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TMI Blog2025 (1) TMI 1469X X X X Extracts X X X X X X X X Extracts X X X X ..... red in confirming the action of the learned AO on the facts and in law in assessing the total income of the Appellant at INR 164,61,90,700 by making total amount of impugned additions amounting to INR 127,70,63,435. 3. The learned AO has erred on the facts and in law and learned DRP has further erred in confirming the action of the learned AD on the facts and in law in treating the aggregate cost recovery of INR 9,80,37,334 received from Shell India Markets Private Limited (SIMPL), Shell Energy India Private Limited (SEIPL), BG Exploration and Production India Limited (BGEPIL) and Shell Energy Marketing & Trading India Private Limited (SEIMTIPL) for CHR Recruitment fees as Fees for Technical Services (FIS) under Article 12 of India Netherlands Double Taxation Avoidance Agreement (DTAA or Tax Treaty). 4. The learned AO has erred on the facts and in law and learned DRP has further erred in confirming the action of the learned AO on the facts and in law in treating the aggregate cost recovery of INR 17,71,40,242 received from SIMPL, SEIPL, BGEIPL, SEMIIPL and Hazira Port Private Limited (HPPL) for Internal Communication Fees as FIS under Article 12 of India Netherlands DTAA. 5. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P has further erred in confirming the action of the learned AO on the facts and in law in treating the aggregate cost recoveries of INR 24,92,547 received SIMPL and BGEPIL for Media relation services as FTS under Article 12 of India-Netherlands DTAA. 13. The learned AO has erred on the facts and in law and learned DRP has further erred in confirming the action of the learned AO on the facts and in law in treating the aggregate cost recoveries of INR 50,99,802 received SIMPL and BGEPIL for Social Performance services as FTS under Article 12 of India Netherlands DTAA. 14. The learned AO has erred on the facts and in law and learned DRP has further erred in confirming the action of the learned AO on the facts and in law in treating the aggregate cost recoveries of INR 49,60,567 received SIMPL and BGEPIL for ER Strategy and Planning services as FTS under Article 12 of India Netherlands DTAA. 15. The learned AO has erred on the facts and in law and learned DRP has further erred in confirming the action of the learned AO on the facts and in law in treating the aggregate cost recoveries of INR 26,82,080 received SIMPL and BGEPIL for Manage and Lead ER Function services as FTS under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r their representative may think fit." 3. Before us, the Counsel for the assessee submitted that the case of the assessee is covered by order passed in the case of this entity i.e. Shell International B.V. for A.Ys. 2009-10 to 2018-19 vide order dated 20.03.2024. The Counsel for the assessee submitted that out of a total 13 services rendered by the assessee during the impugned assessment year, 5 services i.e. CHR Recruitment Fees - FTS, External Information Services - FTS, Real Estate Corporate Travel Services - FTS, Health Ecotox Services - FTS and IT Services - FTS have been dealt with in the order referred to above. Therefore, the taxability regarding these services are directly covered by the aforesaid order. For the balance 8 new services, although the services are different, however, the legal contention that in the instant facts the services do not qualify as fee for technical services, since the services do not "make available" technology to the recipient of services has been upheld in favour of the assessee in the order passed by ITAT for A.Y. 2009-10 to 2018- 19 and the assessee wishes to rely on the observations made by the ITAT qua the "make available" clause in the af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al recruitment team in the regular recruitment process apart from group related activities such as laying path to talent acquisition and presenting Shell as an attractive place. The cost incurred by the global recruitment team is shared across various shell entities, which have availed the services of the recruitment team. The said receipts towards recruiting candidates for respective Shell entities and the cost charge out is based on the actual number of recruitments made. 21. The Assessing Officer was of the view that the services qualify as fee for technical services since under the CHR recruitment service, the expertise and experience of the global recruitment and attraction team of the assessee is being offered to its affiliates. The nature of work performed by the Shell group companies is highly technical in nature. To attract such highly technical staff, industry experience and expertise is a sine qua non. The global recruitment and attraction team has accumulated such experience and expertise in conducting recruitment of highly technical staff. This team provides consultancy and assists the regional recruitment team of the affiliates in the regular recruitment process apa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has set up a "shared services Centre" to provide a shared services to Shell group. The services pertaining to guidance/support provided by the assessee in setting up IT infrastructure of the shared services centers. Also, IT services in relation to migration of certain operations from other similar centers over the globe to Indian Centre have also been provided by the assessee. Based on the time spent by the assessee's personnel assisting SIMPL in setting up its IT hardware system, the assessee has recharged the cost incurred. 