OWENS CORNING (SINGAPORE) PRIVATE LIMITED ,MUMBAI V. THE DEPUTY COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION) CIRCLE-3(2)(2), MUMBAI

ITA 4629/MUM/2023

AI Insights

The case involves Owens Corning (Singapore) Private Limited, which appealed against the decision of the Deputy Commissioner of Income Tax (International Tax), Mumbai, which had treated the fabrication charges received from its Indian associate as 'fees for technical services' and taxable in India. The Tribunal examined whether the income from these charges constituted 'fees for technical services' under the Income-tax Act, 1961, and the India-Singapore Tax Treaty. The Tribunal referenced its earlier decisions on similar issues, which had consistently ruled in favor of the assessee, and found that the services provided did not involve the transfer of technology or technical knowledge, thus not falling under the taxable category of 'fees for technical services'.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 473522 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-02-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2021-2022
• Other Referred Cases: ITA No. 6529/M/2018, ITA No. 2050/Mum/2016, ITA No. 2049/Mum/2016, ITA No. 5731/Mum/2019, ITA No. 742/Mum/2021
• Laws Referred To: Income-tax Act, 1961, Double Taxation Avoidance Agreement between India and Singapore
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KRISHNA KUMAR
• Assessee Lawyers: SANDEEP BHALLA; ITS INDIAN AFFILIATE; WHICH WILL BE COVERED BY ARTICLE OF
• Keywords: Transfer pricing; Earning of tax free income; Double taxation relief; Permanent establishment
• Section: 143(2); 234B; 115A

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH ‘I’, MUMBAI BEFORE SHRI AMIT SHUKLA, HON’BLE JUDICIAL MEMBER AND SHRI AMARJIT SINGH, HON’BLE ACCOUNTANT MEMBER ITA No.4629/Mum/2023 Assessment Year: 2021-22 Owens Corning (Singapore) Private Limited C/o. Owens Corning (India) Pvt. Limited, 7th Floor, Alpha Building, Hiranandani Gardens, Powai, Maharashtra-400076. PAN: AABCO 5666 L vs DCIT (International Tax), Circle-3(2)(2), Mumbai. (Appellant) (Respondent) Present for: Assessee by : Shri Sandeep Bhalla Revenue by : Shri Krishna Kumar (Sr. DR) Date of Hearing : 02.01.2025 Date of Pronouncement : 18.02.2025 O R D E R PER AMARJIT SINGH, AM: This appeal of the assessee for the assessment year 2021-22 is directed against the order dated 22.09.2023 passed by the DCIT (International Tax) Circle 3(2)(2), Mumbai in pursuance to the Directions issued by the (DRP-2), Mumbai. The assessee has raised the following ground of appeal: 1.0 Re.: Treating fabrication charges received as 'fees for technical services': 1.1 The Assessing Officer ('AO')/ Dispute Resolution Panel ('DRP') has erred in taxing the fabrication charges received by the Appellant of Rs. 15,42,75,210 during the year under consideration by treating the same as 'fees for technical services' in terms of section 9(1)(vii) of the Income-tax Act, 1961 as well as Article 12 of the Double Taxation Avoidance ITA No.4629/Mum/2023 Owens Corning (Singapore) Private Limited A.Y. 2021-22 2 Agreement entered between India and Singapore (\"India-Singapore Tax Treaty\"). 1.2 The Appellant submits that considering the facts and circumstances of the case and the law prevailing on the subject, the fabrication charges received by it are not 'fees for technical services' either under the Income- tax Act, 1961 or under the provisions of the India-Singapore Tax Treaty. The stand taken by the AO/DRP in this regard is erroneous, misconceived and not in accordance with the law. 1.3 The Appellant submits that the AO be directed to delete the addition of Rs. 15,42,75,210 so made and to re-compute its total income accordingly. 2.0 Re: Taxing income from fees for technical service at the rate specified under the Act: 2.1 Without prejudice, The AO erred in charging tax at the rate of 10% plus surcharge and health and education cess under section 115A of the Act on income from fees for technical services of Rs. 15,42,75,210. 2.2 The Appellant submits that considering the facts and circumstances of the case and the law prevailing on the subject, as per section 90(2) of the Act, the income from fees for technical services ought to have been taxed at the beneficial tax rate of 10% under Article 12 of India-Singapore Tax Treaty and the stand taken by the AO in this connection is misconceived, incorrect, erroneous and illegal. 2.3 The Appellant submits that the AO be directed to re-compute the tax liability accordingly. 3.0 Re.: Levy of interest under section 234A and section 234B of the Income-tax Act, 1961: 3.1 The AO has erred in levying interest under section 234A and section 234B of the Income-tax Act, 1961. 