M/S. BURO HAPPOLD LTD,MUMBAI vs. DY.CIT (INT TAX) -1(3) (2), MUMBAI

This appeal in A.Y.2019-20 preferred by the order against the final assessment order passed by the Assessing Officer u/s.143(3) r.w.s. 144C(13) of the Income Tax Act, hereinafter referred to as Act, pursuant to the directions of the ld. Dispute Resolution Panel-III, Mumbai (DRP in short) u/s.144C(5) of the Act dated 30/03/2022 for the A.Y.2019-20.

The assessee has raised the following grounds of appeal before us:-

Ground No. IV-Erroneous levy of consequential interest under section 234B. 4.1. On facts and circumstances of the case and in law, the learned DCIT has erred in levying consequential interest under Section 234B of the Act amounting to INR 32,32,988/- The appellant craves leave to add alter amend modify or amplify any of the above stated Grounds of Appeal

We have heard the rival submissions and perused the materials available on record. The assessee is a company registered in the United Kingdom and is a tax resident of that State. The assessee is an international, integrated engineering and consultancy company. The assessee is engaged in the business of providing structural and MEP (Mechanical, Electrical and Public Healthy) Engineering and consultation services for various buildings & projects in India. During the year under M/s. Buro Happold Limited consideration, the assessee has received amounts from India from the following streams:-

Pursuant to the directions of the ld. DRP, the ld. AO passed the final assessment order u/s 143(3) rws 144C(13) of the Act on 27/04/2022. Aggrieved, the assessee is in appeal before us.

At the outset, we find that the issue in dispute is squarely covered in favour of the assessee by the order of this tribunal in AY 2012-13 in dated 15/02/2019 wherein it was held as under:-

We have considered rival submissions and perused material on record. We have also applied our mind to the decisions relied upon by both the parties. The core issue which needs to be addressed is, whether the amount received by the assessee towards supply of technical designs, drawings, plans, etc., under the consulting engineering services is to be treated as fees for technical services under the India-UK tax treaty. Once this issue is decided, the issue whether cost recharge is in the nature of fees for technical services will automatically get resolved since both the Assessing Officer and learned Commissioner (Appeals) have treated it as fees for technical services on the reasoning that such cost recharge is ancillary and incidental to consulting engineering services.

There is no dispute between the parties that the assessee being a tax resident of UK is governed under India-UK tax treaty and if the treaty provisions are more beneficial, they will apply to the assessee in terms with section 90(2) of the Act. From the assessment stage itself, the assessee has pleaded that since the supply of technical design/ drawings/plans by it to the Indian entity does not make available any technical knowledge, knowhow, process, etc., it cannot be treated as fees for technical services under Article-13(4)(c) India-UK tax treaty. Whereas, the Assessing Officer has rebutted such contention of the assessee on the reasoning M/s. Buro Happold Limited that as per the second limb of Article-13(4)(c) of the India-UK tax treaty, amount received towards development and transfer of a technical plan or technical design, by itself, is in the nature of fees for technical services and there is no necessity of fulfilling the condition of "make available". The learned Commissioner (Appeals) while agreeing with the aforesaid reasoning of the Assessing Officer has further supplemented it by observing that through the provision of technical drawing and design and consultancy services provided through personnel at the site, the assessee has made available technical knowledge, experience, skill, knowhow or processes to the Indian entity, hence, the amount received is in the nature of fees for technical services.

For a better understanding of the dispute, it is necessary to look into the scope of work to be undertaken by the assessee under the relevant agreements. On a perusal of the sample copies of the agreements, it is noticed that the assessee was entrusted the work of providing consulting services for a twin city project by the Pune Municipality as well as other building projects in Mumbai. Further, on perusal of the sample copies of the agreement filed in the paper book, it is seen that the work of the assessee is basically to provide consultancy services relating to the projects and in that context to provide technical designs/drawings/plans. It is a fact on record that technical designs/drawings/plans supplied by the assessee under contract are project specific.

