Loading judgment…
Facts
The assessee, an association of persons, paid consultancy fees for architectural and engineering services to three non-residents. The Assessing Officer disallowed these payments for non-deduction of TDS. The CIT(A) upheld the disallowance. The assessee appealed, arguing the services were project-specific and did not 'make available' technical knowledge as required by the Double Taxation Avoidance Agreements (DTAAs) for fees to be considered 'fees for technical services' (FTS).
Held
The Tribunal held that the services rendered to the US and Canadian entities did not qualify as FTS under the respective DTAAs because the technical knowledge was not 'made available' to the assessee for independent use. However, for the payment to the Thai entity, since the India-Thailand DTAA had no specific provision for FTS and the services were utilized in India, it was taxable as business income, and non-deduction of TDS led to disallowance.
Key Issues
Whether the consultancy payments made to non-residents constitute 'fees for technical services' under the relevant DTAAs, or if the services were merely advisory and did not 'make available' technical knowledge to the assessee.
Sections Cited
40(a)(i), 40(a)(ia), 90(2), 9(1)(vii), 195
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “I” BENCH MUMBAI
Before: SHRI AMIT SHUKLA & SHRI GIRISH AGRAWAL
Present for: Assessee : Shri Ravi Ganatra, Advocate Revenue : Shri Krishna Kumar, Sr. DR. Date of Hearing : 30.10.2025 Date of Pronouncement : 27.01.2026 O R D E R
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:
This appeal filed by the assessee is against the order of ADDL/JCIT (A)-2 NOIDA, vide order no. ITBA/APL/S/250/2024- 25/1070036124(1), dated 30.10.2024, passed against the assessment order by Assistant Commissioner Of Income Tax, Circle 20(3), Mumbai, u/s. 143(3) of the Income-tax Act (hereinafter referred to as the “Act”), dated 30.12.2019 for Assessment Year 2017-18.
Grounds taken by assessee are reproduced as under: “1. On the facts and in the circumstances of the appellant company's case and in law, the Ld. Addl./ Jt. Commissioner of Income Tax (Appeals) - 2, Noida, has erred in not quashing the assessment order passed on 30.12.2019 by the Assessing Officer w/s 143(3) of the Income Tax Act, 1961.
Turf Estate JV Assessment Year 2017-18 2. On the facts and in the circumstances of the appellant company's case and in law, the Ld. Addl./Jt. Commissioner of Income Tax (Appeals) -2, Noida, erred in upholding the disallowance of Rs 2,13,66,955/- u/s 40(a)(ia) of the Act for non- deduction of TDS on "Fees for technical services" paid to three non-residents while ignoring the fact that: (a) The services rendered by the non-resident consultants constitute professional and consultancy services in the nature of Architectural & Engineering services which are project specific and cannot be / have not been used for any other project by the appellant company. (b) No technical knowledge, expertise, or skill was "made available" to the appellant company for independent use in the future and hence, the services rendered by the non-residents namely, Adrian Smith + Gordan Gill & Rowan Williams Davi, do not qualify as "fees for technical services" within Article 12(4) of the tax treaty between India & USA and India & Canada respectively and consequently no TDS is deductible from the said payments. (c) The services availed from non-resident entity, P Landscape Co. Ltd is not chargeable to tax in India since the same do not qualify as "Business Profits" within Article 5 and Article 7 of the DTAA between India & Thailand in the absence of Permanent Establishment in India and hence the applicability of TDS provisions on the said payments does not arise. (d) In summary, the consultancy services rendered by the three non-residents do not attract any withholding tax liability u/s 195 of the Income Tax Act, 1961 in view of the provisions of sub section (2) of section 90A of the Act and the benefit availed by the appellant company under the relevant double taxation treaty entered into by India with the respective countries of the non-resident payees. Reliance is placed on the various judicial precedents as follows: i. Decision of the Jurisdictional Hon'ble Income Tax Appellate Tribunal in the case of Income Tax Officer Vs. M/s Macrotech Developers Ltd in to 500 & 784/Mum/2022 dated 24.01.2023; ii. Decision of the Jurisdictional Hon'ble Income Tax Appellate Tribunal in the case of DCIT, Cir.6(3)(1), Mumbai Vs M/s Forum Homes Pvt Ltd in iii. Gera Developments (P) Ltd vs DCIT (International Taxation)-1, Pune (2016) 72 taxmann.com 238 (Pune-Trib); iv. ITO vs M/s Bengal NRI Complex Ltd ITA No.1290/Kol/2014 & ITA No.1088/Kol/2014; v. CIT vs Dee Beers India Minerals (P) Ltd (2012) 21 taxmann.com 214 (Kar).