3.2 The Appellant submits that considering the facts and circumstances of the case and the law prevailing on the subject, no interest under section 234A and section 234B is leviable and the stand taken by the AO in this regard is misconceived, incorrect, erroneous and illegal. ITA No.4629/Mum/2023 Owens Corning (Singapore) Private Limited A.Y. 2021-22 3 3.3 The Appellant submits that the AO be directed to delete the interest under section 2348 so levied on it and to re-compute its tax liability accordingly. 4.0 Re: General 4.1 The appellant craves leave to add, alter, amend, substitute and/or modify in any manner whatsoever all or any of the foregoing grounds of appeal at or before the hearing of the appeal.” 2. Fact in brief is that return of income declaring income of Rs. Nil was filed on 02.03.2022. The case was subject to scrutiny assessment and notice u/s 143(2) of the Act was issued on 27.06.2022. The assessee is a company incorporated in Singapore and a group concern of Owens Corning Group of Companies a leading manufacturer of glass. During the course of assessment, the assessing officer noticed that assessee has claimed receipt of fabrication charges of Rs. 15,42,75,214/- from its Indian Associate Enterprises namely OCIPL as non taxable. The assessee claimed this income as exempt income on the ground that same is not taxable in India as the assessee has neither any permanent establishment in India as per Article 5 of India-Singapore Treaty and nor any business connection in India. The assessing officer also referred the earlier years from A.Y. 2015-16 to 2020-21 wherein the assessing officer has treated the similar receipt of fabrication charges as FTS and taxed the same as per the Act. On query, the assessee submitted that assessee is a tax resident of Singapore and the provision of India-Singapore DTAA was applicable. The assessee further submitted that in this case, no royalty is received by the assessee under Article 12(3) of the India-Singapore DTAA. The assessee also explained that it ITA No.4629/Mum/2023 Owens Corning (Singapore) Private Limited A.Y. 2021-22 4 had a fabrication plant in which under the process, the existing bushing is melted and additional alloy is added to the extent required to form a new bushing. In the said fabrication process, no technical knowledge, experience, skill, know-how or process is passed on to the payer and no technology is made available to (OCIPL). The assessee further submitted that the issue of treating receipt towards fabrication of bushings as fees for technical services u/s 9(1)(vii) of the Act as well as Article 12(4)(a) of India- Singapore DTAA is recurring issue and the same has been covered by the orders of ITAT for A.Y. 2012-13, A.Y. 2016-17 and A.Y. 2017-18 in assessee’s own case wherein ITAT held that the receipt towards fabrication of bushings cannot be treated as fees for technical services under Article 12(4)(a) of India-Singapore DTAA. However, the AO has not agreed with the submission of the assessee. The assessing officer was of the view that assessee company was provided with the expired bushings and refabricated the bushings with the necessary alloys with the technology of Owens Corning Inc. and hence the services rendered by the assessee company was categorized as technical services. The AO further stated that the bushings cannot be refurbished in absence of the technological advancement achieved by the Owens Corning Inc. The AO further stated that technology knowledge, experience, skill processed by the assessee company with regard to various aspects were made available. The AO further stated that the similar issue earlier in the A.Y. 2015- 16 to 2020-21 was ruled against the assessee by the DRP. Therefore, AO held that the amount charged by the assessee is ITA No.4629/Mum/2023 Owens Corning (Singapore) Private Limited A.Y. 2021-22 5 the fees for technical services as per section 9(1)(vii) read with Article 12(4) of India-Singapore DTAA. Therefore, charged tax @ 10% on fees for technology services of Rs. 15,42,75,214/-. The AO passed the draft assessment order u/s 144C(1) of the Act on 23.12.2022. The assessee filed objection against the draft assessment order on 17.01.2023 before the DRP-2, Mumbai. The DRP vide order dated 22.09.2023 u/s 144C(5) of the Act dismissed the objection filed by the assessee and sustained the additions made by the AO. Accordingly, the AO passed final assessment order u/s 143 r.w.s 144C(13) of the Act on 25.10.2023 and assessed the total income at Rs. 15,42,75,214/- as proposed in the draft assessment order as discussed. 