The Income Tax Appellate Tribunal, Mumbai, has clarified that project-specific architectural and structural design services rendered by foreign entities, without transfer of reusable technical knowledge, do not qualify as Fees for Technical Services under the India-Singapore Double Taxation Avoidance Agreement. This ruling overturns a disallowance under Section 40(a)(i) and sets a critical precedent for real estate developers engaging overseas consultants.
Background & Facts
The Dispute
The dispute centered on whether payments made by Forum Homes Private Limited, a Mumbai-based real estate developer, to two Singapore-based entities - Arc Studio Architecture + Urbanism Pte. Ltd. and Web Structures Pte. Ltd. - for architectural and GFC (General Fire Control) design services constituted Fees for Technical Services (FTS) under Section 9(1)(vii) of the Income Tax Act, 1961, read with Article 12(4) of the India-Singapore Double Taxation Avoidance Agreement (DTAA). The Assessing Officer (AO) contended that these payments were FTS, requiring tax deduction under Section 195, and that failure to deduct tax warranted full disallowance under Section 40(a)(i).
Key Facts
- The assessee undertook the development of a residential complex named 'Serendipty' at Bandra Kurla Complex (BKC), Mumbai, with construction commencing in Financial Year 2014-15.
- In A.Y. 2015-16, the assessee paid Rs. 3,66,17,075 to three Singapore-based entities for architectural, GFC, and MEP design services.
- In A.Y. 2016-17, the assessee paid Rs. 1,84,71,497 to two of the same entities:
- Rs. 1,15,07,834 to Arc Studio Architecture + Urbanism Pte. Ltd. for architectural drawings and design.
- Rs. 69,63,663 to Web Structures Pte. Ltd. for GFC drawings and design.
- The agreements with both entities stipulated that all deliverables - including drawings, models, electronic files, and specifications - were the exclusive intellectual property of the service providers.
- The agreements explicitly prohibited the assessee from using the designs for any other project, modifying them without consent, or transferring them to third parties.
- The services were strictly confined to the Serendipty project and had no utility beyond its completion.
- The assessee did not receive any technical manuals, training, or access to proprietary systems that would enable independent application of the designs.
Procedural History
- A.Y. 2015-16: AO disallowed Rs. 3,66,17,075 under Section 40(a)(i) for non-deduction of tax at source. The First Appellate Authority (FAA) deleted the disallowance. The ITAT, Mumbai, in ITA No. 5804/Mum/2018, upheld the FAA’s order on 04.10.2021.
- A.Y. 2016-17: AO, relying on the earlier assessment, disallowed Rs. 1,84,71,497 under Section 40(a)(i) on identical grounds.
- 04.09.2025: FAA (Addl. JCIT, Prayagraj) deleted the disallowance, holding that the services did not meet the definition of FTS under Article 12(4) of the DTAA.
- 09.03.2026: Hearing before ITAT Mumbai.
- 30.03.2026: ITAT Mumbai dismissed the revenue’s appeal.
The Parties' Positions
For the Assessee: The services were project-specific, non-transferable, and did not involve the transfer or making available of technical knowledge, know-how, skill, or processes. The designs were not reusable and could not be independently applied by the assessee without the service provider’s involvement. The payments therefore fell outside the scope of FTS under Article 12(4).
For the Revenue: The services were consultancy in nature and involved technical expertise. The AO and Departmental Representative argued that architectural design inherently involved technical knowledge, and failure to deduct tax under Section 195 triggered automatic disallowance under Section 40(a)(i).
Relief Sought
The Revenue sought to restore the disallowance of Rs. 1,84,71,497 under Section 40(a)(i), arguing that tax should have been deducted at source under Section 195, and that the FAA’s order was erroneous.
The Legal Issue
The central question was whether payments made to foreign entities for project-specific architectural and structural design services, which do not enable the recipient to independently apply the technology or technical knowledge, constitute Fees for Technical Services under Article 12(4) of the India-Singapore DTAA, thereby triggering tax deduction obligations under Section 195 and disallowance under Section 40(a)(i).