Without prejudice to ground no. 2 above, on the facts and in the circumstances of the appellant company's case and in law, the Ld. Addl./ Jt. Commissioner of Income Tax (Appeals)2, Noida, has erred in not adjusting the disallowance made by the Assessing Officer of Rs 2,13,66,955/- towards Professional and Consultancy fees paid or payable to above said non-resident consultants against Turf Estate JV Assessment Year 2017-18 the project work in progress since the appellant has not even claimed such expenditure in the Profit & Loss Account during the year under consideration.”
The only issue involved in this appeal is in respect of disallowance made by ld. Assessing Officer for non-deduction of tax at source on fees for technical services (FTS) paid to three non-residents. Ld. Assessing Officer has applied the provisions of section 40(a)(ia) for making the disallowance though the correct provision in this regard is section 40(a)(i). Brief facts of the case are that assessee is an association of persons (AoP) formed by Joint Venture Agreement entered into by and between DB Realty Limited and Jony Estes Private Limited with the object of development and construction of residential and commercial complex at Mahalaxmi, Mumbai. Assessee filed its return of income on 29.07.2017 reporting total loss at Rs. 3,17,14,153/- Assessee made payments towards consultancy fees to the non-residents in respect of architectural and engineering services for its projects in Mumbai. Details of consultancy fees paid in respect of which disallowance has been made is tabulate below: Sr.No. Name of Party Amount Residential (Rs.) Status
Adrian Smith + Gordan Gill 6,56,03,900 Non-Resident (US) 2. P Landscape Co. Ltd. 26,06,083 Non-Resident (Thailand) 3. Rowan Williams Davi 30,13,200 Non-Resident, (Canada)
Assessee made these payments on which no TDS was done. Ld. Assessing Officer called for explanation in this regard for which replies were furnished along with detailed explanation for the position adopted by the assessee. In conclusion, ld. Assessing Officer while making the disallowance observed that assessee did not provide any proof in respect of the architectural services to demonstrate that the same had not been Turf Estate JV Assessment Year 2017-18 made available to it. According to the ld. Assessing Officer, assessee had not explained how the liability to do TDS has been done away with, while making payments which are covered under the relevant Double Tax Avoidance Agreements (DTAA) to each of the payee. Ld. CIT(A) upheld the disallowance made by the ld. Assessing Officer in the first appeal filed by the assessee. Aggrieved, assessee is in appeal before the Tribunal.