25. The Ld. Assessing Officer was of the view that under the Shell inter-com charges, the expertise and experience of the global support team of the assessee is being offered to its affiliates. The nature of expat services work performed by the Shell group companies is highly technical in nature. This team provides consultancy and assists the regional team of the affiliates in providing services in the nature of tax administration. The costs incurred by the assessee company are shared across various Shell entities which have availed such facilities. Thus, Shell intercom function has been performed by the affiliates through the assistance/consu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (SC), where the assessee-company was incorporated for the purpose of setting up a 235 MW gas based power project. With the intention to utilize the expert services of qualified and experienced professionals who could prepare a scheme for raising the required finance and tie-up the required loan, assessee sought services of a consultant and eventually entered into an agreement with NRC, a Switzerland based company. The Hon'ble Supreme Court held that payment made to Swiss company for rendering such consultancy services amounted to 'fee for technical service' liable to tax in India. The Hon'ble SC observed that as the factual matrix in the case at hand would exposit, NRC had acted as a consultant. It had the skill, acumen and knowledge in the specialized field i.e. preparation of a scheme for required finances and to tieup required loans. The nature of service rendered by the NRC, can be said with certainty would come within the ambit and sweep of the term 'consultancy service' and, therefore, it has been rightly held that the tax at source should have been deducted as the amount paid as fee could be taxable under the head 'fee for technical service. Acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that in the instant facts, the services are clearly technical in nature, under the Indian domestic taxation laws as well as under the tax treaty law. The DR submitted that in the instant facts, clearly, technology has been made available to the recipient of services, and since both these service provider recipients are working closely with each other over a period of time, there is a transmission of knowledge during the course of rendering the aforesaid services. Further, the argument of the Counsel for the assessee that the services qualify as managerial services is also flawed, since looking into the nature of services these are primarily technical/consultancy services and fall squarely within the definition of fee for technical services under the India-Netherlands tax treaty. Further, so far as the argument of services been rendered on a cost to cost basis is concerned, the assessee has not been able to establish that there is no profit element/income element during the course of rendering the services, even if the argument were to be accepted that in absence of any income element, the services are not taxable in India. The profit and loss account presented by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the services are not liable to be taxed in India since only costs incurred in rendering the services have been recovered and in absence of any income element, the services are not taxable in India as FTS/royalty, as discussed and analysed even during the course of arguments, we observe that it is not a case where there is a clear case of cost to cost reimbursement with respect to only costs having been recovered from the respective associated enterprises, which have been incurred by the assessee in rendering the services. In the instant case, though the assessee submitted/contended that while charging for the services rendered, the assessee has only recovered the cost incurred in rendering the aforesaid services and nothing over and above the cost which has been incurred for rendering the various services, has been recovered from it's associated Enterprises. However, from the facts placed on record, the assessee, in our view (and as also noted by the Department for some of the Assessment Years under consideration) has not been able to establish that only the cost which has been incurred for rendering the services through its various employees etc alone has been recovered from it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ical services' has a very broad connotation and it has been used elsewhere in the Statute also so widely as to comprehend professional services : vide Section 9(1) (vii) ". The relevant meanings of the word 'technical' given in the New Shorter Oxford Dictionary (Thumb Index Edition) are 1. Of a person : having knowledge of or expertise in a particular art, science, or other subject. 2. pertaining to, involving, or characteristic of a particular art, science, profession, or occupation, or the applied arts and sciences generally. In CBDT v. Oberoi Hotels India (P.) Ltd. [1998] 97 Taxman 453, the Supreme Court reiterated the view that the term 'technical services' included professional services. In the case of Dean, Goa Medical College v. Dr. Sudhir Kumar Solanki [2001] 7 SCC 645, the question was whether the expression technical institutions' takes within its fold the medical colleges. The Supreme Court observed that "the dictionary meaning of the word "technical" is also "professional" and is used in contradistinction with pure sciences to prepare the professionals in applied sciences". However, we would like to observe that it is not any or every professiona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ind to any person in consideration for the rendering of any technical or consultancy services (including through the provision of services of technical or other personnel) if such services : ....... (b) make available technical knowledge, experience, skill, know-how or processes, or consist of the development and transfer of a technical plan or technical design." 