Loading judgment…
Facts
The assessee, a Singaporean company, received fabrication charges from its Indian associate. The Assessing Officer (AO) and Dispute Resolution Panel (DRP) treated these charges as Fees for Technical Services (FTS) taxable in India. The assessee contended that these charges do not qualify as FTS under the Income Tax Act or the India-Singapore DTAA.
Held
The Tribunal held that the fabrication charges received by the assessee are not taxable in India as FTS. Relying on its own previous decisions for the same assessee, the Tribunal found that the services did not involve making available technical knowledge and that the conditions for FTS under Article 12 of the DTAA were not met.
Key Issues
Whether fabrication charges received by a non-resident from its Indian associate constitute Fees for Technical Services (FTS) taxable in India, considering the provisions of the Income Tax Act and the India-Singapore Double Taxation Avoidance Agreement.
Sections Cited
143(3), 144C(13), 9(1)(vii), 12, 115A, 90(2), 234B, 143(2), 142(1), 144C(1), 144C(5)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “I” BENCH, MUMBAI
Before: SHRI NARENDRA KUMAR BILLAIYASHRI SANDEEP SINGH KARHAIL
Date of Hearing – 06/05/2025 Date of Order - 14/05/2025
O R D E R PER SANDEEP SINGH KARHAIL, J.M.
The assessee has filed the present appeal against the impugned final assessment order dated 26/12/2024, passed under section 143(3) read with section 144C(13) of the Income Tax Act, 1961 (“the Act”), pursuant to the directions issued by the learned Dispute Resolution Panel-2, Mumbai, (“learned DRP”), for the assessment year 2022-23.
In this appeal, the assessee has raised the following grounds: –
“1.0 Re.: Treating fabrication charges received as fees for technical services: 1.1 The Assessing Officer (AOY Dispute Resolution Panel (DRP) has erred in taxing the fabrication charges received by the Appellant of Rs. 18,73,16,820 during the year under consideration by treating the same as fees for technical services' in terms of section 9(1Xvi) of the Income-tax Act, 1961 as well as Article 12 of the Double Taxation Avoidance Agreement entered between India and Singapore "India-Singapore Tax Treaty"). 1.2 The Appellant submits that considering the facts and circumstances of the case and the law prevailing on the subject, the fabrication charges received by it are not fees for technical services' either under the Income-tax Act, 1961 or under the provisions of the India-Singapore Tax Treaty. The stand taken by the AO / DRP in this regard is erroneous, misconceived and not in accordance with the law. 1.3 The Appellant submits that the AO be directed to delete the addition of Rs. 18,73,16,820 so made and to re-compute its total income accordingly. 2.0 Re: Taxing income from fees for technical service at the rate specified under the Act: 2.1 Without prejudice, The AO erred in charging tax at the rate of 10% plus surcharge and health and education cess under section 115A of the Act on income from fees for technical services of Rs.18,73,16,820. 2.2 The Appellant submits that considering the facts and circumstances of the case and the law prevailing on the subject, as per section 90(2) of the Act, the income from fees for technical services ought to have been taxed at the beneficial tax rate of 10% under Article 12 of India-Singapore Tax Treaty and the stand taken by the AO in this connection is misconceived, incorrect, erroneous and illegal. 2.3 The Appellant submits that the AO be directed to re-compute the tax liability accordingly. 3.0 Re.: Levy of interest under section 234B of the Income-tax Act, 1961; 3.1 The AO has erred in levying interest under section 234B of the Income- tax Act, 1961. 3.2 The Appellant submits that considering the facts and circumstances of the case and the law prevailing on the subject, no interest under section 234B is leviable and the stand taken by the AO in this regard is misconceived, incorrect, erroneous and illegal. 3.3 The Appellant submits that the AO be directed to delete the interest under section 234B so levied on it and to re-compute its tax liability accordingly. 4.0 Re.: General
4.1 The Appellant craves leave to add, alter, amend, substitute and/or modify in any manner whatsoever all or any of the foregoing grounds of appeal at or before the hearing of the appeal.”
3. The issue arising in ground no. 1, raised in assessee’s appeal, pertains to the taxability of the fabrication charges received by the assessee as Fees for Technical Services (“FTS”) under section 9(1)(vii) of the Act as well as Article 12 of the India-Singapore Double Taxation Avoidance Agreement (“DTAA”).
