Outright transfer of ownership in project-specific designs and drawings to client does not constitute royalty under India-UAE DTAA Article 12(3), but business profits taxable only with PE.

आदेश/ORDER

PER VIKAS AWASTHY, JM:

This appeal by the assessee is directed against the Assessment Order dated 27.01.2025 passed u/s.147 r.w.s 144C(13) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for AY 2018-19.

2. The primary issue raised by the assessee in appeal is taxability of the amounts received by the assessee aggregating to Rs.2,10,21,587/- from Systra India as ‘royalty’ under the provisions of the Act and India-UAE Double Taxation Avoidance Agreement (DTAA).

3. The facts of the case in brief as emanating from records are: The assessee company was incorporated in United Arab Emirates (UAE) and is a tax resident of UAE. The assessee is engaged in designing of bridges. The assessee entered into Sub-Consultancy Agreement dated 22.12.2017 with Systra MVA Consulting (India) P. Ltd. (in short ‘Systra India’) for providing consultancy services in relation to Versova-Bandra Sea Link Project. The scope of services inter alia includes preparation of Tender design (hereinafter referred to as ‘Design Support Services’). In lieu of providing Design Support Services, the assessee was entitled to receive professional fees from Systra India Rs.2,10,21,587/-. The assessee claimed that the professional fee received is not chargeable to tax in India, as the assessee has no Permanent Establishment (PE) in India. The fact of assessee having no PE in India has not been disputed by the Department. During the course of Draft Assessment proceedings, the Assessing Officer (AO) came to the conclusion that the professional fee received by the assessee in lieu of provision for Design Support Services is in the nature of ‘royalty’, hence, taxable in India under section 9(1)(vi) of the Act as well as under provisions of the DTAA. Against the Draft Assessment Order dated 24.03.2024, the assessee filed objections before the Dispute Resolution Panel (DRP), but remained unsuccessful. The AO passed Final Assessment Order in consonance with the DRP directions. Hence, the present appeal by the assessee.

4. Shri Kamal Sawhney, appearing on behalf of the assessee submits that the assessee has entered into an agreement with Systra India for providing sub consultancy services in relations to Versova-Bandra Sea Link Project. The services inter alia include preparation of design of the bridge as per the specific requirements of the project. He submitted that the scope of work as per the agreement is elaborately spelled out in Appendix 1 to Sub Consultancy Agreement. Referring to Article 13 of the agreement, the ld. Counsel submits that all documents, reports, data or deliverables prepared or developed by the assessee in performance of its obligations under the agreement shall be owned by Systra India. In other words, the designs and drawings specific to the project would be outrightly sold to the client i.e. Systra India. In lieu of drawings, designs, reports, data, deliverables, etc. the assessee would be remunerated by way of lumpsum fee of USD 307,600 and Euro 16486.76.

4.1. Referring Article 12(3) of India-UAE DTAA, he submits that the ‘royalty’ as defined under Article 12(3) means payment received as a consideration for the use of or the right to use any copy right, artistic or scientific work. In the instant case, it is a case of outright sale of designs, drawings, data, etc. The consideration received for outright sale of design, drawings, data, etc. does not fall within the ambit of definition of ‘royalty’. To support of his submissions, the ld. Counsel placed reliance on the dec