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TMI Blog2024 (9) TMI 1712X X X X Extracts X X X X X X X X Extracts X X X X ..... see constitutes 'income' in nature of 'Fees for Technical Services' (FTS) which is liable to be taxed in India 3 erred in not appreciating that the receipts from General Business Support Services (BSS') are in the nature of cost-recharge, which does not constitute as income chargeable to tax in India 4. without prejudice to the above, erred in holding that the payments received by the Appellant for providing General BSS constitutes FTS under the India-UK Double Taxation Avoidance Agreement (DTAA) 5. failed to appreciate that such advisory services do not 'make available' any technical knowledge, skill, experience etc to the service recipient under Article 12 of the India-UK DTAA and hence not subject to tax in India 6. erred in initiating penalty proceedings under section 271(1)(c) of the Act 3. The assessee had also filed an additional ground, challenging the assessment order as being barred by limitation as per the ratio laid down by the Hon'ble Madras High Court in the case of CIT vs. Roca Bathroom Ltd. [2022] 445 ITR 537 (Madras). 4. The brief facts of the case are that the assessee - Shell International Petroleum Company Ltd. (SIPCL) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erated that the lower authorities have relied on the decision of Hon'ble Authority for Advance Ruling (Hon'ble AAR for short) in the case of Shell India Market Pvt. Ltd. (vide Application No. 833 of 2009), which has held that the payment received for the services rendered by the assessee from Shell India Market Pvt. Ltd. to be in the nature of 'fees for technical services' which is for providing specialized, technical inputs, which are taxable in India as per the provisions of the I. T. Act and the India-UK DTAA. The ld. AR further stated that the said decision of the Hon'ble AAR was reversed by the Hon'ble Jurisdictional High Court in the case of Shell India Market Pvt. Ltd. The ld. AR contended that since the lower authorities had merely relied on the ruling of Hon'ble AAR on this issue and the same has been quashed by the Hon'ble High Court, which finding would squarely be covered in the case of assessee also. The ld. AR prayed that the addition be deleted. 8. The learned Departmental Representative (ld. DR for short), on the other hand, fairly agreed that the decision of the Hon'ble High Court reversing the ruling of Hon'ble AAR stands covered in favour of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the cost incurred by the assessee is to be allocated amongst Shell operating companies based on cost allocation keys as per the terms of CCA and further the said costs are without mark up and are charged to the cost sharers on the basis of actual cost incurred by the assessee. It also contended that the payments received without markup are in the nature of reimbursement and not in the character of income which is chargeable to tax in India. They are merely in the nature of cost-recharge as per the CCA. It is further observed that SIMPL filed an application before the Hon'ble AAR for determining its tax withholding obligation in respect of the cost contribution made by it to the assessee and the Hon'ble AAR vide its order dated 17.01.2012 held that the payments made by SIMPL to the assessee was in the nature of 'fee for technical service' as per Article 13 of India-UK DTAA for which SIMPL was liable to withhold taxes as per section 195 of the Act. Parallely the assessee's case was picked up for scrutiny where the lower authorities made an addition on the impugned payment received by the assessee from SIMPL by extensively relying on the ruling of the Hon'ble AAR which held the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ROYALTIES AND FEES FOR TECHNICAL SERVICES 1. Royalties and fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 2. However, such royalties and fees for technical services may also be taxed in the Contracting State in which they arise and according to the law of that State; but if the beneficial owner of the royalties or fees for technical services is a resident of the other Contracting State, the tax so charged shall not exceed: (a) in the case of royalties within paragraph (3)(a) of this Article, and fees for technical services within paragraph (4)(a) and (c) of this Article; (i) during the first five years for which this Convention has effect; (aa) 15 per cent of the gross amount of such royalties or fees for technical services when the payer of the royalties or fees for technical services is the Government of the first-mentioned Contracting State or a political subdivision of that State, and (bb) 20 per cent of the gross amount of such royalties or fees for technical services in all other cases; and (ii) during subsequent years, 15 per cent of the gross amount of such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ledge, experience, skill, know-how or processes, or consists of the development or transfer of a technical plan or technical design. 17. The principle of noscitur a sociis mandates that the meaning of a word is to be judged by the company of other words which it keeps. The word 'consultancy' services follows 'technical' which is further followed by the phrase "which make available technical knowledge, experience, skill, know-how or processes, or consist of development and transfer of a technical plan or technical design." A clear reading indicates that even if consultancy services is 'stand alone', the bunch of words indicate that the said 'consultancy' necessarily relates to consultancy which makes available technical or any other knowledge, experience, skill, know-how or processes and does not relate to consultancy on managerial issues. 