Case Law Details
Owens Corning (Singapore) Pvt. Ltd. Vs DCIT (ITAT Mumbai)
ITAT Mumbai held that charges received for carrying out of re-fabrication of bushing doesn’t tantamount to ‘make available of technical knowledge, experience, skill, know-how or process’ and hence cannot be taxed under Article 12 of Indo-Singapore tax treaty.
Facts- The assesssee is a company incorporated in Singapore and a group concern of Owens Corning Group of Company, which is a leading manufacturers of glass. The assessee is a tax resident of Singapore and has Associated Enterprises (AEs) namely Owens Corning India Pvt. Ltd. (“OCIPL”) and Owens Corning Industries India Pvt. Ltd. (“OCIIPL”) as AEs engaged in manufacturing of glass fibres in India. The assessee files its return of income dated 28.11.2019 declaring total income at Nil. The assessee’s case was selected for scrutiny and assessment order dated 29.06.2020 was passed by making an addition of the impugned amount of Rs. 18,96,94,367/- towards providing bushing and fabrication service to OCIPL pursuant to the direction of learned DRP. The assessee is in appeal before us challenging the impugned addition.
Conclusion- As this issue is recurring in nature and has been dealt with extensively by the Tribunal, it is necessary to rely on the said decisions which has held that the fabrication charges is not in the nature of ‘fee for technical services’.
Held that the Tribunal has held that the charges received by the assessee for carrying out of re-fabrication of the bushings does not tantamount to “make available of technical knowledge, experience, skill, know-how or process”. The Tribunal has also held that as there is no transfer of technology involved in the said process, it cannot be taxed under Article 12 of the IndoSingapore tax treaty.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal has been filed by the Assessee challenging the Assessment Order passed pursuant to the direction of the learned Dispute Resolution Panel (DRP) relevant to assessment year 2019-20.
2. The assessee has challenged the grounds of taxing the fabrication charges amounting to Rs. 18,96,94,367/- as “Fees for Technical Services” u/s 9(1)(vii) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) and Article 12 of Double Taxation Avoidance Agreement (DTAA) between India and Singapore.
3. The assessee has also challenged the Non-Granting credit for taxes paid by way of TDS of Rs. 1,89,69,455/- along with other consequent grounds.
4. The brief facts are that the assesssee is a company incorporated in Singapore and a group concern of Owens Corning Group of Company, which is a leading manufacturers of glass. The assessee is a tax resident of Singapore and has Associated Enterprises (AEs) namely Owens Corning India Pvt. Ltd. (“OCIPL”) and Owens Corning Industries India Pvt. Ltd. (“OCIIPL”) as AEs engaged in manufacturing of glass fibres in India. The assessee files its return of income dated 28.11.2019 declaring total income at Nil. The assessee’s case was selected for scrutiny and assessment order dated 29.06.2020 was passed by making an addition of the impugned amount of Rs. 18,96,94,367/- towards providing bushing and fabrication service to OCIPL pursuant to the direction of learned DRP. The assessee is in appeal before us challenging the impugned addition.
5. It is observed that for the purpose of manufacturing of glass fibres, OCIPL uses bushings made of precious metals such as platinum and rhodium. While undergoing this process, the bushings go through a high temperature wherein the average life of the bushings reduces to 250 days approximately. Hence, these bushings are required to be furbished or fabricated after the said time. This re-fabrication is done by the assessee company by adding additional alloys, i.e., platinum and rodium which is procured from Owens Corning Inc., USA (‘OC Inc.’ for short). The assessee has submitted that the OCIPL does not make any payment to the assessee for including additional alloy required for re-fabrication of the bushings and it also contended that the agreement was only between OC Inc and OCIPL and not with the assessee. The assessee contended that the fabrication charges received by the assessee was towards the works contract/manufacturing contract which will not fall under the category of ‘Fees for Technical Services’ (FTS) as per provisions of section 9(1)(vii) of the Act and hence, the same was not liable to be taxed in India. The assessee further contended that on receiving the bushings from OCIPL, the assessee carries out the fabrication process at its plant for which fabrication charges are charged. The assessee further stated that this process of fabrication does not require technical knowledge, experience, skill, know-how or process which is “made available” by the assessee to OCIPL. The additional alloy required for re-fabrication is owned by Owens Corning Inc (OC Inc) which is supplied to the assessee when required. The Assessing Officer (AO) was not convinced with the submissions made by the assessee for the reason that the assessee was receiving alloys from OC Inc in the form of ingots, powders etc. and the said processes are patented by OC Inc., since the bushings are refabricated only by the use of the said patented alloys by the group company and also for the reason that the assessee has not signed any agreement with OC Inc for the said procurement of alloys nor does it have any agreement with OCIPL for re-fabrication services rendered to OCIPL. The A.O. also observed that OCIPL was not paying any Royalty to OC Inc or to the assessee for the alloys or for the fabrication services. The AO held that OCIPL has “made available” the right to use the patented alloys and the technology of re-fabrication. The AO has also contended that OCIPL sends the bushings to the assessee’s company instead of the OC Inc with which it has a direct agreement and that the assessee has failed to substantiate the fact that it does not have any agreement with OC Inc. The AO considered this as a colourable device for evading tax and has held the receipts received by the assessee as ‘Fees for Technical Services’ instead of manufacturing contract/works contract. The learned DRP has also concluded that the said services are ancillary and subsidiary to the right to use the patented alloys and the technology involved for re-fabrication as per the “Technology License Agreement” entered into between OC NL Invest Cooperative U.A. (Licensors) and Owens Corning (India) Pvt. Ltd. dated 27.01 .2011 as per which non-transferable license to make, use and sell glass products in the Glass Melting Furnace under the License Patents, Licensor Know-how and Improvements to the Indian AE was granted by the said agreement. The learned DRP further held that the assessee has failed to produce any invoices issued by the AEs for “Alloy Services” rendered for fabrication of bushings as per Sub-clause 2 of Clause H of Article VI pertaining to “Technical Services” of the DTAA. The learned DRP rejected the objection raised by the assessee.
