The Delhi bench of the Income Tax Appellate Tribunal (ITAT) held that mere passing of project of specific architectural drawings and design with measurement did not amount to ‘make believe’ technical knowledge under 12(4)(b) of India-USA Double Taxation Avoidance Agreement (DTAA).
The assessee, Michael Graves Design, is a privately held multifaceted and multi-discipline firm headquartered in Princeton, New Jersey, USA. The firm provides design services for its clients all over the world including India. The assessee is a tax resident in USA.
During AYs 2014-15 and 2015-16 the assessee provided certain specified services to one of its clients in India, AOP (formed by Turner Project Management India Pvt. Ltd., Meinhardt India Pvt. Ltd., Michael Graves & Associates Inc.) under an agreement executed on 19.08.2013. The assessee received Rs. 4,67,60,000/- in AY 2014-15 and Rs. 57,12,000/- in AY 2015-16 in consideration of rendering services to AOP.
For the A.Y. 2014-15 and A.Y. 2015-16, the assessee filed its return of income on 31.03.2016 and 07.03.2017 respectively declaring total income at Rs. Nil. The assessee’s case for both the A.Ys 2014-15 and 2015-16 were selected for scrutiny and the notices along with questionnaire were issued and served. In response thereto, the assessee filed the requisite information and explanation through e-mail which were examined and placed on record.
During assessment proceedings, the assessee was asked to show cause why in view of the Article 12(4) of the India-USA DTAA, the consideration received for services rendered by the assessee should not be treated as income from Fees from Included services in view of the fact that the agreement entered into by the assessee and the AOP with respect to the providing of services very clearly bring out the fact that the services provided by the assessee is of purely technical nature and that it makes available the technology, the skill, the experience to the parties i.e. the members of the AOP.
The assessee filed its reply to the show cause notice contending that the ‘make available’ clause is not satisfied and therefore income of the assessee from the services rendered by the assessee to the AOP should not be treated as FIS in terms of Article 12(4)(b) of the India-USA DTAA as well as MOU between India and USA. The contentions of the assessee were not found tenable by the Assessing Officer (“AO”) who concluded that the assistance provided by the assessee makes available the technology to the clients.
The assessee filed objections to the draft assessment order before the Dispute Resolution Panel (“DRP”). The DRP after considering the submissions of the assessee and the relevant clauses of the agreement held that the AO was right in holding that the receipt of the assessee was taxable in India as FIS under India-USA DTAA and directed the Ld. AO to complete the assessment accordingly vide its order dated 13.09.2017 for AY 2014-15 and 01.06.2018 for AY 2015-16. Aggrieved the assessee appealed before the tribunal.
While allowing the appeal, two-member bench consisting of G.S Pannu (President) and Astha Chandra (Judicial member) held that the consideration received by the assessee for services rendered to the AOP does not fall within the purview of FIS under Article 12(4)(b) of the India-USA DTAA as the same does not satisfy the ‘make believe’ clause envisaged therein. Accordingly, we allow the ground of appeal raised by the assessee in both the AYs.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