4. The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is a company incorporated in Singapore and is a tax resident of Singapore. The assessee is a group concern of Owens Corning Group of Companies, a leading glass manufacturer. The assessee has two Indian associates, namely Owens-Corning India Pvt. Ltd. (“OCIPL”) and Owens Corning Industries India Pvt. Ltd. (“OCIIPL”). For the year under consideration, the assessee filed its return of income on 29/11/2022, declaring a total income of Rs. Nil. The return filed by the assessee was selected for scrutiny, and statutory notices under section 143(2) and section 142(1) of the Act were issued and served on the assessee. During the assessment proceedings, it was observed from the computation of income that the assessee has claimed the receipt of fabrication charges of Rs. 18,73,16,819 from its Indian associated enterprises, namely OCIPL, as non- taxable in India as the assessee has neither any Permanent Establishment in India as per Article 5 of the India-Singapore DTAA nor any business connection in India. It was further observed that in the assessment years 2015-16 to 2021-22, this income was also treated as FTS and taxed as per the Act during the scrutiny assessment proceedings. Accordingly, the assessee was asked to show cause as to why a similar disallowance should not be made in the year under consideration. In response, the assessee submitted that in order to fall within the purview of Article 12(4)(a) of the India-Singapore DTAA, the services rendered should be ancillary and subsidiary to the application or enjoyment of the property for which a “Royalty” payment is received. The assessee submitted that in the instant case, no Royalty is received by the assessee under Article 12(3) of the India-Singapore DTAA. It was submitted that the assessee does not enjoy any know-how or patent rights for the manufacturing of specialised glass fibre, and there is no Royalty received by the assessee to which the said services could be called ancillary. Accordingly, the assessee submitted that the receipts towards fabrication charges cannot be treated as FTS under Article 12(4)(a) of the India-Singapore DTAA. As regards the provisions of Article 12(4)(b) of the India-Singapore DTAA, the assessee submitted that in order for a payment to fall within the definition of the term FTS, the services should “make available” technical knowledge, skills, expertise, etc., to the recipient of the service. However, in the present case, the services are not making available any technical knowledge, experience, skill, know-how or processes, which enable the service receiver to apply the technology. Accordingly, the assessee submitted that the fabrication charges received by the assessee do not fall within the purview of the definition of FTS under Article 12(4)(b) of the India-Singapore DTAA. The assessee further submitted that the said payment is also not covered under Article 12(4)(c) of the India-Singapore DTAA since the assessee does not transfer any technical plan or design to the Indian associated enterprises.
Accordingly, the assessee submitted that the receipt for fabrication charges is not taxable at all in India. In support of its submission, the assessee also placed reliance upon the decisions rendered in its own case by the Tribunal in preceding assessment years, wherein it was held that the receipts towards fabrication of bushings cannot be treated as FTS under Article 12(4)(a) of the India-Singapore DTAA as no Royalty referred in Article 12(3) of the India Singapore DTAA was received by the assessee.
The Assessing Officer (“AO”), vide draft assessment order dated 26/03/2024, passed under section 144C(1) of the Act, disagreed with the submissions of the assessee and after noting no material change in the factual scenario as compared to the preceding years wherein this receipt was held to be taxable as FTS, held that the fabrication charges received by the assessee from its Indian associated enterprise is taxable as FTS under section 9(1)(vii) read with Article 12(4) of the India-Singapore DTAA.
The assessee filed detailed objections against the addition made by the AO. Vide directions dated 05/12/2024, issued under section 144C(5) of the Act, the learned DRP, though noted that identical issue in assessee’s own case has been decided in its favour by the coordinate bench of the Tribunal in preceding years, rejected the objections filed by the assessee in order to keep the issue alive and to protect the interest of the Revenue.
In conformity with the directions issued by the learned DRP, the AO vide impugned final assessment order dated 26/12/2024, assessed the fabrication charges received by the assessee as FTS under section 9(1)(vii) read with Article 12(4) of the India-Singapore DTAA. Being aggrieved, the assessee is in appeal before us.
During the hearing, the learned Authorised Representative submitted that a similar issue has been decided in favour of the assessee by the coordinate bench of the Tribunal in assessee’s own case for the preceding years. The learned Authorised Representative further submitted that the learned DRP did not grant relief to the assessee merely to keep the issue alive.
On the other hand, the learned Departmental Representative vehemently relied upon the orders passed by the lower authorities.
We have considered the rival submissions and perused the material available on record. We find that the issue of whether the fabrication charges received by the assessee from its Indian associated enterprise, i.e. OCIPL, is taxable as FTS under the provisions of the Act as well as the DTAA came up for consideration before the coordinate bench of the Tribunal in assessee’s own case in Owens Corning (Singapore) PTE Ltd v/s DCIT, in ITA no. 2049/Mum./2016, etc., for the assessment years 2012-13, 2016-17 and 2017-18. While deciding the issue in favour of the assessee, the coordinate bench of the Tribunal vide order dated 06/07/2022, observed as follows: – “10. There is no dispute that the assessee is entitled to the benefits of the Indo-Singapore tax treaty, that the assessee does not have any permanent establishment in India, and that, accordingly, income earned by the assessee cannot be taxed as business profits under article 7 of the Indo Singapore tax treaty/ There is also no, and cannot be any, dispute that once the provisions of the applicable tax treaty are more beneficial to the assessee, the provisions of the Indian Income Tax Act, 1961 cannot be pressed into service. Therefore, as things stand now, everything hinges on the application of the provisions of article 12, dealing with fees for technical services, coming into play. There is also no dispute that refurbishing of bushes does not amount to "making available any technical knowledge, experience, skill, know-how or process" as there is no transfer of technology inherent in the process of rendition of these services, and, it is not even, therefore, the case of the authorities below that the fees received by the assessee can be taxed under article 12(3)(b) of the Indo Singapore tax treaty; their case is confined to the application of Article 12(4)(a) of the Indo Singapore tax treaty which provides that "(t)he 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......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". On the facts of this case, it is also not in dispute that no such payments, were made to the assessee by its Indian affiliate, which will be covered by Article 12(3) of the Indo-Singapore tax treaty. Yet, taxability under Article 12(4)(a) is invoked, on the ground that one of the group companies, i.e. OC-US, has received such payments from the Indian affiliate. OCIPL, which are covered by Article 12(3) of Indo- Singapore tax treaty, and by invoking Article 9. The stand of the Assessing Officer and the DRP is that since the alloys are provided by the OC-US, which is an associated enterprise under article 9, one has to proceed on the basis that the alloys are provided by the assessee, and as the services are "ancillary and subsidiary to the application or enjoyment of the right, property or information" for which payment is made to OC-US, these services are taxable as fees for technical services.
