BURO HAPPOLD LIMITED,GUJARAT V. DEPUTY COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION) - 1(3)(2), MUMBAI, MUMBAI

ITITA 1135/MUM/2025

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Buro Happold Limited, a UK-based engineering and consulting firm, appealed against the final assessment order by the Deputy Commissioner of Income-tax (International Taxation), which treated their income from consulting engineering services and management fees as Fees for Technical Services (FTS) taxable in India. The Tribunal examined the case in light of previous rulings and the provisions of the India-UK DTAA, particularly focusing on whether the services rendered constituted FTS as per Article 13 of the DTAA. The Tribunal found that the nature of the services did not meet the criteria of FTS as they did not involve the 'making available' of technical knowledge or expertise, and thus, the income should be treated as business profits under Article 7 of the DTAA, which are not taxable in India in the absence of a Permanent Establishment (PE).

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 126686 (ITAT-MUMBAI)
• Appeal Type: Income Tax (International Taxation) Appeal
• Pronouncement Date: 23-04-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2022-2023
• Other Referred Cases: Gera Developments Pvt. Ltd. v/s DCIT
• Laws Referred To: Income-tax Act, 1961, India-UK Double Taxation Avoidance Agreement
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KRISHNA KUMAR
• Assessee Lawyers: VIJAY MEHTA
• Keywords: Business income; Tax effect; Double taxation relief; Grounds of appeal; Dismissed; Mechanical; Judgment; Section 234B; Commissioner; Included Services; AMP; Transfer; Restored; India-UK tax treaty; Exempt; Deleted; Business development; Services rendered; Department; Services; Engineering services; Section 143(2)
• Section: 143(3); 142(1); 143(2); 13; 234B; 260A

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “I”, MUMBAI BEFORE SHRI VIKRAM SINGH YADAV, ACCOUNTANT MEMBER AND SHRI ANIKESH BANERJEE, JUDICIAL MEMBER I.T.A. No.1135/Mum/2025 (Assessment year: 2022-23) Buro Happold Limited C/o Sudit K Parekh & Co LLP Urmi Estate,Tower-A, 20th Floor, 55, Ganpatrao Kadam Marg, Lower Parel (W), Mumbai-400 013 PAN: AABCB9239Q vs Deputy Commissioner of Income- tax (International Taxation)-1(3)2), Mumbai, Room No.553, 5th Floor, Kautilya Bhavan, Bandra Kurla Complex, Bandra (East), Mumbai - 400 051 APPELLANT RESPONDENT Assessee by : Shri Vijay Mehta - CA Respondent by : Shri Krishna Kumar(SR.DR) Date of hearing : 22/04/2025 Date of pronouncement : 23/04/2025 O R D E R Per Anikesh Banerjee (JM): The instant appeal of the assessee was filed against the final assessment order of the Learned Assistant Commissioner of Income-tax (International Tax), Circle 1(3)(2), Mumbai (for brevity the “Ld.AO”), passed under section 143(3) read with section 144C(13) of the Income-tax Act, 1961 (in short, ‘the Act’), date of 2 ITA 1135/Mum/2025 Buro Happold Limited order 02/01/2025 pursuant to the direction of Ld. CIT (DRP-1), Mumbai-2 [in short “DRP”] under section 144C(5), date of order 17/12/2024 for A.Y. 2022-23. 2. The assessee has taken the following grounds:- “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 Learned DCIT have erred in considering income from consulting engineering services amounting to INR 1,73,68,588/- 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 Learned DCIT have erred in considering management fees & common cost recharge amounting to INR 5,76,02,441/- 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 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 234B of the Act, amounting to Rs. 22,03,714/- 3 ITA 1135/Mum/2025 Buro Happold Limited The appellant craves leave to add, alter, amend, modify or amplify any of the above stated Grounds of Appeal.” 