Case Law Details
Chowringhee Residency Pvt Ltd Vs ITO (International Taxation) (ITAT Kolkata)
In Chowringhee Residency Pvt. Ltd. Vs ITO (International Taxation), the Kolkata ITAT considered whether payments made by the assessee to a UAE-based company for technical consultancy services were liable to tax deduction at source (TDS) in India and whether the assessee could be treated as an assessee in default under Sections 201(1) and 201(1A) of the Income Tax Act.
The assessee, engaged in real estate development, was developing the residential project “The 42” in Kolkata. For this project, it entered into a Technical Consultancy Agreement with Arabian Construction Co. WLL (ACCWLL), UAE. Under the agreement, ACCWLL provided advisory and consultative services, including review of construction drawings, construction techniques, scaffolding and staging designs, safety and security measures, and quality review of construction activities. The assessee maintained that the services were purely advisory and did not involve transfer of technical know-how, processes, designs, or methodologies. During the relevant financial year, remittances were made to ACCWLL after filing Forms 15CA and 15CB, treating the payments as business profits under Article 7 of the India-UAE DTAA. ACCWLL was a UAE tax resident and had no Permanent Establishment (PE) in India.
During scrutiny proceedings, the Assessing Officer examined the agreement, invoices, tax residency certificate, Forms 15CA and 15CB, and other documents. The AO concluded that the payments constituted Fees for Technical Services (FTS) under Section 9(1)(vii) of the Income Tax Act and were taxable in India. According to the AO, the assessee was required to deduct tax at source under Section 195 at 20%. Since no tax had been deducted, the assessee was treated as an assessee in default under Section 201(1), and interest under Section 201(1A) was also levied, resulting in a total demand of ₹35.57 lakh. The CIT(A) subsequently confirmed the demand through an ex-parte order.
The Tribunal examined the nature of services rendered by the UAE company and observed that the services were only advisory and consultative. There was no transfer of technical knowledge, know-how, skill, methodology, or process that would enable the assessee to independently apply the same in the future. The Tribunal emphasized the “make available” principle and held that technical services can be regarded as FTS only when the recipient acquires the capability to apply the technical knowledge independently without further assistance from the service provider. Mere use of technical expertise by the service provider while rendering services does not satisfy this requirement. Since no enduring technical capability was transferred to the assessee, the condition of “making available” technical knowledge remained unfulfilled. Therefore, the payments could not be characterized as Fees for Technical Services.
The Tribunal relied on judicial precedents, including CIT v. De Beers India Pvt. Ltd., ITO v. Right Florists Pvt. Ltd., and Raymond Ltd. v. Dy. CIT, which held that mere rendering of technical services does not amount to making available technical knowledge unless the recipient can independently use such knowledge in the future.
The Tribunal further noted that the India-UAE DTAA does not contain a specific article dealing with Fees for Technical Services. It held that where a DTAA does not specifically provide for taxation of FTS, domestic law provisions under Section 9(1)(vii) cannot be imported into the treaty framework. According to the Tribunal, the absence of an FTS article in the India-UAE DTAA reflects a conscious treaty choice and cannot be overridden by domestic law. The DTAA operates as a self-contained code governing taxation of cross-border income, and importing domestic law concepts into the treaty would amount to rewriting the agreement.
Referring to Article 7 of the India-UAE DTAA, the Tribunal observed that business profits of a UAE enterprise can be taxed in India only if the enterprise carries on business through a Permanent Establishment in India. Since ACCWLL had no PE in India, its business profits were not taxable in India. Consequently, the Tribunal held that the AO’s attempt to tax the payments under Section 9(1)(vii) despite the DTAA provisions was contrary to settled law. The Tribunal also relied on several judicial decisions supporting the principle that, in the absence of an FTS article and a PE in India, such payments are not taxable in India.
