Consideration of architectural design services not to be classified as royalty under India Singapore DTAA: ITAT

The Income Tax Appellate Tribunal(ITAT Delhi) in the matter of DCIT vs. Aedas Pte. Ltd. in the light of the decisions in the case of Gera Developments P. Ltd. (supra) and Devi Ashmore India Ltd. (supra) held that payments made to the assessee in consideration of architectural design services could not be classified as royalty under Article 12(3) of India- Singapore DTAA.

The Revenue has raised the following grounds of appeal:-

“1. Whether on the facts and on the circumstances of the case, the Ld. CIT(A) is correct in holding that receipt from customers in India for rendering design services is not FTS as per article 12(4) of India Singapore DTAA.

2. Whether on the facts and circumstances of the case Ld. CIT(A) was correct in holding that the assesee did not make available expertise to Indian clients while transferring the all encompassing design including concept designs, schematic designs architectural design etc. and ignoring specific clauses of agreements which clearly indicate make available (eg Clauses 14&23 of agreements with L&T).

3. Whether on the facts and circumstances of the case Ld. CIT(A) was correct in holding that receipts from Indian clients of the assesee were alternatively not taxable as royalty as royalty under Singapore DTAA. The CIT(A) ignored the fact that receipts were for use and right to use of technical design.”

Briefly stated, the facts are that the assessee is a company incorporated under the laws of Singapore and is a tax resident of Singapore. The assessee is engaged in the profession of rendering project specific architectural design services. The architectural designs provided by the assessee are executed in Singapore. These designs are highly technical in nature and require a great degree of technical knowledge and expertise. During the AY 2015-16, the assessee earned revenue amounting to Rs. 10,81,68,728/- from customers in India from rendition of architectural design services. For the AY 2015-16 the assessee filed its return of income on 31.03.2017 declaring NIL taxable income and claimed a refund of INR 89,53,140 on account of taxes withheld by customers in India. The assessee’s case was selected for scrutiny and statutory notices under section 143(2) and 142(1) of the Income Tax Act, 1961 (‘the Act”) were issued to the assessee wherein the necessary information/details regarding the impugned receipts by the assessee were called for which were duly submitted by the assessee and examined.

During the course of assessment proceedings, the assessee was show caused as to why the payment received in lieu of architectural design services should not be taxed as Fees for Technical Services (“FTS”) and/or royalty in terms of Article 12 of the Double Taxation Avoidance Agreement between India and Singapore (“India-Singapore DTAA”).

In response thereto, as regards taxability of such payments as FTS, the assessee submitted that it merely creates designs and transfers them to the customers and does not impart any technical knowledge or science or training or skill or experience in the field of architecture so as to enable the clients to apply the technology contained therein by themselves. And hence the payments received by the assessee from its customers in India are not taxable as FTS under Article 12(4) of the India-Singapore DTAA.

It is an undisputed fact that the assessee is a tax resident of Singapore and does not have a permanent establishment in India. Hence it has opted to be governed by the provisions of the India-Singapore DTAA being more beneficial to it.

Article 12(4) of India-Singapore DTAA reads as under:-

“Article 12

Royalties And Fees For Technical Services

4. The 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:-

(a) 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; or

(b) make available technical knowledge, experience, skill, know-how or processes, which enables the person acquiring the services to apply the technology contained therein; or

(c) consist of the development and transfer of a technical plan or technical design, but excludes any service that does not enable the person acquiring the service to apply the technology contained therein.

For the purposes of (b) and (c) above, the person acquiring the service shall be deemed to include an agent, nominee, or transferee of such person.”

From the above, it is apparently clear that a mere rendering of technical service is not roped in the purview of Article 12(4)(c) unless the person utilising such services is enabled to apply the technology contained therein. It is a matter of fact that the assessee has rendered project specific architectural design services to its customers in India which services require highly technical expertise and hence these services partake the nature of technical services. It is however the case of the assessee that though the assessee has rendered technical services to its clients in India in terms of Article 12(4) of India-Singapore DTAA, it has not ‘made available’ any technical knowledge and skill etc. to its Indian clients and hence it falls within the exception clause embedded in Article 12(4)(c) of the India-Singapore DTAA and thus the impugned payments received by it could not be taxed as FTS.

It is evident from the above that the Ld. CIT(A) has considered this issue in an exhausted manner and after considering the facts of the assessee’s case in the light of the decisions in the case of Gera Developments P. Ltd. (supra) and Devi Ashmore India Ltd. (supra) held that payments made to the assessee in consideration of architectural design services could not be classified as royalty under Article 12(3) of India- Singapore DTAA. Hence, we do not find any reason to interfere with the findings of the Ld. CIT(A) and accordingly dismiss ground No. 3 of the Revenue.

In the result, appeal of the Revenue is dismissed.

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