Income Derived By Foreign Entity For Rendering Technical Assessment Services Doesn't Constitute FTS: Delhi ITAT

The ITAT held so after finding that income was derived by Respondent/ Assessee (a Singapore based company) on account of services rendered towards technical integrity assessment/ scanning of off-shore pipelines under sea, through Magnetic Tomography Method (MTM) technology to Indian Companies.

FTS means 'any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head 'Salaries'”.

The Division Bench comprising Saktijit Dey (Vice-President) and M. Balaganesh (Accountant Member) reiterated that the receipts pertaining to technical non-invasive inspection can be considered as FTS but does not satisfy the 'make available' clause provided under Article 12(4)(b) of the India Singapore DTAA.

Hence, such receipts can be considered as only business income which cannot be taxed in India in absence of its Permanent Establishment (PE).

The facts which led to formation of such opinion, were that the assessee, a Singapore resident company not having PE in India, filed return declaring Nil income. Shortly, the assessee treated the receipts from Indian Companies on account of technical and assessment of off-shore pipelines under the sea in India as business income under Article 7 of the India-Singapore DTAA. Hence, the assessee did not offer to tax the said receipts in India in absence of its PE in India.

The AO however treated the entire receipts as 'other income' at 40% under Article 23 of DTAA and did not grant the benefit of beneficial provision of India-Singapore DTAA to the Assessee.

On appeal, the CIT(A) held that that assessee has furnished Form 15CA to establish the nature of receipts as well 10F confirming it does not have PE in India which demonstrates that services rendered does not satisfy the 'make available' clause as stipulated in Section 12(4)(b) of India-Singapore DTAA.

The Bench noted that the AO in subsequent AY had taxed similar receipts as FTS based on LOB clause provided in India-Singapore DTAA which was dismissed by CIT(A) holding that LOB clause is only applicable in case of capital gains.

Thus, the Bench rejected the AO's reliance on Section 90(1)(b) introduced with effect from Apr 01, 2021 alleging that assessee was engaged in treaty shopping arrangement.

The Bench also opined that AO's contention about the taxability of receipts as FTS in terms of Explanation 2 to Section 9(1)(vii) is contrary to law since the receipts were taxed as 'other income' in terms of Article 23 of the DTAA.

The CIT(A) in assessee's own case for subsequent AY 2020-21 held that the receipts pertaining to technical non-invasive inspection can be considered as FTS but does not satisfy the 'make available' clause provided under Article 12(4)(b) of the India Singapore Treaty, added the Bench.

The Bench found that facts prevailing in subsequent AY are similar to relevant AY, except the fact that assessee had entrusted the part of the work to the employees from a Russian based company which was clarified by stating that the Russian shareholder is a full-time employee with Singapore.

Hence, the ITAT dismissed Revenue's appeal.

Counsel for Appellant/ Revenue: Sanjay Kumar

Counsel for Respondent/ Assessee: Advocate Rajeev Ahuja

Case Title: DCIT vs. Transkor Global

Case Number: ITA Nos. 969 & 1614/Del/2023

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