The Tribunal additionally held that CBDT Circular No. 33 dated 02.04.1982 cannot create or enlarge tax liability where the DTAA itself does not permit taxation. Circulars are binding on tax authorities only to the extent they are consistent with the Act and the applicable treaty provisions. They cannot mandate tax deduction where the income is not chargeable to tax in India under the DTAA.
Accordingly, the Kolkata ITAT set aside the order of the CIT(A), directed deletion of the demand raised under Sections 201(1) and 201(1A), and allowed the assessee’s appeal.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
This is an appeal preferred by the assessee against the order of the Commissioner of Income Tax Appeal, Kolkata-22, (hereinafter referred to as the “Ld. CIT(A)”] dated 26.08.2025 for the AY 2018-19.
2. At the outset, we note that the appeal of the assessee is barred by limitation by 14 days. At the time of hearing the counsel of the assessee explained the reasons for delay in filing the appeal. The Ld. D.R did not raise any objection in condoning the delay. After hearing the rival contentions and perusing the materials available on record, we find that the delay is for bonafide and genuine reasons and , hence, we condone the delay and adjudicate the appeal.
3. The only issue raised by the assessee in the various grounds of appeal is against the order of Ld. CIT (A) in confirming the demand of ₹35,57,540/- as made by the Ld. AO in respect of TDS default u/s.201(1) of the Act of ₹28,39,195/- and ₹7,18,340/- being interest u/s.201(1A) of the Act by treating the assessee in default u/s.201(1) of the Act.
4. The facts in brief are that the assessee is engaged in the business of real estate development and during the year was in the process of developing residential tower known as “The 42” in Kolkata. The assessee for the purpose of the said project, entered into a Technical Consultancy Agreement dated 01.05.2016 with Arabian Construction Co. WLL (ACCWLL), UAE. Under the said agreement, ACCWLL was engaged to review working drawings and examine their parity with actual construction. The scope of services broadly included advisory inputs on construction techniques, review of scaffolding and staging design, advisory on safety and security aspects of high-rise construction and review of quality of construction. The role of ACCWLL was purely advisory and consultative, confined to review, comments, and suggestions, without any transfer of technical know-how, processes, designs, or methodologies to the assessee. During the Financial Year 2017-18, the assessee made remittances to ACCWLL, UAE, of AED 4,32,000 on 29.03.18 and AED 3,30600 on 18.05.2017 after duly filing Form 15CA and Form 15CB, clearly stating the reasons for non-deduction of tax as “Business Profits under Article 7 of the India-UAE DTAA”. ACCWLL was a tax resident of UAE and did not have any Permanent Establishment (PE) in India. The case of the assessee was selected for scrutiny and during the course of assessment proceeding, the assessee submitted copy of Form 15CA, 15CB, invoices, copy of agreement dt 01.05.2016, relevant bank statement, tax residency certificate of ACCWLI. However, as per section 9(1)(vii)(b) of the Act read with Explanation 2, DTAA between India-UAE and Circular No 33 dt 02.04.1982, the remittance made to ACCWLL of UAE by the assessee as “Fee for Technical Services” is taxable in India. According to the AO as per section 195(1) of the Act, the assessee is liable to deduct the tax at source @20% on the amount of remittance. Therefore as per section 201(1) of the Act assessee is an assessee in default and is liable to pay interest as per section 201(1A) of the Act. The AO accordingly raised a demand u/s.201(1)(1A) of the Act aggregating to ₹35,57,540/- vide order dated 28.11.2019.
5. Being aggrieved by the said assessment order, the assessee preferred an appeal before the Ld. Commissioner of Income-tax (Appeals). The Ld. CIT(A), while passing the ex-parte order without deciding the case on merit, confirmed the demand raised by the Assessing Officer.