We have heard both the parties and perused the material on record. We have also gone through the orders of the authorities below and as well as the written submissions and paper book filed by the assessee, placed on record. Fact of the matter is that assessee has paid consultancy fees towards architectural and engineering services for its residential projects at Mumbai, expenses of which have been debited to project work in progress. By resorting to section 90(2) of the Act, assessee availed the benefit under the DTAA between the respective countries where each of the payee is the resident. Reference was made to Article 12 of India-US and India-Canada DTAA which deals with royalties and fees for included services. Under Para-4 of Article 12 from these two DTAAs, definitions of “fees for included services” is extracted below: “For purposes of this Article, "fees for included services" means payments of any kind to any person in consideration for the repßering of any technical or consultancy services (including through the provision of services of technical or other personnel) of such services: (a) 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; or (b) make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design.” 5.1. Based on these, assessee contended that fees payable to the two parties, resident of US and Canada constitutes fees for technical
Turf Estate JV Assessment Year 2017-18 services (FTS). However, the said FTS is liable to tax in India only if the technology is “made available” to the assessee. According to the assessee, since no technology is made available to it by rendering of services by the two non-residents, therefore, the same is not liable to tax in India. Also, the two parties of US and Canada do not have any Permanent Establishment (PE) in India and therefore, the same is also not taxable in India under Article 7 under the relevant DTAAs. In respect of payments made to the entity at Thailand, assessee claims that there is no specific provision related to FTS in India-Thailand DTAA, in absence of which, the said amount paid by it, is taxable under Article 7 as ‘Business income’. Since, there is no PE of Thailand entity in India and therefore, the said income is not chargeable to tax in India. Accordingly, no TDS is required to be done on this payment also.
On the above contention, we first look at the payments made to non-resident of US and Canada by reference to the respective DTAA which are pari materia. It is undisputed that the services rendered by the three parties are in the nature of FTS. For the purpose of determining whether TDS was required to be done on the payments made to the non-residents of US and Canada, it is imperative to determine whether these services “make available” any technical knowledge, skill, experience, etc. to the assessee or involves development or transfer of technical plan or design to the assessee. For the purpose of interpretation of the words “make available”, under the Memorandum of Understanding (MoU) to India-US DTAA, it has been clarified that: "Generally speaking, technology will be considered "made available" when the person acquiring the service is enabled to apply the technology. The fact that the provision of the service may require technical input by the person providing the service does not per se mean that technical knowledge, skills, etc. are made available to the person purchasing the service, within the meaning of paragraph 4(b). Similarly, the use of a product, which embodies technology, shall not per se be considered to make the technology available."
6.1. In other words, MoU seeks to clarify that the services are considered to be made available only where the services leads to transfer/ imparting of technical knowledge, experience, skill, know- how, or processes to the recipient which enables the recipient to apply the same on its own.
6.2. Further, on page 790 of Klaus Vogel on Double Taxation Conventions Third edition, Vogel comments that the criterion used to distinguish the provision of know-how from rendering advisory services is the concept of imparting. The relevant extract of the commentary is reproduced below: "Imparting of experience: Whenever the term royalties relates to payments in respect of experience (know-how'), the condition for applying Article 12 is that the remuneration is being paid for 'imparting' such know-how…….in contrast, the criterion used to distinguish the provision of know-how from rendering advisory services is the concept of 'imparting'. An advisor or consultant, rather than imparting his experience, uses it himself (BFH BstBl II 235 (1971), Ministre des Relations exterieures, Response a M Bockel, 36 Dr. Fisc. Comm. 1956 (1984)). All that he imparts is a conclusion that he draws inter alia from his own experience. His obligation to observe secrets, or even his own interest in retaining his 'means of production', will already prevent a consultant from imparting his experience. In contrast to a person using his own know-how in providing advisory services, a grantor of know-how has nothing to do with the use the recipient makes of it.”
6.3. Even Hon'ble Karnataka High Court in the case of CIT vs. De Beers India Minerals (P) Ltd. (2012) 346 ITR 467 (Kar.) had interpreted the term 'make available' as under :- "22. What is the meaning of "make available". The technical or consultancy service rendered should be of such a nature that It "makes available" to the recipient. Technical knowledge, know-how and the like., The service should be aimed at and result in transmitting technical knowledge, etc..so that the payer of the service could derive an enduring benefit and utilize the knowledge or know how on his own in future without the aid, of the service provider. In other words, to fit into the terminology 'making available', the technical knowledge, skills, etc. must remain with the person receiving the services even after the particular contract comes to an end. It is not enough that the services offered are the product of intense technological effort and a lot of technical knowledge and experience of the service provider have gone into it. The technical knowledge or skills of the Turf Estate JV Assessment Year 2017-18 provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider. Technology will be considered 'made available' when the person acquiring the service is enabled to apply the technology. The fact that the provision of the service that may require technical knowledge skills, etc. does not mean that technology is made available to the person purchasing the service, within the meaning of paragraph (4)(b). Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available. In other words, payment of consideration would be regarded as " fee for technical/included services" only if the twin test of rendering services and making technical knowledge available at the same time is satisfied."
