Case Law Details
RELEVANT PARAGRAPH
R U L I N G
(By Honourable Chairman)
1. The applicant is a Company incorporated under the laws of Germany and is engaged in the business of architectural designs and drawings. In response to a tender invited by the Govt. of Tamil Nadu for preparation of designs and drawings for the construction of a huge complex for Tamil Nadu Legislative Assembly, the applicant submitted the tender and it was selected as “consultant for supply of the architectural designs and drawings”. An Agreement was entered into on 15 th Feb, 2008 for the supply of designs and drawings for block A. The applicant was additionally 1.entrusted with the work of preparation of architectural designs and drawings for block B also in October 2008.
2. The scope of work as contained in Section-1 of the Agreement consists of Architecture (Part I) and Allied fields. As many as 24 items are there under the head `Architecture’ . As regards the allied fields there are four items which will be referred to later on. In order to execute the work, the applicant entered into an agreement with Arch Vista Engineering Projects Pvt. Ltd., Pune and the agreement in this behalf was entered into on 5th May, 2008. That Agreement is known as `Sub-Consultancy Agreement’. In the course of arguments, the applicant’s counsel while referring to the scope of work under the two Agreements has submitted that most of the work undertaken under the main Agreement was given on sub-contract to Arch Vista, Pune. The learned counsel has pointed out that the main work done by the applicant was furnishing conceptual drawings and designs. We will in due course refer to the details of the works said to have been undertaken exclusively by the applicant. It is the case of the applicant that a team of architects and designers stationed in Germany have produced the designs and drawings and delivered the same to the Govt. electronically by placing the same on the internet in Germany. It is the contention of the applicant that the designs and drawings it has supplied to the Govt. of Tamil Nadu are in the nature of a capital asset or plant. It is pointed out that the consideration has been received by the applicant outside Germany as the amount in Indian rupees has been credited to the overseas bank account of the applicant and the same was received by the applicant in Euros. The crux of the applicant’s case is that the consideration received by the applicant under the contract is not in the nature of fees for technical services, if the scope of work excluding the sub-contracted works is taken into account. At best, the consideration paid under the Agreement is liable to be taxed as business profits in India. However, as the applicant does not have a permanent establishment in India, the receipts cannot be subjected to Indian income-tax by virtue of Article 7.1 of the DTAA 1 between India and Federal Republic of Germany. The applicant further submits that its personnel in India were there only to gather information and to explain drawings and plans prepared by the applicant’s personnel in Germany. It had to do certain minimal supervisory and coordination activities in regard to the works undertaken by M/s Arch Vista. It is stated that the personnel of the applicant visited India for short duration for a total period of 89 days during the financial year April 2008 to March,2009. The purpose for which the presence of the applicant’s personnel in India was required are set out in the application. On behalf of the applicant, it is submitted by the learned counsel that the sub-Contract Agreement had the approval of Tamil Nadu Govt. and as stated in the application, the payments were made by the Govt. of Tamil Nadu both to the applicant and the sub-contractor (Arch Vista) as per the agreed percentages specified in the sub-Contract Agreement.
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