Keeping in view the aforesaid factual position, we need to examine the taxability of the amount received by the assessee under the India-UK tax treaty. As per Article-13 of the India-UK tax treaty, royalty and fees for technical services arising in a contracting State and paid to a resident of other contracting State may be taxed in that other State. However, such royalty and fees for technical services can also be taxed in the contracting State in which they arise subject to certain restrictions and conditions as enumerated in Article-13(2) of the India-UK tax treaty. Since, in the present appeal the departmental authorities have treated the amount received by the assessee as fees for technical services, we have to look to the meaning of fees for technical services under India-UK tax treaty. Article- 13(4) of the India-U.K. tax treaty defines fees for technical services as under:- "4. For the purposes of paragraph 2 of this Article, and subject to paragraph 5, of this Article, the term "fees for technical services" means payments of any kind of any person in consideration for the rendering of any technical or consultancy services (including the provision of services of a technical or other personnel) which : (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3(a) of this article is received ; or (b) are ancillary and subsidiary to the enjoyment of the property for which a payment described in paragraph 3(b) of this Article is received ; or (c) make available technical knowledge, experience, skill know- how or processes, or consist of the development and transfer of a technical plan or technical design." Buro Happold Limited 18. Since, the conditions of Article-13(5) of the India-UK tax treaty are not applicable in the present case, it is not relevant for our purpose. Undisputedly, M/s. Buro Happold Limited both the departmental authorities and the assessee are in agreement that if, at all, the amount received by the assessee is treated as fees for technical services, it will come within Article-13(4)(c) of the India-UK tax treaty. Therefore, the following two issues arise for our consideration viz., (i) Whether development and transfer of a technical plan or technical design simplicitor without making available technical knowledge, experience, skill, knowhow or processes, etc., would be in the nature of fees for technical services; and (ii) In the event, it is held that development and transfer of a technical plan or a technical design also requires making available technical knowledge, experience, skill, knowhow or processes, etc., whether in the present case such condition is satisfied."

Undisputedly, in the present case, the amount received by the assessee, which has been treated as fees for technical services is towards supply of technical drawings/designs/plans. On a careful reading of Article-13(4)(c) of the India-UK tax treaty it becomes clear that the words "or consists of the development and transfer of a technical plan or technical design", appearing in the second limb has to be read in conjunction with "make available technical knowledge, experience, skill, knowhow or processes". The reasoning of the Assessing Officer that the second limb of Article-13(4)(c) of the India-UK tax treaty has to be read independently, in our view, cannot be the correct interpretation of the said Article. As per the rule of ejusdem generis, the words "or consists of the development and transfer of a technical plan or technical design" will take colour from "make available technical knowledge, experience, skill, knowhow or processes".