6.4. In view of the above, it can be concluded that rendering of technical services leads to transfer/ imparting of technical knowledge, experience, skill, know-how, or processes to the recipient which enables the recipient to apply the same on its own. In other words, the recipient acquires a means to an end, i.e., it acquires the technical knowledge, experience, skills, know-how or processes from the provider which acts as a means and enables it to use the same for achieving a further end. In a service which does not qualify as technical services, the services itself serves as an end for the recipient since it does not acquire any technical knowledge, experience, skill, know-how, or processes from the service provider.
6.5. In light of the judicial pronouncement highlighted above which have affirmed the principle of parallel treaty interpretation, especially as regards the meaning of the term 'make available', considering the interpretation provided in the MoU to India-US tax treaty, services can be said to 'make available' technical knowledge etc, where such technical knowledge is transferred to the person utilizing the service (assessee in the instant case) and such person is able to make use of the technical knowledge etc, by it in its business or for itd own benefit and without recourse to the performer of services (i.e., non-resident entities) in the future. The mere fact that provision of service may
Applying the above understanding to the facts of the present case before us, services received by the assessee are in nature of architectural and engineering services, which are project specific and cannot have been made use of for any other project by the assessee. No technical knowledge, expertise or skill was “made available” to the assessee for independent use in future. For the details of services in respect of the US entity, assessee placed on record copy of work order along with its annexure containing bill of quantities describing the nature of services provided to it. The service description forming part of the work order is listed as under: Sub No: Service Description 0010 Design Meeting/Workshop No.2 Development 6% payment of contract value. 0011 Final Design Meeting/Workshop Development 6% payment of contract value 0012 Construction Meeting/Workshop 1Document 5% payment of contract value. 0013 Construction Meeting/Workshop 2 Document 6% payment of contract value. 0023 90% Completion of Construction Documents 6% payment of contract value. 0033 Final Construction Documents Meeting 6% payment of contract value. 0043 Tender Stage -upon completion of month 1 0.5% payment of contract value. 0053 Tender Stage Upon Completion of Month 2 7.1. From the above listed services, it is evident that these are not resulting into imparting of any technical knowledge or experience to the assessee which can be used by it independently in its business. These services are neither geared to nor do they make available any technical knowledge or skill or experience to the assessee or consist of development of technical plan or technical design. What is important is to understand that the term “make available” envisages a situation where the service recipient, i.e., the assessee is able to make use of the technical knowledge inherent in services provided to it, independently in its business or for its own benefit without recourse to its service provider.