3. The brief facts of the case is that the assessee is a company registered in United Kingdom (UK) and is a tax resident of that State. The assessee is an international, integrated engineering and consulting company and is engaged in the business of providing structural and MEP (mechanical, electrical and public health) engineering and consultation services for various buildings & projects in India. It provides high end services like infrastructure development, acoustic planning, energy consulting, environmental consulting, etc. During the impugned assessment year, the assessee filed the return of income declaring total income at Rs.4,29,330/-. The case was selected for scrutiny under CASS and notice under section 143(2) of the Act issued. Finally, the notices under section 142(1) of the Act were issued and the assessee was asked to explain the income from management fees / common cost recharge amount to Rs.5,76,02,441/- and consulting engineering services (CES) amount to Rs.1,73,68,588/-. Both the incomes were received only from Buro Happold Engineering Private Limited (Buro India) during alleged assessment year. The assessee claimed in its return of income that the income received under both the heads are not taxable as per the provisions of India UK DTAA. But the Ld.AO in draft assessment order, passed under section 144C(1) of the Act dated 28/03/2024 considered those incomes as ‘Fees for technical services’(FTS) within the meaning of section 9(1)(vi) of the Act and accordingly, the alleged income is qualified as FTS under Article 13 of India UK DTAA and taxable in India @15%. During the hearing before the Ld.AO, the assessee submitted that the issue is squarely covered by the order of co-ordinate 4 ITA 1135/Mum/2025 Buro Happold Limited bench of ITAT, Mumbai in assessee’s own case in ITA No.1296/Mum/2017, date of order 15/02/2019 where the coordinate bench negated the view taken by the revenue. But for all the assessment years from A.Y.2012-13 to A.Y. 2021-22, the impugned nature of incomes of the assessee were determined as nontaxable in India by pursuing the India UK DTAA.The ordersof ITAT for AY 2014-15 to AY 2017- 18 wererestored back to the revenue authority on the ground that one of the grounds of the assessee related CES was not raised inadvertently before the DRP. In the draft assessment order, the proposal was made for addition of these incomes in India will be taxed accordingly. Finally, the assessee carried the grievance before the Ld.DRP and all the orders of the co-ordinate bench of ITAT for the assessment years cited above, were duly cited before the Ld. DRP during the hearing. But the Ld.DRP finally passed an order dated 17/12/2024 and followed its own orders for the earlier years and upheld the proposal of the Ld.AO. The Ld.DRP observed that the second limb of clause (c) of Article 13(4) of India UK Tax Treaty can be invoked when the amount is paid in consideration for rendering of any technical and consultancy services consisting the development and transfer of technical plan or technical design. Thus, it held that amount received for consulting, engineering servicesamount to Rs.1,73,68,588/- and income for management fees / common cost recharge related to management cost recharge, IT funds, business development, finance, human resource management, corporate and commercial services, operation, project management function, etc. amount to Rs.5,76,02,441/- being the nature of ‘fees for technical services under Article 13(4)(c) of India UK DTAA is taxable in India and levied tax @15% on the gross amount as per Article 13(2)(a)(ii) of India UK Tax treaty. Finally, the direction of the DRP was duly followed by the Ld.AO and 5 ITA 1135/Mum/2025 Buro Happold Limited passed a final order dated 02/01/2025 which is challenged by the assessee before the Tribunal. 4. The Ld.AR argued and filed a written submission which is containing pages 1 to 867. The Ld.AR first argued the grounds 1 & 2 related to taxability of amount received from India for CES and management fees and cost recharge. In argument, the Ld.AR respectfully stated that both the issues are squarely covered by the orders of assessee’s own case from the A.Ys. 2012-13 to 2021-22. Only in A.Y. 2014-15 to AY 2017-18, the appeals wererestored back as the groundofCES was not taken before the DRP. The details of orders of the co-ordinate bench of ITAT, Mumbai are as below:- Sr.No. Bench ITA No. A.Y. Date of pronouncement 1 I 1296/Mum/2017 2012-13 15/02/2019 2 I 7111/Mum/2017 2014-15 13/11/2019 3 I 834/Mum/2019 2015-16 13/12/2020 4 I 951/Mum/2021 2017-18 10/01/2022 5 I 516/Mum/2022 2018-19 27/09/2023 6 I 1690/Mum/2022 2019-20 19/12/2022 7 I 1006/Mum/2023 2020-21 13/07/2023 8 I 4350/Mum/2023 2021-22 20/01/2025 The Ld.AR respectfully relied upon the order of the co-ordinate bench of ITAT, Mumbai in assessee’s own case bearing IT No.1296/Mum/2017 for A.Y. 2012-13, date of order 15/02/2019. The relevant paragraphs are extracted below:- “20…………..It is worth mentioning, while deciding a