6. After hearing the rival contentions and perusing the material on record including the submissions filed by the assessee, we note that the assessee was provided the advisory and consultative services only as stated hereinabove and there was no involvement of transfer of technical knowhow. It is seen that the assessee was not made available any technical knowhow so that the same could be used by the assessee independently in future. The services of UAE company were confined to supervisory and consultative roles. Moreover, the foreign company did not have any Permanent Establishment (PE) in India. Therefore, the concept of “make available” fundamentally shifts the focus of taxation from the character of the service rendered to the nature of the capability transferred and this principle has been authoritatively explained in the Protocol to the India-USA Double Taxation Avoidance Agreement, which, though not directly applicable, is widely relied upon by Indian courts and tribunals as a persuasive interpretative aid for understanding similar treaty language and concepts. In our opinion, the technology or technical skill can be said to be “made available” only when the service recipient is enabled to apply such technology or knowledge independently in future, without any further assistance or recourse from the service provider. The mere fact that the service provider deploys its own technical expertise, experience, or specialised knowledge in the course of rendering services does not, by itself, lead to a conclusion that such expertise has been made available to the recipient. In our opinion what is relevant is not the delivery of the end result of a technical service, but the transfer of the underlying know-how, methodology, or process that empowers the recipient to replicate or apply the same technology on its own in future. In the absence of such transfer, the condition of “make available” remains unfulfilled. Thus, the true test is not whether the services are technical or consultancy-oriented in nature, but whether, upon conclusion of the service arrangement, the recipient is left with an enduring technical capability which it can be used independently in its business. Unless this threshold of “making available” is satisfied, the consideration paid for such services cannot be characterised as Fees for Technical Services under the applicable treaty framework. The case of the assessee finds support from the decision of the Hon’ble Karnataka High Court in the case of CTT v. De Beers India Pvt. Ltd., reported in [2012] 21 taxmann.com 214 (Kar.), wherein the Hon’ble High Court upheld the principle that unless the services result in transfer of technical knowledge or skill enabling independent application,, the consideration cannot be treated as FTS.
7. Similarly, the coordinate Bench of the ITAT Kolkata Tribunal in the case of ITO, Ward-12(2), Kolkata Vs. Right Florists Pvt. Ltd. in ITA No.1336/Kol/2011, has held in para 27 as under :-
Once we come to the conclusion that the online advertising payments made to Google Ltd cannot be brought to tax in India, under section 5(2) r.w.s. section 9 of the Income Tax Act, we can conclude that these amounts are not exigible to tax in India at all. The facts relating to Yahoo being admitted similar in material aspects, the same conclusion holds good in respect to Yahoo as well. We may, however, point out that since Yahoo is a USA based Delaware company and since Indo USA tax treaty provides for a make available clause which restricts the source taxation of only such technical services, referred to as ‘ included services’ in Indo US tax treaty, as make available the technical knowledge etc. The connotations of expression ‘make available’ were examined by the Tribunal in the case of Raymond Ltd. vs. Dy. CIT (86 ITD 793). The Tribunal, after elaborate analysis of all the related aspects, observed that “Thus, the normal, plain and grammatical meaning of the language employed, in our understanding, is that a mere rendering of services not roped in unless the person utilising the services is able to make use of technical knowledge, etc. by himself in his business and or for his own benefit and without recourse to the performer of services, in nature”. The Tribunal also held that rendering of technical services cannot be equated with making available the technical services. There are at least two non-jurisdictional High Court decisions, namely Hon’ble Delhi High Court in the case of DIT Vs Guy Carpenter & Co Ltd (2012 TII 14 HC DEL INTL) and Hon’ble Karnataka High Court in the case of CIT Vs De Beers India Pvt Ltd (TS-312-HC-2012), which uphold the same principle, and there is no contrary decision by Hon’ble jurisdictional High Court or Hon’ble Supreme Court. Accordingly, as is the settled legal position, unless services rendered by the service provider results in transfer of technology and enable the recipient of service to make use of technical knowledge by himself, and without recourse to the service provider, mere rendition of such services cannot be brought to
tax as fees for technical service. Clearly, so far as online advertising is concerned, there no transfer of any technology of any kind, and as such any payment for such service is outside the ambit of source taxation under Article 12. For this reason also, the payments made to Yahoo could not be brought to tax in India.
