OWENS-CORNING(SINGAPORE)PTE.LTD.,MUMBAI vs. THE DEPUTY COMMISSIONER OF INCOME-TAX (INTERNATIOAL TAXATION) CIRCLE-3(2)(2), MUMBAI

460/Mum/2022 Owens-Corning (Singapore) Pte. Ltd. “1:0 Re: Treating the fabrication charges received as fees for technical services: 1:1 The Assessing Officer / the Dispute Resolution Panel has erred in taxing the amount of Rs. 9,11,78,540/- received by the Appellant during the year under consideration as fabrication charges as 'fees for technical services'. 1:2 The Appellant submits that considering the facts and circumstances of its 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 India-Singapore Double Tax Avoidance Agreement ['DTAA'] and the stand taken by the Assessing Officer / Dispute Resolution Panel in this regard is misconceived, illegal, erroneous and incorrect. 1:3 The Appellant submits that the Assessing Officer be directed to delete the addition of Rs. 9, 11, 78,540/- so made and to re-compute its total income and the tax thereon accordingly. Without prejudice to the foregoing: 2:0 Re: Incorrect tax rate applied 2:1 The Assessing Officer has erred in taxing the alleged fees for technical service at the 25% instead of 10% in terms of Article 12(2) of the India-Singapore DTAA. 2:2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject the amount received by the Appellant even if taxable as 'fees for technical service' ought to be taxed at the rate of 10% in terms of Article 12(2) of the India- Singapore DTAA and the stand taken by the Assessing Officer in this connection is misconceived, incorrect, erroneous and illegal. 2:3 The Appellant submits that the Assessing Officer be directed to re-compute the tax liability accordingly. 3:0 Re.: Levy of interest u/s 234B of the Income-tax Act, 1961: 3:1 The Assessing Officer has erred in levying interest u/s. 234B of the Income-tax Act, 1961 on the Appellant. 3:2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject no interest u/s. 234B is leviable and the stand taken by the Assessing Officer in this regard is misconceived, incorrect, erroneous and illegal. 3:3 The Appellant submits that the Assessing Officer be directed to delete the interest u/s. 2348 so levied on it and to re-compute its tax liability accordingly.”

The Appellant submits that the aforesaid excess tax demand is unexplained, and the stand taken by the Assessing Officer in this regard is misconceived, incorrect, erroneous and illegal.

The Appellant submits that the Assessing Officer be directed to delete excessive tax demand and to re-compute its tax liability accordingly. Re: General 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

The above said additional alloys belong to M/s "Owens Corning Inc (OC-US, a tax resident of United States of America) and is made available to Owens Corning Singapore as and when required. Owens Corning Singapore receives the alloys required to from M/s Owens Corning Inc, in the form of ingots, powder form, etc for the re-fabrication process described above as 'additional raw material' without any payment having been made by the receiving party.

These alloys, as per the MLA dated 1 April 2007 entered into between Owens Corning Inc and OCIPL, quantify to 100 kgs and 25 kgs of platinum and rhodium respectively. The MLA states that OCIPL had delivered to Owens Corning Inc these stated alloys in the manner said hereunder: 8 bushings having design no. R20- 2372-TT47B and 2 bushings Design no. R20-2469-TT7. These 10 bushings received from OC Inc were deployed by OCIPL in the manufacturing process during the F.Y. 2006-07 and after every 250 days were sent for re-fabrication and have as such lost their original identity.

Upto July 2010, OCIPL sent the bushings to OC Inc for fabrication and so OC Inc billed OCIPL for providing the metal as well as for the fabrication work done. Subsequently the bushings were sent to 'Owens Corning Singapore Pte Ltd' for fabrication since the alloy shop for fabrication of bushings was set up in Singapore in the month of July 2010 and Owens Corning Inc merely billed OCIPL for providing the alloys viz Rhodium and Platinum as may be necessary for fabrication to Singapore.

Since fabrication is the primary business of Owens Corning Singapore Pte Ltd no separate agreement has been entered into by it with the applicant for the fabrication. Only invoices were raised for fabrication charges in the normal course 460/Mum/2022 Owens-Corning (Singapore) Pte. Ltd. of business. There is no agreement between Owens Corning Inc and Owens Corning Singapore for supply of material for fabrication or re-fabrication of the bushings received from the applicant.

The company OCIPL pays Owens Corning Inc lease rentals in terms of the MLA (MASTER LEASE AGREEMENT) for additional alloy used in the fabrication process. No amount is charged by Owens Corning Inc to Owens Corning Singapore Pte Ltd for Alloy used in fabrication process.

According to Owens Corning Singapore, the fabrication charges were offered as FTS by them up to AY 2011-12 (F.Y. 2010-11). However in A.Y 2015-16 they have not offered the same for taxation stating that these fabrication charges received are not taxable in India since the company does not have any Permanent Establishment or Business Connection in India. Also these charges are not for any equipment and hence cannot be said to be Royalty in terms of Article 12(3) of the DTAA between India and Singapore. The assessee further states that the same cannot be classified as 'Fees for technical services' for the following reasons: "a) The assessee has not granted any right, property or information to any Indian company in terms of Para 3 or Article 12 and hence the fees received do not fall within the definition of fees for included services as per Article 12(4)(a) of the DTAA. Since as per Article 12(4)(a) of the DTAA 'Fees for Included Services' should be ancillary or subsidiary to the application or enjoyment of the right or property or information for which a payment described in Para 3. b) Also the services rendered by the company do not make available any technical knowledge, skills, experience etc either to OCIPL or to Owens 460/Mum/2022 Owens-Corning (Singapore) Pte. Ltd. Corning Industries India Pvt. Ltd and hence does not fall within the definition of fees for included services' as per Article 12(4)(b) of the DTAA."

Against this order assessee preferred an appeal before us. We have gone through the order of the AO, directions of the DRP and objections/submissions taken by assessee before various authorities below. We have gone through the process as explained by assessee through illustration also.

Without going into further details, as we have gone through the order of ITAT, Mumbai in assessee’s own case vide ITA No. 2049/Mum/2016, ITA No. 5731/Mum/2019 and ITA No. 742/Mum/2021 for AYs 2011-12, 2012-13, 2016-17 and 2017-18 respectively. The issue under consideration has dealt with in detail dealing with the contentions of assessee and Department by ITAT in appeals mentioned (supra).

For sake of further clarity and as we are also agreed and following these orders, the relevant extract of the order arisen out of ITA No. 2049/Mum/2016 dated 06.07.2022, we are reproducing here-in-below: “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 460/Mum/2022 Owens-Corning (Singapore) Pte. Ltd. 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.

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 itself. That is, however, precisely what the revenue authorities seek to accomplish by invoking Article 9 in the present case. The alloy lease transaction 460/Mum/2022 Owens-Corning (Singapore) Pte. Ltd. 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.”

In view of these discussions and respectfully following the order of the ITAT, Mumbai in assessee’s own case and also bearing in mind the entirety of the case, we allow Ground No.1 raised by assessee.

As the Ground No.1 which is a core issue in this appeal is allowed. Ground No. 2 & 3 became academic and infructuous. 17. Ground No. 2 & 3 are thus, dismissed as infructuous. 18. In the result, appeal of assessee is allowed. (A.Y. 2018-19) 19. As regards ITA No. 460/Mum/2022 (A.Y. 2018-19) as the facts and issue involved is exactly the same, hence, what we decide in A.Y. 2015-16 will apply mutatis mutandis. 20. In the result, ITA No. 460/Mum/2022 is also allowed. Order pronounced in the open court on 26th day of December, 2022.