dispute of identical nature concerning fees for technical services as per India-USA tax treaty under which definition of fess for included services as per Article-12(4)(b) is identically worded like Article 13(4)(c) of the India-UK tax 6 ITA 1135/Mum/2025 Buro Happold Limited treaty, the Tribunal, Pune Bench, in Gera Developments Pvt. Ltd. v/s DCIT, [2016] 160 ITD 439 (Pune), has held that mere passing off project specific architectural, drawings and designs with measurements does not amount to making available technical knowledge, experience, skill, knowhow or processes. The Tribunal held that unless there is transfer Buro Happold Limited of technical expertise skill or knowledge along with drawings and designs and if the assessee cannot independently use the drawings and designs in any manner whatsoever for commercial purpose, the payment received cannot be treated as fees for technical services. Though, we have taken note of other decisions cited by the learned Authorised Representative we do not intend to deliberate further on them. As regards the decisions cited by the learned Departmental Representative, we find them to factually distinguishable, hence, not applicable to the present appeal. In any case of the matter, the Department has failed to establish on record that through development and supply of technical designs / drawings / plans the assessee has made available technical knowledge, experience, skill, knowhow or processes to the service recipient so as to bring the amount received within the meaning of fees for technical services under Article- 13(4)(c) of the India-UK Tax Treaty. Therefore, in our considered opinion, the amount received by the assessee has to be treated as business profit and in the absence of a PE in India, it cannot be brought to tax in India. 21. Since, we have held the amount received towards consulting engineering services to be not in the nature of fees for technical services, the reasoning of the departmental authorities with regard to cost recharge would also fail, since, they have treated it as ancillary Buro Happold Limited and incidental to consulting engineering services. The contention of the learned Departmental Representative that the cost recharge fails various tests, such as, need test, benefit test etc. is unacceptable, it is contrary to the finding of the Departmental Authorities. Once, the Departmental Authorities have treated the amount received towards cost recharge to be in the nature fees for technical services, it implies rendering of service by the assessee. Therefore, applying the very same reason on the basis of which we have held the amount received towards consulting engineering services to be not in the nature of fees for technical services as discussed above, we hold that the amount received towards cost recharge cannot be 7 ITA 1135/Mum/2025 Buro Happold Limited brought to tax in India in the absence of PE. Therefore, the additions made by the Assessing Officer are hereby deleted. The assessee succeeds in both the grounds.” In argument, it is further stated that the assessee raised the ratio of judgments of the ITAT-Mumbai Bench before the Ld.AO& Ld. DRP. The relevant paragraph of the impugned assessment order is extracted below:- “5.1.2. The contentions of the assessee are considered but the same are not acceptable due to following reasons: 5.1.3. The assessee relied on the decision of Ld. ITAT for A.Y. 2012-13, and has not offered the Consulting Engineering Services for taxation. As far as decision of Ld. ITAT for A.Y. 2012-13 is concerned, Revenue has not accepted the decision of the Hon'ble ITAT but no appeal filed u/s 260A to the High Court on the ground that tax effect involved in this case is less than the threshold limit of filing of 260A Appeal fixed by the CBDT vide Circular No. 3 of 2018 dated 12.07.2018. For the AY 2014-15 & 2015-16, the matter went in appeal before the Hon'ble ITAT wherein this issue was sent back to AO for re-adjudication. In the order passed for both the years i.e. 2014-15 & 2015-16 the CES receipt has been treated as FTS under Article-13(4) (c) of India- UK Treaty. Further, the assessee filed its objections regarding addition of Rs. 21,25,145/- made towards Consulting Engineering services for A.Y. 2018-19 and Rs. 15,18,250/- For A.Y. 2019-20 which have been rejected by the DRP. Similarly, on the same issue for A.Y. 2020-21 also, DRP vide its order dated 12.12.2022 has