7.2. Similar is the scope of services provided by the Canadian entity for which also work order is placed in the paper book. The scope as contained in the said work order is extracted below for ready reference: “The Wind Engineering Consultant shall study, analyze wind tunnel tests, coordinate with all consultants appointed by the client and provide results for the wind design of the towers. Wind Tunnel test shall be employed to provide wind load prediction in order that the design team may optimize the structural material properties on the proposed residential towers. The results of the wind tunnel test shall be combined with statistical model of local wind climate so as to provide predictions of the wind loads for 50 year return period. The scope includes the following: 1. Wind Climate Analysis 2. Proximity Model Construction 3. Wind-Induced Structural Responses Study (HFFB)-3 Towers 4. Cladding Wind Load Study- Entire Development 5. Pedestrian Wind Study- Entire development”
Turf Estate JV Assessment Year 2017-18 8. Ld. Assessing Officer in this regard has misconstrued the application of “make available” requirement under Article 12(4) of the two DTAAs by observing that “if such services have not been made available to the assessee then why it had made payment at first place”. Further, ld. Assessing Officer in reference to the term “make available” observes that no proof has been provided by the assessee in respect of architectural service to show that such service has actually been made available to the assessee. He further notes that non-resident party has used its skill, knowledge, design plans, so as to design the architecture plan which is based in India. Such knowledge has been used in creating architectural services which once formulated will remain intact with the real estate project of assessee. He goes on to note that the core of construction and function of architecture rely upon architectural service which has been provided to assessee or has been “made available” in India for the project which is being constructed in India. These observations by ld. Assessing Officer are not in sync with the understanding of the term “make available” as noted above from the MoU of the India-US DTAA which also applies to interpretation of treaty of the provisions of India-Canada DTAA. It is important to note that, while providing the architectural services by the two parties, the skill, knowledge and technique always remain with the provider of the services, i.e., the non-resident parties. What is transferred to the assessee is a final design plan by the parties, its implementation without sharing/transferring of the actual knowledge, skill and technique to develop such plan. Assessee on its own in future cannot develop such similar plans for its other projects.
8.1. Accordingly, in the current set of facts and the position as emanating from the discussion of the treaty provisions above, we hold that the payments made by the assessee to the two parties of US and Turf Estate JV Assessment Year 2017-18 Canada do not quality as FTS under the provisions of India-US and India-Canada DTAA. Having held so, the same are not taxable in India and therefore not subjected to TDS provisions u/s. 40(a)(i). Disallowance made by ld. Assessing Officer by applying 30% under mistaken reference to section 40(a)(ia) deserves to be deleted and at the same time, no disallowance is to be made u/s. 40(a)(i).
In respect of payment made to the non-resident of Thailand, the India-Thailand DTAA does not have any Article/provision to deal with FTS. Article 12 of this DTAA refers only to “Royalties”. Furthermore, Article 14 deals with independent personal services which would also not apply in the present case as the service provider is limited company as evident from its work order and not an individual. Payment made by the assessee to this Thailand entity falls within the meaning of FTS as contained in section 9(1)(vii) of the Act. The relevant clause of section 9 in this respect is extracted below: “(vii) income by way of fees for technical services payable by- (a) the Government; or (b) a person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or (c) a person who is a non-resident, where the fees are payable in respect of services utilised in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India”
9.1. Payment made by the assessee from India which is a source country falls within the meaning of FTS under the Act. To avail treaty benefit in this regard, u/s. 90(2) of the Act, when the provisions of India- Thailand DTAA is referred to, there is no such Article to deal with FTS therein, leading the same to be taxable within the jurisdiction of India under the domestic tax law, i.e., u/s. 9(1)(vii) of the Act. Since TDS
Turf Estate JV Assessment Year 2017-18 ought to have been done by the assessee on this payment to non- resident of Thailand, which has not been done, the same is to be disallowed u/s.40(a)(i) whereby entire amount so paid is to be disallowed. However, ld. Assessing Officer while making the disallowance as mistakenly applied the provisions of section 40(a)(ia) by making a disallowance of 30%. Accordingly, by applying the correct provision of section 40(a)(i), the entire amount is held to be disallowed. In the net result, assessee gets relief in respect of payment made by it to the non-resident of US and Canada. However, in respect of payment made to non-resident of Thailand, entire amount is to be disallowed.
In the result, appeal of the assessee is partly allowed.
Order is pronounced in the open court on 27 January, 2026 Sd/- Sd/- (Amit Shukla) (Girish Agrawal) Judicial Member Accountant Member
Dated: 27 January, 2026 RY, Sr.P.S. Copy to : 1 The Appellant 2 The Respondent 3 DR, ITAT, Mumbai 4 Guard File 5 CIT BY ORDER,
(Dy./Asstt.Registrar) ITAT, Mumbai