OWENS CORNING (SINGAPORE) PTE LTD,MUMBAI vs. THE DCIT (INT TAX) CIRCLE-3(2)(2), MUMBAI

The issue under consideration pertains to the taxability of the fabrication charges received by the assessee company 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").

Briefly, the facts of the case are that the assessee is a company incorporated in Singapore and is a tax resident of Singapore. For the year under consideration, the assessee filed its return of income on 27-11-2023 which 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, the Assessing officer observed from the computation of income that the assessee has claimed the receipt of fabrication charges of Rs. 21,96,83,550/- from its Indian associated enterprises, namely, Owens-Corning India Pvt. Ltd. ("OCIPL"), as non- taxable in India as the assessee claims that it has neither any Permanent Establishment in India as per Article 5 of the India-Singapore DTAA nor any business connection in India. The AO observed that prima facie, the income was in nature of fees for technical services and the assessee was asked to show cause as to why the said amount should not be taxed as fees for technical services as the nature of services rendered are ancillary and subsidiary to the enjoyment of exclusive rights of know-how and patents enjoyed by the assessee in specialized glass fibre manufacturing. 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 DIAA 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 AO, vide draft assessment order dated 17-03-2025, passed u/s. 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 thereafter filed objections against the addition made by the AO before the Ld.DRP. The Ld.DRP referred to its findings for A.Y 2022-23 and noted that Revenue has preferred appeal against the orders of the Tribunal for earlier years and considering the facts of earlier years similar to the facts for the year under consideration vide directions dated 30-06-2025, issued u/s. 144C(5) of the Act rejected the objections filed by the assessee holding the proceedings before the DRP to be a continuation of assessment proceedings and in order to keep the issue alive and to protect the interest of the Revenue.

In conformity with the directions issued by the Ld.DRP, the AO vide impugned final assessment order dated 10-07-2025, 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 course of hearing, the Ld.AR submitted that it is a recurring issue and the matter has been decided in favour of the assessee by various Coordinate Benches of the Tribunal in assessee's own case for the earlier assessment years right from assessment year 20212-13 onwards. The Ld.AR submitted that facts and circumstances of the case are identical to the earlier years and therefore, the orders so passed by the Coordinate Benches for the earlier years may be followed and necessary relief be provided to the assessee.

The Ld. DR has been heard who has relied upon the orders passed by the lower authorities. At the same time, the Ld.DR fairly submitted that there are no changes in the facts and circumstances of the case as noted by the AO and DRP and the matter is covered by the earlier decisions of the Coordinate Benches. It was also submitted that the Revenue has not accepted the said decisions and the matter is currently pending adjudication before the Hon‟ble Bombay High Court.

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 India-Singapore DTAA first came up for consideration before the Co-ordinate Bench of the Tribunal for the AYs. 2012-13, 2016-17 and 2017-18 and while deciding the issue in favour of the assessee, the Co-ordinate Bench of the Tribunal in ITA No. 2049/Mum./2016, etc., 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 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 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 entilies, 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

We find that following the aforesaid decision, similar findings were rendered by the Co-ordinate Benches of the Tribunal in assessee's own case for the AYs. 2015-16, 2018-19, 2019-20, 2020-21, 2021-22 and 2022-23.

The issue arising in the present appeal is thus recurring in nature and has been decided in favour of the assessee by the decisions of the Co-ordinate Benches of the Tribunal for the preceding assessment years. Thus, respectfully following the orders passed by the Co-ordinate 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 filed by the assessee is allowed.