rejected the contentions of the assessee and upheld the addition made by the AO and the department has filed an appeal before the Hon'ble High Court of Bombay.” It is further submitted that the DRP also addressed this issue in its order, specifically on page 9, paragraph 5.6. However, the DRP chose to maintain consistency with its own previous rulings, thereby disregarding the guidance 8 ITA 1135/Mum/2025 Buro Happold Limited provided by higher judicial authorities, and upheld the additions proposed by the Ld. AO. 5. The Ld. DR merely relied on the orders passed by the revenue authorities and was unable to effectively counter any of the submissions made by the Ld. AR. 6. We have heard the rival submissions and perused the material available on record. Upon careful consideration, we find that the assessee’s case is squarely covered by the decisions of the ITAT, Mumbai Bench, in the assessee’s own case for earlier assessment years. The assessee is a company incorporated in the United Kingdom and is a tax resident of that State. It is engaged in the business of providing engineering design and consultancy services, including structural and MEP engineering services for various building projects. During the relevant assessment year, the assessee received payments from Buro India in relation to CES, as well as income towards management fees and common cost charges. It has been contended that the income in question is exempt from tax in India pursuant to the provisions of the India–UK DTAA. It was submitted that the services rendered by the assessee are managerial in nature and do not fall within the ambit of FTS as defined under the DTAA. The assessee further submitted that this position had been consistently upheld by the ITAT in earlier years, and that these issues were duly raised both during the assessment proceedings and before the DRP. However, the revenue authorities failed to consider the binding precedents laid down by the ITAT. We note that the assessee and Buro India had entered into a specific agreement outlining the scope of services. It was further submitted that the nature of 9 ITA 1135/Mum/2025 Buro Happold Limited services rendered by the assessee did not involve the ‘making available’ of any technical knowledge, experience, skill, know-how, or processes to Buro India. Accordingly, the income cannot be characterised as FTS under the India–UK DTAA, but rather constitutes 'business income' under Article 7 of the DTAA. In the absence of a PE of the assessee in India, such income shall not be taxable in India. The assessee also drew attention to the fact that identical issues were decided in its favour by the Tribunal in earlier assessment years, details of which are tabulated above. The Ld. AO, however, noted that the ITAT’s decision for A.Y. 2012–13 had not been accepted by the department, although no appeal was preferred before the Hon’ble High Court on account of low tax effect. Based on this, the Ld. AO treated the receipts under both heads as FTS and brought them to tax in India under Article 13(2)(a)(ii) of the DTAA. In our view, judicial discipline requires that the decisions of the coordinate benches of the Tribunal be respected and followed in the absence of any contrary decision brought on record. No such decision has been placed before us by the revenue. In light of the foregoing discussion and our findings hereinabove, Grounds No. 1 and 2 of the assessee’s appeal are allowed. 7. In view of our decision rendered herein above, Ground no. 3 would become infructuous as it only pertains to the rate of tax if the aforesaid receipts were treated as income of the assessee. Hence, Ground no. 3 is dismissed as infructuous. 10 ITA 1135/Mum/2025 Buro Happold Limited 8. Ground no. 4 is challenging the levy of interest under section 234B of the Act which is consequential in nature and does not require any specific adjudication. 9. In the result, the appeal of the assessee bearing ITA No.1135/Mum/2025 is allowed. order pronounced in the open court on 23rd day of April 2025. Sd/- sd/- (VIKRAM SINGH YADAV) (ANIKESH BANERJEE) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai,दिन ांक/Dated: 23/04/2025 Pavanan Copy of the Order forwarded to: 1. अपील र्थी/The Appellant , 2. प्रदिव िी/ The Respondent. 3. आयकरआयुक्त CIT 4. दवभ गीयप्रदिदनदि, आय.अपी.अदि., मुबांई/DR, ITAT, Mumbai 5. ग र्डफ इल/Guard file. BY ORDER, //True Copy// (Asstt. Registrar), ITAT, Mumbai "