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2025 Supreme(Online)(ITAT) 6515
INCOME TAX APPELLATE TRIBUNAL (MUMBAI BENCH)
Shri Omkareshwar Chidara, AM, Shri Sandeep Gosain, JM
Buro Happold Limited – Appellant
Versus
Deputy Commissioner of Income Tax (International) – Respondent
ITA No. 4350/MUM/2023
For the Appellants/Petitioners: Shri Vijay Mehta, Nishit Parikh
For the Respondents: Shri S. G. Menon, Sr. DR
Income from services not deemed FTS as no transfer of knowledge or skills occurred, allowing appeal in favor of the assessee.
Headnote:(A) Income Tax Act, 1961 - Sections 9(1)(vi), 9(1)(vii), 144C(5) - India-UK Double Taxation Avoidance Agreement - Taxability of fees for technical services: The appellant contended that income received for consulting engineering services was incorrectly classified as fees for technical services (FTS). The Tribunal found that the services did not make available any technical knowledge as defined under the treaty, thus not qualifying as FTS. (Paras 20-22)
(B) The application of tax rates and levy of interest: The claim of incorrect tax rate application and consequential interest was rendered moot as the principal issue of taxability was resolved in favor of the assessee. (Paras 4, 7, 8)
Facts of the case:
The appellant is a foreign company engaged in providing engineering services, disputing the taxability of its income in India and following precedents from earlier assessment years.
Findings of Court:
The income was not in the nature of FTS, leading to the conclusion that it should be treated as business income and not taxed in India due to the absence of a Permanent Establishment (PE).
Issues: The main issues revolved around the classification of income under treaty provisions and whether the receipts constituted FTS.
Ratio Decidendi: The Tribunal emphasized that for an amount to be classified as FTS, it must entail the transfer of knowledge that enables the recipient to use the service independently post-delivery, which was not evident in this case.
Result: Appeal granted in favor of the assessee.
| Table of Content |
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| 1. tax treatment of consulting engineering income. (Para 2 , 3) |
ORDER
PER OMKARESHWAR CHIDARA, AM
This appeal is filed by the above captioned appellant company against the order of Ld. CIT(DRP-1), Mumbai-1 (herein after in short ‘Ld. DRP’) dated 26/09/2023 for the assessment year 2022-23 passed u/s. 144C(5) of I.T. Act 1961 (in short ‘the Act’).
2. The appellant company raised the following grounds in its appeal.
“1. Ground No. 1- Taxability of amount received for Consulting Engineering Services as Fees for Technical Services (FTS), 1.1 On the facts and in the circumstances of the case and in law, the learned DRP (Dispute Resolution Panel') and DCIT have erred in considering income from consulting engineering services amounting to INR 43,26,520/- as Fees for Technical Services ('FTS') as per Section 9 (1)(vii) of the Act and Article 13 of India-UK Double Taxation Avoidance Agreement ('DTAA).
2. Ground No. II - Taxability of amount received as management fees & cost recharge as both Royalty and Fees for technical services (FTS).
2.1 On the facts and in the circumstances of the case and in law, the learned DRP ('Dispute Resolution Panel') and DCIT have erred in considering management fees & common cost recharge amounting to INR 6,31,27,797/- as both Royalty and Fees for Technical Services ('FTS') as per Section 9 (1)(vi) and 9(1)(vii) of the Act and Article 13 of India-UK Double Taxation Avoidance Agreement ('DTAA').
3. Ground No. III - Erroneous rate of tax applied while computing tax payable.
3.1 Without prejudice to the above grounds, on the facts and in the circumstances of the case and in law, the learned DCIT has erroneously applied a tax rate of 15% as per India-UK DTAA instead of applying a beneficial rate of 10.608% under the Act while computing the amount of tax payable by the Appellant.
4. Ground No. IV - Erroneous levy of consequential interest under section 234A and 234B of the Act.
4.1 On the facts and in the circumstances of the case and in law, the learned DCIT has erred in levying consequential interest under section 234A and 234B of the Act, amounting to Rs. 14,30,428/-
The appellant craves leave to add, alter, amend, modify or amplify any of the above stated Grounds of Appeal.”
3. At the outset, the Ld. AR of appellant Company brought to the notice of Bench that all the above mentioned issues were covered in their favour by the orders of Hon’ble ITAT in earlier years from A.Y. 2012-13 onwards till A.Y. 2020-21. The lead order was pronouced by the Hon’ble Bench in A.Y. 2012-13 and the same was followed in all subsequent years as there is no change in facts and circumstances. Hence, it was submitted that the earlier decisions of Hon’ble ITAT Mumbai may be followed in the current year also.
4. Ld. DR relied on the orders of lower authorities and it was submitted that issues are pending before Hon’ble Bombay H.C. for adjudication as the Revenue is in appeal is all these years from A.Y. 2012-13 onwards.
5. After considering the rival submissions, it is observed from the paper book filed by Ld. AR of appellant company, the above issues mentioned in the Grounds of Appeal are covered in favour of assessee in its own case for the A.Y. 2012-13 where detailed reasoning was given and the relevant portion of ITAT order is reproduced as under :
“14. 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 r
