DIT vs. Nisso Lwai Corporation, Japan (Andhra Pradesh High Court)

Design & Engineering drawings are in the nature of “plant” and consideration thereof is not assessable as “fees for technical services” if delivered outside India

The assessee company provided design and engineering services, manufacture, delivery, technical assistance through supervision of erection and commissioning etc., to establish compressor house-I for RINL. The payments were made by RINL separately for each of the services/equipments provided/supplied by the assessee. It, inter alia, included payment made towards supply of design and engineering drawings. The assessee company claimed the said payment is not taxable under the Indian Income Tax Act as it was a transaction of sale of goods that has taken place outside India. In our view the decision of Delhi ITAT Bench in the case of Mannesman Demag Sack AG Vs.Add.CIT reported in (2008), 119 TTJ (Del) 543, on which reliance was placed by Ld DR, is not applicable to the facts of the instant case. In the case of Mannesman Demag Sack, supra, the decision was rendered on the basis of the terms of the contract which provided that technical services shall include supply of design and drawings. Hence on the facts of the case, the Tribunal held that design and drawing charges are in the nature of fee for technical services. However, it may be pertinent to note that the Tribunal in that case, accepted the alternative contention of the assessee that the said fee cannot be assessed in India, unless it is shown that some part of work has emanated from Indian territories. Hence on a conspectus of the matter, we are of the view that the amount received by the assessee for supply of design and engineering drawings is in the nature of plant and since the preparation and delivery has taken place outside Indian territories, the same can not be subjected to tax in India.