36. The scope of the term "make available" was discussed at length in the case of Raymond Ltd. v. Dy. CIT [2003] 86 ITD 791, in the following words: "Whereas Section 9(1)(vii ) stops with the 'rendering' of technical services, the DTA goes further and qualifies such rendering of services with words to the effect that the services should also make available technical knowledge, experience, skills, etc., to the person utilizing the services. The making available in DTA refers to the stage subsequent to the 'making use of stage. The qualifying word is 'which'- the use of this relative pronoun as a conjunction is to denote some additional function the 'rendering of services' must fulfil. And that is that it should also 'make available' technical knowledge, experience, skill, etc. Thus, the normal, plain and grammatical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had remitted huge amounts to US based company for marketing services without deduction of TDS. The Assessing Officer held that assessee utilized services of US Company even in negotiations with customers and in finalizing contracts, and same could not be done without sharing technical knowledge, know-how, processes or experience, hence, payment was taxable in India as FTS. The Tribunal allowed assessee's appeal holding that payments made could not be considered as royalty or FTS and hence, no TDS was required to be deducted. It was found that US Company did not have any permanent establishment in India. Further Tribunal in its order had noted that scope of work was to generate customer leads using/subscribing customer data base, market research, analysis, and online research data and that service provider had not made available any technical knowledge, experience, know-how, process to develop and transfer technical plan or technical design. The High Court by impugned order held that in view of admitted fact that services were utilized in USA, findings returned by Tribunal did not call for any interference. The Hon'ble Supreme Court dismissed the SLP filed by revenue agains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under consideration, the assessee was engaged in provision of general business support services and other services, with respect to real estate operations and inter-company services to SIMPL. 60. The AO was of the view that under the Real Estate and Corporate Travel Services, the assessee provides consultancy and assists the regional team of the affiliates in managing real estate transactions and leveraging of global relationships and contract management with key suppliers and real estate information technology tool. The critical decision-making function of real estate consultancy has been performed by the affiliates through the assistance/consultancy of the assessee. As per the Ld. Assessing Officer, identifiable and highly specialized services requiring expertise and industrial experience of the global support team of the assessee have been provided by the assessee and the nature of work performed by the Shell group companies is highly technical in nature The AO thus concluded that the assessee, through its personnel, provided 'technical services' to assessee, especially since the DTAA definition of FTS expressly includes the provision of the services of personnel. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in nature and the only objection is that the same are not taxable as such services do not fall in the scope of make available clause. The assessee has rendered certain IT services to Shell India Markets Pvt. Ltd. ('SIMPL'), a group entity, which inter alia, includes certain services in relation to the Physical Access Control System ('PACS') being implemented at each location. This requires experience and expertise of highly technical and trained staff. Thus, in such a scenario it cannot be said that technical knowledge, experience, skill etc has not been made available to the Indian entity. It is seen that the advice and assistance rendered by the assessee to the Indian entity are not transient in nature and are capable of being used by the Indian entity on its own. Health Ecotox services: 83. During the year under consideration, the assessee rendered Health Ecotox services to SIMPL which pertains to "One Health IT System". The One Health IT system is for keeping and maintaining confidential medical information of Shell employees. The system is managed by Shell Health. The cost incurred for these services has been allocated between group companies using these services based on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er as per the definition of FTS in the DTAA, when imparting of suitable experience or skill possessed by the assessee to the affiliates takes place it amounts to making available the FIS/FTS and therefore the amounts received are taxable as per the DTAA. The services are enduring and they help in promoting the business of the affiliates. The employees of the affiliates are in a position to, actually they are expected to use the knowledge gained, in the business of the affiliates. Thus, knowledge and know-how are made available to the affiliates. Hence, on an understanding of the overall effect of the services, it has to be held that the technical knowledge, experience, and skill are made available to the affiliates. 