Having held so, now it is necessary to examine whether by supply of technical, designs, drawing, plans, the assessee has made available technical knowledge, experience, skill, knowhow or processes. As per the settled principle of law, technology is considered to have been made available when the recipient of such technology is competent and authorised to apply the technology contained therein independently as an owner without depending upon the service provider. The recipient of technology should be able to make use of technical knowledge, experience, skill, knowhow or processes by himself in his business or for his own benefit and without recourse to the service provider in future and for this purpose a transmission of the technical knowledge, experience, skill, knowhow or processes, from the service provider to the service recipient is necessary. In other words, the technical knowledge, experience, skill, knowhow or processes, must remain with the service recipient even after rendering of the services has come to an end. The service recipient must be at liberty to use the technical knowledge, experience, skill, knowhow or processes in his own right. Undisputedly, in the present case, as revealed from the material on record, the technical design/drawings/plans supplied by the assessee to the Indian entity are project specific, hence, cannot be used by the Indian entity in any other project in future. Therefore, the claim of the assessee that it has not made available any technical knowledge, experience, skill, knowhow or processes while developing and supplying the technical drawings/designs/plans has to be accepted. If the Department is of the view that through development and supply of technical designs/drawings/plans the assessee has made available technical knowledge, experience, skill, knowhow or processes, it is for the Department to establish such M/s. Buro Happold Limited fact through proper evidence. The assessee certainly cannot be asked to prove the negative. It is worth mentioning, while deciding a dispute of identical nature concerning fees for technical services as per India-USA tax treaty under which definition of fess for included services as per Article-12(4)(b) is identically worded like Article 13(4)(c) of the India-UK tax treaty, the Tribunal, Pune Bench, in Gera Developments Pvt. Ltd. v/s DCIT, [2016] 160 ITD 439 (Pune), has held that mere passing off project specific architectural, drawings and designs with measurements does not amount to making available technical knowledge, experience, skill, knowhow or processes. The Tribunal held that unless there is transfer of technical expertise skill or knowledge along with drawings and designs and if the assessee cannot independently use the drawings and designs in any manner whatsoever for commercial purpose, the payment received cannot be treated as fees for technical services. Though, we have taken note of other decisions cited by the learned Authorised Representative we do not intend to deliberate further on them. As regards the decisions cited by the learned Departmental Representative, we find them to factually distinguishable, hence, not applicable to the present appeal. In any case of the matter, the Department has failed to establish on record that through development and supply of technical designs / drawings / plans the assessee has made available technical knowledge, experience, skill, knowhow or processes to the service recipient so as to bring the amount received within the meaning of fees for technical services under Article- 13(4)(c) of the India-UK Tax Treaty. Therefore, in our considered opinion, the amount received by the assessee has to be treated as business profit and in the absence of a PE in India, it cannot be brought to tax in India.

Since, we have held the amount received towards consulting engineering services to be not in the nature of fees for technical services, the reasoning of the departmental authorities with regard to cost recharge would also fail, since, they have treated it as ancillary and incidental to consulting engineering services. The, contention of the learned Departmental Representative that the cost recharge fails various tests, such as, need test, benefit test etc. is unacceptable, it is contrary to the finding of the Departmental Authorities. Once, the Departmental Authorities have treated the amount received towards cost recharge to be in the nature fees for technical services, it implies rendering of service by the assessee. Therefore, applying the very same reason on the basis of which we have held the amount received towards consulting engineering services to be not in the nature of fees for technical services as discussed above, we hold that the amount received towards cost recharge cannot be brought to tax in India in the absence of PE. Therefore, the additions made by the Assessing Officer are hereby deleted. The assessee succeeds in both the grounds.

In the result, assessee's appeal is allowed. 6.1. We find that this tribunal for the AY 2014-15 in dated 13/11/2019 and for the AY 2015-16 in ITA No. 834/Mum/2019 dated 30/12/2020 had restored the issues to the file of ld. AO in view of the fact that the assessee had actually offered the receipts as its income in the return of income but by way of additional ground M/s. Buro Happold Limited claimed to be not taxable in India as per the Act and as well as per the Treaty. In view of this fact, the tribunal restored the issue to the file of ld. AO. Whereas, for the AY 2017-18 i.e the year under consideration before us, the assessee had claimed the subject mentioned receipts as not chargeable to tax in India in the return of income itself. Hence we hold that the decision of this tribunal for AY 2014-15 and 2015-16 would not be applicable here and the decision of this tribunal for AY 2012-13 dated 15/02/2019 would be applicable here in view of same facts. Hence respectfully following the decision of this tribunal in AY 2012-13 referred supra, the Ground Nos. 1 and 2 raised by the assessee are allowed.

In view of our decision rendered hereinabove for Ground Nos. 1 & 2, the adjudication of Ground No. 3 would become infructuous as it only pertains to the rate of tax if the aforesaid receipts were treated as income of the assessee. Hence the Ground No. 3 is hereby dismissed as infructuous.

The Ground No. 4 is challenging the levy of interest u/s 234B of the Act which is consequential in nature and does not require any specific adjudication.

In the result, the appeal of the assessee is partly allowed. Order pronounced on 19/12/2022 by way of proper mentioning in the notice board.