The Delhi bench of the Income Tax Appellate Tribunal held that Payments made in consideration of architectural design could not be classified as royalty under Article 12(3) of India Singapore Double Tax Avoidance Agreement (DTAA).
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. 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 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.
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 in terms of Article 12 of the Double Taxation Avoidance Agreement between India and Singapore (“India-Singapore DTAA”). In response the assessee submitted that it merely creates designs and transfers them to the customers and does not impart any technical knowledge 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.
The submissions of the assessee were not found tenable by the AO who proceeded to tax these payments as FTS and alternatively as royalty under the provisions of the Act as well as under Article 12 of the IndiaSingapore DTAA as well as section 9(1)(vii) of the Act vide his draft assessment order dated 29.12.2017. The assessee did not file objections before the DRP consequent to which the Ld. AO passed the final assessment order under section 144C(3)/144 of the Act on 20.02.2018.
Aggrieved the assessee preferred appeal before the CIT(A).
The CIT(A) examined the issue and held that the payments received by the assessee from its customers in India through rendition of architectural design services could not be characterised as FTS royalty in terms of Article 12 of India Singapore DTAA. Aggrieved, the revenue appealed before the tribunal.
The tribunal found it evident that the CIT(A) considered thie issue in an exhausted manner and after considering the facts of the assessee’s case.
The two-member bench consisting of G.S. Pannu (president) and Astha Chandra (Judicial member) after considering the facts of the assessee’s case in the light of the decisions in the case of Gera Developments P. Ltd. and Devi Ashmore India Ltd. held that payments made to the assessee in consideration of architectural design services could not be classified as royalty under Article 12(3) of IndiaSingapore DTAA.
Hence, the tribunal did not find any reason to interfere with the findings of the CIT(A) and the appeal was dismissed.
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