altogether a new bushing of desired specification etc. Hence the bushings sent to OCIPL lose their individuality/originality or distinctiveness after every re fabrication. OC Singapore inter alia carries out the following processes in relation to the bushings received by it from OCIPL