3. Heard both the sides and perused the material on record. The assessee has claimed the receipt of fabrication charges of Rs. 15,42,75,214/- from its Indian Associates Enterprises namely OCIPL as non-taxable and claimed the same as non-taxable in India as the assessee has neither any permanent establishment in India as per Article 5 of India-Singapore Treaty nor any business connection in India. As discussed in this order, the assessee explained with the relevant supporting material that the services rendered by the assessee does not fall within the technical services category since the payment received by the assessee was pertaining to charges for refabrication/refurbishment of bushings carried out by the assessee at its plant in Singapore which were in the nature of charges for work/manufacturing activity. ITA No.4629/Mum/2023 Owens Corning (Singapore) Private Limited A.Y. 2021-22 6 4. Without reiterating the fact as already discussed, we find that the claim of fabrication charges is the recurring issue in the case of the assessee in the A.Y. 2015-16 to 2020-21 and the ITAT in all these years has decided the issue in favour of the assessee. During the course of appellate proceedings before us, the ld. Counsel has submitted the copies of orders of ITAT as discussed above wherein it is held that receipt towards fabrication of bushings cannot be treated as fees for technical services under Article 12(4)(a) of India-Singapore DTAA as no royalty as per Article 12(3) of India-Singapore DTAA was received by the assessee. With the assistance of ld. Representative, we have perused the decision of ITAT, Mumbai in the case of the assessee itself for the A.Y. 2015-16 vide ITA No. 6529/M/2018 dated 26.12.2022 the relevant extract of the decision is reproduced as under: “13. Without going into further details, as we have gone through the order of ITAT, Mumbai in assessee’s own case vide ITA No. 2050/Mum/2016, ITA No. 2049/Mum/2016, ITA No. 5731/Mum/2019 and ITA No. 742/Mum/2021 for AYs 2011-12, 2012-13, 2016-17 and 2017-18 respectively. The issue under consideration has dealt with in detail dealing with the contentions of assessee and Department by ITAT in appeals mentioned (supra). 14. For sake of further clarity and as we are also agreed and following these orders, the relevant extract of the order arisen out of ITA No. 2049/Mum/2016 dated 06.07.2022, we are reproducing here-in-below: “10. There is no dispute that the assessee is entitled to the benefits of the IndoSingapore tax treaty, that the assessee does not have any permanent establishment in India, and that, accordingly, income earned by the assessee cannot be taxed as business profits under article 7 of the Indo Singapore tax treaty/ There is also no, and cannot be any, dispute that once the provisions of the applicable tax treaty are more ITA No.4629/Mum/2023 Owens Corning (Singapore) Private Limited A.Y. 2021-22 7 beneficial to the assessee, the provisions of the Indian Income Tax Act, 1961 cannot be pressed into service. Therefore, as things stand now, everything hinges on the application of the provisions of article 12, dealing with fees for technical services, coming into play. There is also no dispute that refurbishing of bushes does not amount to “making available any technical knowledge, experience, skill, know-how or process” as there is no transfer of technology inherent in the process of rendition of these services, and, it is not even, therefore, the case of the authorities below that the fees received by the assessee can be taxed under article 12(3)(b) of the Indo Singapore tax treaty; their case is confined to the application of Article 12(4)(a) of the Indo Singapore tax treaty which provides that “(t)he term \"fees for technical services\" as used in this Article means payments of any kind to any person in consideration for services of a managerial, technical or consultancy nature (including the provision of such services through technical or other personnel) if such services……are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received”. On the facts of this case, it is also not in dispute that no such payments, were made to the assessee by its Indian affiliate, which will be covered by Article 12(3) of the Indo-Singapore tax treaty. Yet, taxability under Article 12(4)(a) is invoked, on the ground that one of the group companies, i.e. OC-US, has received such payments from the Indian affiliate. OCIPL, which are covered by Article 12(3) of Indo-Singapore tax treaty, and by invoking Article 9. The stand of the Assessing Officer and the DRP is that since the alloys are provided by the OCUS, which is an associated enterprise under article 9, one has to proceed on the basis that the alloys are provided by the assessee, and as the services are “ancillary and subsidiary to the application or enjoyment of the right, property or information” for which payment is made to OC-US, these services are taxable as fees for technical services. 