The Delhi High Court in a recent decision held that the services of construction and installation cannot be treated as “fees for technical services.” The Court was considering the validity of an order passed by the Authority of Advance Ruling in a petition filed by M/s Technip Singapore PET Ltd. the highlights of the decision are as follows.
The Petitioner is a leading solutions provider of offshore construction, engineering, project management, and support services to the oil and gas industry worldwide. On 5th September 2008, the Petitioner signed a contract with IOCL for an offshore construction work involving the installation of IOCL supplied SPM including anchor chains, floating and subsea hoses.
On 25th May 2010, the Petitioner filed an application in the AAR under Chapter XIX B of the Income Tax Act, 1961 for determination of certain questions regarding its tax liability in respect of the services rendered by it under the above contract. The ITO (International Taxation) (Respondent No. 2) in response to the above application filed a report dated 6th September 2011 before the AAR. According to Respondent No.2, the income of the Petitioner under the contract was taxable in India as fees for technical services („FTS‟) both under the Act and the DTAA.
By the impugned order dated 15th February 2012, the AAR held the following;
The High Court found that the payment of mobilization/demobilization cannot be termed as royalty, the question of treating the work of installation as ancillary to such work and the payment for installation as FTS does not arise. Further, in terms of the contract with IOCL, the Petitioner provides services of construction and installation of SPM. This does not involve any transfer of any technology, skill, experience or know-how, to enable IOCL to undertake such activities on its own.
While quashing the impugned order of the AAR, it was observed that payment of mobilization/demobilization cannot be termed as royalty, the question of treating the work of installation as ancillary to such work and the payment for installation as FTS does not arise. Further, in terms of the contract with IOCL, the Petitioner provides services of construction and installation of SPM. This does not involve any transfer of any technology, skill, experience or know-how, to enable IOCL to undertake such activities on its own.
Read the full text of the Judgment below.