11. As far as the role of Article 9 is concerned, it comes into play when "conditions are made or imposed between the two enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises" and remains confined to bringing those profit for taxes which, but for such arrangements, an enterprise in the respective tax jurisprudence would have made. The scope of Article 9 thus is to neutralize the impact of intra- AE relationship vis-à-vis the profits made in dealings with such an AE. Beyond this limited scope, the application of Article 9 cannot restructure the transaction That is, however, precisely what the revenue authorities seek to accomplish by invoking Article 9 in the present case. The alloy lease transaction that the Indian affiliate had with the OC-US, by invoking Article 9, is sought to be treated as a transaction with the assessee, but then, given the limited scope and role of Article 9, such an exercise is simply impermissible. It would amount to practically rewriting article 12(4) by supplementing the expression "for which a payment described in paragraph 3 is received" with the words by "the enterprise or by any of its associated enterprises anywhere in the world". Neither can we read into the treaty what is not written there, nor would it make any sense anyway. Such an approach is too far-fetched and is neither supported by a plain reading of the treaty provision or by any logical rationale, nor by any commentary or even academic literature. The OC-US and the assessee, a Singapore-based entity, are distinct entities and, they have distinct legal existences. The mere fact that these entities are part of the same multinational group does not require, or justify, ignoring the distinct identities of these entities, or the fact that the operations of these entities are in different jurisdictions. It is also not even the case of the revenue authorities that the refurbishing work is not carried out in Singapore. While a lot of emphases is paid by the revenue authorities on the fact that on the same transaction the assessee had paid taxes in India in the immediately preceding year, and the fact that it is part of overall common arrangements that the leasing is done from one jurisdiction and the refurbishing or bushing is done is another jurisdiction. Nothing, however, turns on these arguments also. The acceptance of tax liability in one year does not constitute estoppel against the assessee for the other years, and it is for the group to organize a multinational group to organize its activity, as long as it is a bonafide arrangement, in a manner as deemed commercially expedient. The question that we have to really consider is whether or not the activity leading to income was actually carried out in that jurisdiction, and there is no dispute on that aspect at all. The fact that an arrangement regarding situs of entities providing different facilities, in connection with a transaction of the multinational group, is done in a tax- efficient manner, cannot be reason enough to disregard the arrangement. We are satisfied that so far as the income of the assessee from the refurbishing of the bushes is concerned, it is not taxable in India as the provisions of Article 12(3) cannot be invoked in this case, and that, so far as the provisions of Article 12(4)(a) are concerned, these provisions cannot be invoked as the assessee has not rendered these services in connection with the services "for which a payment described in paragraph 3 is received" by the assessee. In view of these discussions, as also bearing in mind the entirety of the case, we uphold the plea of the assessee, and delete the impugned addition of Rs.4,84,44,048. The assessee gets the relief accordingly.”
We find that following the aforesaid decision, similar findings were rendered by the coordinate benches of the Tribunal in assessee’s own case for the assessment years 2015-16, 2018-19, 2019-20, 2020-21, and 2021-22.
The learned Departmental Representative could not show any reason to deviate from the aforesaid orders, and no change in facts and law was alleged in the relevant assessment year. The issue arising in the present appeal is recurring in nature and has been decided in favour of the assessee by the decisions of the coordinate bench of the Tribunal for the preceding assessment years. Thus, respectfully following the orders passed by the coordinate bench of the Tribunal in assessee’s own case cited supra, we uphold the plea of the assessee and delete the impugned addition in respect of fabrication charges received by the assessee. As a result, ground no. 1 raised in assessee’s appeal is allowed.
Since we have allowed the ground no. 1 raised by the assessee, therefore, ground no. 2 raised in assessee’s appeal becomes academic and infructuous. Accordingly, the same needs no specific adjudication.
Ground No. 3 raised in assessee’s appeal pertains to the levy of interest under section 234B of the Act, which is consequential in nature. Therefore, the same needs no specific adjudication.
In the result, the appeal by the assessee is allowed. Order pronounced in the open Court on 14/05/2025