6. The learned Authorised Representative (AR) stated that the Co-ordinate Bench in assessee’s case for AYs 20 12-13, 20 16-17 and 2017-18 in ITA No.2049/MUM/2016 and AYs 2015-16 and 2018-19 in ITA No.6529/MUM/2018 and ITA 460/MUM/2020 has dealt with this issue pertaining to the fabrication charges received by the assessee from its AEs. The learned AR further stated that the Tribunal has held that the said receipt does not fall under the purview of ‘fee for technical services’ and has deleted the addition on account of the same. The learned AR relied on the order of the Tribunal in assessee’s case for previous years.
7. The learned Departmental Representative (DR for short) controverted the same and stated that the same amount to technical services which involves a particular design and specification suggested by licensors and the same is said to be mandatory. The learned DR further stated that the alloy services used in the bushings by metals such as platinum or rhodium is “made available” only by the “licensor”. The learned DR relied on the orders of the lower authorities.
8. We have heard the rival sides and perused the materials available on record. It is evident that the assessee has received fabrication charges from its AEs for rendering re-fabrication of bushings sent to the assessee. It is also observed that the OC Inc provides additional alloy which it owns to the assessee during the process of re-fabrication of bushings. The assessee has stated that it does not receive any payment from OCIPL for the additional alloy used during re-fabrication for which there is a separate arrangement/agreement between OC Inc and OCIPL. The assessee has contended that it only receives re-fabrication charges from OCIPL. The assessee further stated that it is an admitted fact that the assessee being tax resident in Singapore avails the benefit of Indo-Singapore DTAA and contends that it does not have a permanent establishment in India thereby stating that the fabrication charges is not liable to be taxed in India. The assessee contends that only Article 12 of the said treaty is applicable to the assessee’s case in which the term “Fees for Technical Services” is defined under Article 12(4) of the said treaty. Under this Article any services categorised as managerial, technical or consultancy services will fall under the term “Fees for Technical Services”. The assessee’s contention that re-fabrication work carried off by the assessee is in the nature of works contract or manufacturing activity. It is also said that as per the said Article, the services rendered should be ancillary and subsidiary to the application of enjoyment of the right to property or information for which payment in the nature of “Royalty” has been received. The assessee has denied that the said services does not involve any of the application or enjoyment of the property which warrants royalty payments. As this issue is recurring in nature and has been dealt with extensively by the Tribunal, it is necessary to rely on the said decisions which has held that the fabrication charges is not in the nature of ‘fee for technical services’. The relevant extract of the decision rendered by the Tribunal in ITA No.2049/MUM/2016, ITA No.5731/MUM/2019 and ITA No.742/MUM/2021 is cited here under for ease of reference:
“10. There is no dispute that the assessee is entitled to the benefits of the Indo-Singapore accordingly, income earned by the assessee cannot be taxed as business profits under article 7 of the Indo Singapore tax treaty/ There is also no, and cannot be any, dispute that once the provisions of the applicable tax treaty are more beneficial to the assessee, the provisions of the Indian Income Tax Act, 1961 cannot be pressed into service Therefore, as things stand now, everything hinges on the application of the provisions of article 12, dealing with fees for technical services, coming into play. There is also no dispute that refurbishing of bushes does not amount to “making available any technical knowledge, experience, skill, know-how or process” as there is no transfer of technology inherent in the process of rendition of these services, and, it is not even, therefore, the case of the authorities below that the fees received by the assessee can be taxed under article 12(3)(b) of the Indo Singapore tax treaty, their case is confined to the application of Article 12(4)(a) of the Indo Singapore tax treaty which provides that “he 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 (including the provision of such services through technical or other personnel) if such services are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received” On the facts of this case, it is also not in dispute that no such payments, were made to the assessee by its Indian affiliate, which will be covered by Article 12(3) of the Indo-Singapore tax treaty Yet, taxability under Article 12(4)(a) is invoked, on the ground that one of the group companies, Le OC-US, has received such payments from the Indian affiliate, OCIPL, which are covered by Article 12(3) of Indo- Singapore tax treaty, and by invoking Article 9. The stand of the Assessing Officer and the DRP is that since the alloys are provided by the OC-US, which is an associated enterprise under article 9, one has to proceed on the basis that the alloys are provided by the assessee, and as the services are “ancillary and subsidiary to the application or enjoyment of the right, property or information” for which payment is made to OC-US, these services are taxable as fees for technical services.