11. As far as the role of Article 9 is concerned, it comes into play when “conditions are made or imposed between the two enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises” and remains confined to bringing those profit for taxes which, but for such arrangements, an enterprise in the respective tax jurisprudence would have made. The scope of Article 9 thus is to neutralize the impact of intra- AE relationship vis-à-vis the profits made in dealings with such an AE. Beyond this limited scope, the application of Article 9 cannot restructure the transaction itself. That is, however, precisely what the revenue ITA No.4629/Mum/2023 Owens Corning (Singapore) Private Limited A.Y. 2021-22 8 authorities seek to accomplish by invoking Article 9 in the present case. The alloy lease transaction that the Indian affiliate had with the OC-US, by invoking Article 9, is sought to be treated as a transaction with the assessee, but then, given the limited scope and role of Article 9, such an exercise is simply impermissible. It would amount to practically rewriting article 12(4) by supplementing the expression “for which a payment described in paragraph 3 is received” with the words by “the enterprise or by any of its associated enterprises anywhere in the world”. Neither can we read into the treaty what is not written there, nor would it make any sense anyway. Such an approach is too far- fetched and is neither supported by a plain reading of the treaty provision or by any logical rationale, nor by any commentary or even academic literature. The OC US and the assessee, a Singapore-based entity, are distinct entities and, they have distinct legal existences. The mere fact that these entities are part of the same multinational group does not require, or justify, ignoring the distinct identities of these entities, or the fact that the operations of these entities are in different jurisdictions. It is also not even the case of the revenue authorities that the refurbishing work is not carried out in Singapore. While a lot of emphases is paid by the revenue authorities on the fact that on the same transaction the assessee had paid taxes in India in the immediately preceding year, and the fact that it is part of overall common arrangements that the leasing is done from one jurisdiction and the refurbishing or bushing is done is another jurisdiction. Nothing, however, turns on these arguments also. The acceptance of tax liability in one year does not constitute estoppel against the assessee for the other years, and it is for the group to organize a multinational group to organize its activity, as long as it is a bonafide arrangement, in a manner as deemed commercially expedient. The question that we have to really consider is whether or not the activity leading to income was actually carried out in that jurisdiction, and there is no dispute on that aspect at all. The fact that an arrangement regarding situs of entities providing different facilities, in connection with a transaction of the multinational group, is done in a tax-efficient manner, cannot be reason enough to disregard the arrangement. We are satisfied that so far as the income of the assessee from the refurbishing of the bushes is concerned, it is not taxable in India as the provisions of Article 12(3) cannot be invoked in this case, and that, so far as the provisions of Article 12(4)(a) are concerned, these provisions cannot be invoked as the assessee has not rendered these services in connection with the services “for which a payment described in paragraph 3 is received” by ITA No.4629/Mum/2023 Owens Corning (Singapore) Private Limited A.Y. 2021-22 9 the assessee. In view of these discussions, as also bearing in mind the entirety of the case, we uphold the plea of the assessee, and delete the impugned addition of Rs 4,84,44,048. The assessee gets the relief accordingly.” 15. In view of these discussions and respectfully following the order of the ITAT, Mumbai in assessee’s own case and also bearing in mind the entirety of the case, we allow Ground No.1 raised by assessee.” 5. Since the issue is squarely covered by the earlier decision of ITAT as referred in the finding of the ITAT. Therefore, following the decision of ITAT, ground no. 1 of appeal of the assessee is allowed. 6. Since, we have allowed ground no. 1 of the assessee, therefore, ground no. 2 of the assessee become academic and infructuous. Accordingly, the same is dismissed. 7. Ground no. 3 regarding levy of interest u/s 234A and 234B is consequential which does not require any adjudication therefore, the same is dismissed. 8. In the result, the appeal of the assessee is partly allowed. Order pronounced in the open court on 18.02.2025 Sd/- Sd/- (AMIT SHUKLA) (AMARJIT SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai: 18.02.2025 Biswajit, Sr. P.S. ITA No.4629/Mum/2023 Owens Corning (Singapore) Private Limited A.Y. 2021-22 10 Copy to: 1. The Appellant: 2. The Respondent: 3. The CIT, 4. The DR . //True Copy// [ By Order Assistant Registrar ITAT, Mumbai Benches, Mumbai "