86. The assessee is in appeal before us against the aforesaid order passed by Assessing Officer holding the services as fees for technical services under the Act read with the Tax Treaty. Before us, the arguments of the Counsel for the assessee remain the same as discussed in earlier paragraphs while dealing with other services which were held to be FTS for Assessment Year 2011-12. 87. In our considered view, in view of our observations made in the preceding paragra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icies and processes and ensure they align with business need for a diverse, inclusive and competitive workforce - senior leader's succession planning, diversity & inclusion, talent operations/excellence, skill pool management, career development, resourcing strategy and advice, support the execution of Talent process and policy within dedicated business HR teams, and provide leadership, direction and strategy for those teams. The purpose is to create competitive advantage through attracting talented people from diverse sources, developing them, motivating them, creating alignment to Shell Group goals and giving them the most effective organizational structures in which to deploy their skill and energy. The costs incurred by the assessee company are shared across various Shell entities which have availed such, facilities. Thus, function has been performed by the affiliates through the assistance/consultancy of the assessee. Hence it is established that clearly identifiable and highly specialized services, requiring expertise and experience have been provided by the assessee. I. Brand advertising:- (Ground No. 11 Rs. 25,072,914/-) At the outset it is stated that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee is being offered to its affiliates. The nature of work performed by the Shell group companies is highly technical in nature being crisis management. This team provides consultancy and assists the regional team of the affiliates in providing excellence supports critical scenarios in terms of reputation management and crisis management. The ER Strategy and Planning Center of Excellence is involved in corporate reputation, annual ER planning, measurement and insights, planning and operations, coordinating the shell policy forum and crisis management. Thus the critical decision making function has been performed by the affiliates through the assisfance/consultancy of the assessee. Hence it is established that clearly identifiable and highly specialized services, requiring expertise and industrial experience have been provided by the assessee. M. Manage and Lead ER function:- (Ground No. 15 Rs. 2,682,080/-) Under the Manage and Lead ER function, the expertise and experience of the global support team of the assessee is being offered to its affiliates. The nature of this work performed by the Shell group companies is highly technical in nature being how to manage and le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding paragraphs while dealing with the issue for A.Y. 2009-10 to 2018-19 vide order dated 20.03.2024, we are of the considered view that the "make available" clause has not been satisfied in the instant facts and therefore, the services mentioned above do not qualify as FTS under India-Netherlands Tax Treaty. 10. In the result, we hold that the above services did not qualify as FTS under the India-Netherlands Tax Treaty, since the "make available" clause has not been satisfied in the instant facts. 11. In the result, Ground Nos. 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15 of the assessee's appeal are allowed, since the services do not qualify as "FTS" under the India-Netherlands Tax Treaty. 12. With respect to Ground No. 16 regarding the contention that the above mentioned services are merely cost allocation / reimbursement are taxable, we observe that we have decided this issue against the assessee for previous assessment years and therefore, Ground No. 16.1 of the assessee's appeal is dismissed. We would like to reproduce the relevant extracts of the ruling dated 20.03.2024 for ready reference: "32. Secondly, with regard to the arguments that the services are not liable t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are reproduced for ready reference: "Grounds 10-11 of the assessee's appeal pertains to the issue of levy of surcharge, education cess and secondary and higher education cess on the tax levied @ 10% rate prescribed under Article 12 of the Tax Treaty 90. We are of the considered view that that levy of surcharge and cess cannot exceed the tax rate of 10% as per Article 12 of India -Netherlands tax treaty, since the Treaty provides that the tax is to be charged on royalty and FTS shall not exceed 10% of the gross amount of royalty or FTS. Further, Article 2 of the Tax Treaty defines tax in India as "income tax including any surcharge thereon". Therefore, Article 12 read with Article 2 of the Tax Treaty makes it clear that the rate of tax at 10% would encompass surcharge and education cess as it is also in the nature of tax. Therefore, we hold that levy of surcharge and cess over and above the taxable rate of 10% on royalty and FTS is not permissible as per the Treaty provisions. While coming to such conclusion, we are well supported by the following decisions: * FCC Co. Ltd.145 taxmann.com 649 (Delhi - Trib.) * Dy. CIT, International Taxation v. Marubeni Corpn. [2022] 139 tax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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