Passing Of Project Specific Architectural Drawings And Design With Measurement Doesn’t Amount To ‘Make Available’ Technical Knowledge: ITAT

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has held that the mere passing of project-specific architectural drawings and designs with measurements did not amount to making available technical knowledge, know-how, or processes.

The bench noted that G.S. Pannu (President) and Astha Chandra (Judicial Member) observed that the assessee has not transferred any technical expertise, skill, or knowledge along with the drawings and designs of the particular building.

The appellant/assessee is a privately held, multi-faceted, and multi-discipline firm headquartered in Princeton, New Jersey, USA. The firm provides design services for its clients all over the world, including India. The assessee is a tax resident of the USA.

During AYs 2014–15 and 2015–16, the assessee provided certain services to one of its clients in India, AOP, under an agreement. The assessee received Rs. 4,67,60,000 in AY 2014–15 and Rs. 57,12,000 in AY 2015–16 in consideration of rendering services to AOP.

The assessee’s case for both the AYs 2014–15 and 2015–16 was selected for scrutiny, and statutory notices along with questionnaires were issued and served upon the assessee.

During assessment proceedings, the assessee was asked to show cause why, in view of Article 12(4) of the India-USA DTAA, the consideration received for services rendered by the assessee should not be treated as income from Fees from Included Services (FIS). The agreement entered into by the assessee and the AOP with respect to the provision of services very clearly brings out the fact that the services provided by the assessee are of a purely technical nature and that it makes available the technology, the skill, and the experience to the AOP.

The assessee filed its reply to the show cause notice contending that the ‘make available’ clause is not satisfied and therefore the income of the assessee from the services rendered by the assessee to the AOP should not be treated as FIS in terms of Article 12(4)(b) of the India-USA DTAA as well as the MOU between India and the USA.

The Assessing Officer concluded that the assistance provided by the assessee makes the technology available to the clients, and thus the consideration received by the assessee is to be treated as FIS.

The tribunal noted that the assessee rendered project-specific services to the AOP. The services involved creating a conceptual and aesthetic design and description of scope that would give the EPC contractor and its technical team guidance for the design and execution of the project. The assessee provided only conceptual design services for the appearance of the project, and it was the EPC contractor who was responsible for the final design and the technical development. In doing so, the assessee did not develop a technical design or transfer a technical plan; rather, it only presented general conceptual designs and descriptions to help others visualize the project.

The ITAT opined that the department has missed an important fact that the designs, drawings, layouts, etc. provided to AOP by the assessee are project-specific and specifically made for the construction of the "Statue of Liberty". Therefore, even if the ownership of such drawings, etc., were transferred to the AOP, the same could not be used for any other purpose by the AOP. The clause of ownership states that sub-consultants' (i.e., the assessee's) working papers shall belong to the sub-consultant, which means that the know-how shall remain with the assessee itself.

The ITAT held that the consideration received by the assessee for services rendered to the AOP does not fall within the purview of FIS under Article 12(4)(b) of the India-USA DTAA as it does not satisfy the ‘make available’ clause.

Case Title: Michael Graves Design Versus DCIT

Case No.: ITA No. 7683/Del/2017

Date: 18.07.2023

Counsel For Appellant: Niraj Seth, Bansi Patel

Counsel For Respondent: Sanjay Kumar

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