8. Similar ratio has been laid down by the coordinate Bench of ITAT Mumbai Tribunal in the case of Raymond Ltd. Vs. Dy. CIT(86 ITD 793 (Mumbai ITAT), wherein it has held that merely rendering of technical services is not sufficient unless the person utilizing the services is able to make use of the technical knowledge, skill or experience by himself, in his business or for his own benefit, and without recourse to the service provider.
9. Thus, we are inclined to observe that the amount remitted by the assessee to the UAE company is not a fee for technical services.
10. We have also perused the Double Taxation Avoidance Agreement (DTAA) between India and the United Arab Emirates (UAE) and find that it does not contain any specific article dealing with “Fees for Technical Services” (FTS). In our opinion, it is a settled legal position that where a DTAA does not specifically provide for taxation of Fees for Technical Services, such income cannot be brought to tax by resorting to the domestic law provisions of section 9(1)(vii) of the Income-tax Act, 1961. The absence of an FTS article in the India-UAE DTAA is not accidental rather, it represents a conscious and deliberate choice made by the contracting States at the time of negotiating the treaty. The DTAA constitutes a self-contained code for determining taxability of cross-border income between the contracting countries. Once the treaty allocates taxing rights, the domestic law can apply only to the extent it is consistent with the treaty. In the present case, importing the definition of FTS from section 9(1)(vii) into the India-UAE DTAA would amount to rewriting the treaty, which is impermissible in law and cannot be accepted.
11. We further note that Under Article 7, business profits of an enterprise of the UAE are taxable in India only if the enterprise carries on business in India through a Permanent Establishment (PE) situated in India. Even where a PE exists, only such profits as are directly attributable to the PE can be subjected to tax in India. We are therefore, inclined to hold that the attempt of the Assessing Officer to invoke section 9(1)(vii) of the Act, despite the clear and unambiguous provisions of the India-UAE DTAA treaty , is contrary to settled law and the same cannot be accepted. The case of the assessee finds support from the decision of the Hon’ble Madras High Court in the case of Bangkok Glass Industry Co. Ltd. v. Assistant CIT (2013) 34 com 77 (Madras), wherein the Hon’ble High Court has held that where the DTAA is silent on FTS, domestic law provisions cannot be read into the treaty. The Court affirmed that such income falls under Article 7, and in the absence of a PE in India, the same is not taxable.
12. Similar ratio has been laid down in the following cases :-
i) Booz & Company (ME) FZ-LLC. Deputy Director of Income-tax (International Taxation) (201890taxmann.com49)
ii) ABB FZ-LLC v. Income-tax Officer (International Transactions), Ward -1(1), Bangalore [2016] 75 com 83 (Bangalore – Trib.)
iii) Castlewick FZE v. ACIT, International Taxation reported in [2025] 175 com 914 (Chennai-Trib) :
iv) Deputy Commissioner of Income-tax, International Taxation v. Kalpataru Power Transmission Ltd. [2023] 149 com 484
v) M/s. ABB Industries FZE VS Deputy Commissioner of Income-tax IT(IT)A No.2101/Bang/2016 :
13. Moreover, the CBDT Circular No.33 dated 02.04.1982 cannot authorize taxation of an item of income which is not taxable under the DTAA. In our opinion, the CBDT circulars are binding on the tax authorities only to the extent they are in consonance with the Act and the applicable DTAA. A circular cannot enlarge the scope of chargeability, create tax liability or mandate deduction of tax at source in a situation where, under the DTAA, the income itself is not chargeable to tax in India. In view of the above, we are inclined to set aside the order of the ld. CIT(A) and direct the AO to delete the demand raised.
14. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 20.05.2026.
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