11. As far as the role of Article 9 is concerned, it comes into play when “conditions are made or imposed between the two enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises” and remains confined to bringing those profit for taxes which, but for such arrangements, an enterprise in the respective tax jurisprudence would have made. The scope of Article 9 thus is to neutralize the impact of intra- AE relationship vis-a-vis the profits made in dealings with such an AE Beyond this limited scope, the application of Article 9 cannot restructure the transaction itself That is, however, precisely what the revenue authorities seek to accomplish by invoking Article 9 in the present case. The alloy lease transaction that the Indian affiliate had with the OC-US, by invoking Article 9, is sought to be treated as a transaction with the assessee, but then, given the limited scope and role of Article 9, such an exercise is simply impermissible. It would amount to practically rewriting article 12(4) by supplementing the expression for which a payment described in paragraph 3 is received” with the words by “the enterprise or by any of its associated enterprises anywhere in the world” Neither can we read into the treaty what is not written there, nor would it make any sense anyway. Such an approach is too far-fetched and is neither supported by a plain reading of the treaty provision or by any logical rationale, nor by any commentary or even academic literature. The OC US and the assessee, a Singapore-based entity, are distinct entities and, they have distinct legal existences. The mere fact that these entities are part of the same multinational group does not require, or justify, ignoring the distinct identities of these entities, or the fact that the operations of these entities are in different jurisdictions It is also not even the case of the revenue authorities that the refurbishing work is not carried out in Singapore While a lot of emphases is paid by the revenue authorities on the fact that on the same transaction the assessee had paid taxes in India in the immediately preceding year, and the fact that it is part of overall common arrangements that the leasing is done from one jurisdiction and the refurbishing or bushing is done is another jurisdiction. Nothing, however, turns on these arguments also. The acceptance of tax liability in one year does not constitute estoppel against the assessee for the other years, and it is for the group to organize a multinational group to organize its activity, as long as it is a bonafide arrangement, in a manner as deemed commercially expedient. The question that we have to really consider is whether or not the activity leading to income was actually carried out in that jurisdiction, and there is no dispute on that aspect at all. The fact that an arrangement regarding situs of entities providing different facilities, in connection with a transaction of the multinational group, is done in a tax-efficient manner, cannot be reason enough to disregard the arrangement. We are satisfied that so far as the income of the assessee from the refurbishing of the bushes is concerned, it is not taxable in India as the provisions of Article 12(3) cannot be invoked in this case, and that, so far as the provisions of Article 12(4)(a) are concerned, these provisions cannot be invoked as the assessee has not rendered these services in connection with the services for which a payment described in paragraph 3 is received” by the assessee. In view of these discussions, as also bearing in mind the entirety of the case, we uphold the plea of the assessee, and delete the impugned addition of Rs.4,84,44,048/-. The assessee gets the relief accordingly.”
9. From the above said decisions, it is observed that the Tribunal has held that the charges received by the assessee for carrying out of re-fabrication of the bushings does not tantamount to “make available of technical knowledge, experience, skill, know-how or process”. The Tribunal has also held that as there is no transfer of technology involved in the said process, it cannot be taxed under Article 12 of the IndoSingapore tax treaty. By respectfully following the said decisions, we hereby allow the grounds raised by the assessee. The A.O. is directed to grant credit for taxes paid by way of TDS for the fabrication charges received by the assessee.
10. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 09.03.2023
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