Arguments Presented
For the Appellant/Revenue
The Departmental Representative relied on the AO’s reasoning that architectural and structural design services inherently involve technical expertise and therefore fall within the broad category of consultancy services under Article 12(4). It was argued that any payment for professional design services should be treated as FTS unless expressly excluded, and that the absence of explicit transfer of documentation did not negate the availability of technical knowledge. The Revenue contended that the FAA’s decision was inconsistent with the spirit of Section 40(a)(i), which mandates disallowance for non-compliance with TDS obligations.
For the Respondent/Assessee
The assessee’s counsel emphasized the binding precedent set by the coordinate bench in ITA No. 5804/Mum/2018 (A.Y. 2015-16), which had examined identical facts and held that project-specific design services, where the deliverables are non-transferable and do not enable independent application of technology, do not qualify as FTS. The counsel highlighted the contractual restrictions preventing reuse of designs and the absence of any transfer of technical know-how, training, or proprietary systems. It was further submitted that the Revenue had failed to produce any evidence to substantiate the claim that technical knowledge was made available to the assessee.
The Court's Analysis
The Tribunal undertook a detailed textual analysis of Article 12(4) of the India-Singapore DTAA, which defines FTS as payments for services that:
"(a) are ancillary......... (b) make available technical knowledge, experience, skill, know-how or processes, which enables the person acquiring the services to apply the technology contained therein; or (c) consist of the development and transfer of a technical plan or technical design, but excludes any service that does not enable the person acquiring the service to apply the technology contained therein."
The Tribunal noted that the key criterion is not merely the nature of the service (e.g., architectural design), but whether the service results in the recipient being able to independently apply the underlying technology or technical knowledge. The Tribunal emphasized that the phrase "make available" implies transfer of capability, not just delivery of a product.
The Tribunal reviewed the contractual terms and deliverables from both Singapore entities. It found that:
- All designs, drawings, and electronic files remained the intellectual property of the service providers.
- The assessee was contractually barred from using the designs for any other project, modifying them, or transferring them.
- No training, manuals, or access to proprietary systems were provided.
- The designs were tailored exclusively for the Serendipty project and had no standalone utility beyond it.
The Tribunal held that the Revenue had failed to discharge its burden of proving that the technical knowledge embedded in the designs was made available to the assessee in a manner that enabled independent application. The AO’s conclusion was speculative and unsupported by evidence. The Tribunal further noted that the identical issue had been decided in the assessee’s favor in the preceding assessment year, and no new facts or legal grounds were presented to justify a different outcome.
"It is very much clear, the conditions of Article 12(4) of the tax treaty are not fulfilled."
The Tribunal concluded that the FAA’s deletion of the disallowance was legally sound and consistent with the treaty’s intent to prevent double taxation while respecting the boundaries of taxable cross-border services.
The Verdict
The appeal was dismissed. The ITAT Mumbai upheld the order of the First Appellate Authority dated 04.09.2025, confirming that the payments of Rs. 1,84,71,497 made to the Singapore-based entities do not constitute Fees for Technical Services under Article 12(4) of the India-Singapore DTAA. Consequently, the disallowance of Rs. 1,84,71,497 under Section 40(a)(i) was deleted. No tax deduction under Section 195 was required, and no penalty or interest was imposed.
What This Means For Similar Cases
Project-Specific Design Services Are Not Automatically FTS
- Practitioners must now distinguish between deliverables that are merely custom-made outputs versus those that transfer reusable technical knowledge.
- Architectural, structural, MEP, and similar design services for single projects are unlikely to qualify as FTS if the client cannot reuse the designs independently.
- Contracts should explicitly state ownership, usage restrictions, and absence of knowledge transfer to strengthen the FTS exclusion argument.
Burden of Proof Lies with the Revenue
- The Revenue must provide concrete evidence that technical knowledge was "made available" - mere assertion of technical nature is insufficient.
- Absence of training, manuals, or access to proprietary systems will weigh heavily in favor of the assessee.
- Precedents from coordinate benches on identical facts are binding unless distinguished on material grounds.
Strategic Implications for Real Estate Developers
- Developers engaging overseas consultants for design work should document the project-specific nature of services and contractual restrictions on reuse.
- TDS under Section 195 need not be withheld if the service does not meet the Article 12(4) criteria, reducing compliance burden.
- Tax planning for foreign payments must now focus on the functional test of "enabling independent application" rather than the label of the service.