18. The Appendix 2 of CCA contains the General BSS. The list of services availed are as follows: EXAMPLES OF GENERAL BUSINESS SUPPORT SERVICES: * Management Support * Development and Provisions of Support and Business Tools * Provision of Marketing Support. * Development, Communication and Audit of Standards of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scribed in paragraph (3)(b) of Article 13 is received; or (3) as described in paragraph 4(c), if they make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design. Thus, under paragraph 4(c), consultancy services which are not of a technical nature cannot be included services. Thus, the services availed by Petitioner cannot be said to be technical services and Article 13 is wholly inapplicable in the facts and circumstances of the present case. 19. It will be useful to refer to a decision of the Madras High Court in the case of Skycell Communications Ltd and Anr. v. Deputy Commissioner of Income-Tax and Ors.8 which held as follows: "8. Thus while stating that "technical service" would include managerial and consultancy service, the Legislature has not set out with precision as to what would constitute "technical" service to render it "technical service". The meaning of the word "technical" as given in the New Oxford Dictionary is adjective 1. of or relating to a particular subject, art or craft or its techniques : technical terms (especially of a book or article) requiring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion, be regarded as amounting to provision of technical services to the consumer resulting in the consumer having to deduct tax at source on the payment made for the power consumed and remit the same to the Revenue. 15.The use of the internet and the world wide web is increasing by leaps and bounds, and there are hundreds of thousands, if not millions, of subscribers to that facility. The internet is very much a product of technology, and without the sophisticated equipment installed by the internet service providers and the use of the telephone fixed or mobile through which the connection is established, the service cannot be provided. However, on that score, every subscriber of the internet service provider cannot be regarded as having entered into a contract for availing of technical services from the provider of the internet service, and such subscriber regarded as being obliged to deduct tax at source on the payment made to the internet service provider. 20. Thus, it is clear from the said decision that any service is construable as technical but one has to see the true import of the service actually rendered and the determination must be made in this context. There is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l knowledge, skills, etc., does not mean that technology is made available to the person purchasing the service, within the meaning of paragraph (4)(b). Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available. In other words, payment of consideration would be regarded as "fee for technical/included services" only if the twin test of rendering services and making technical knowledge available at the same time is satisfied." (emphasis supplied) 22. Similarly, the Delhi High Court in the CIT (International Taxation)-1, Delhi v. M/s Biorad (Supra) has discussed the said concept accordingly. Paragraphs 14 and 15 read as under: 14. According to the Tribunal, the agreement between the respondent/assessee and its Indian affiliate had been effective from 01.01.2010, and if, as contended by the appellant/revenue, technical knowledge, experience, skill, and other processes had been made available to the Indian affiliate, the agreement would not have run its course for such a long period. 14.1 Notably, this aspect is adverted to in paragraphs 17 to 23 of the impugned order. For convenience, the relevant paragraphs are extr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eement continues to operate till date. If the view of AAR is to be held as correct then the contract must stand concluded as once the services and the know how, skill etc is transferred to Petitioner, the need of continuing to render said services must end. This is factually not so as the CCA is in effect till date. 24. Considering the above discussion it is clear that the AAR has interpreted the requirements to be satisfied for 'make available' based on its own general notion of the said term without appreciating the applicable law on the subject and also reached an erroneous conclusion that the services availed are technical services. 25. Moreover, the AAR has not dealt with the issue relating to the 'Permanent Establishment' of SIPCL and there is no determination on the same. Of course, that was not a subject of reference before AAR. 26. Thus, we have no hesitation in holding that the impugned order dated 17th January 2012 of AAR suffers from legal infirmity and is quashed and set aside. 27. During the course of the arguments, Mr. Mistry stated that Petitioner only seeks relief prayed in clauses (a) and (b) of the petition and does not press the other ..... X X X X Extracts X X X X X X X X Extracts X X X X
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