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TMI Blog2025 (5) TMI 865X X X X Extracts X X X X X X X X Extracts X X X X ..... se appeals through various grounds are tabulated below - Issue AY 2016-17 AY 2017-18 AY 2018-19 AY 2019-20 AY 2020-21 General Ground No.1 Ground No.1 Ground No.1 Ground No.1&2 Ground No.1 Final assessment order passed by AO is bad in law. Ground No.2 Receipts from General Business Support Services ('BSS') does not constitute 'income' Ground No.2 Ground No.2 Ground No.2 Ground No.3 Ground No.3 Receipts from General BSS does not qualify as Fees for Technical Services ('FTS') Ground No.3 & 4 Ground No. 3 & 4 Ground No. 3 & 4 Ground No. 4 & 5 Ground No. 4 & 5 Receipts towards access to SUN / GSAP software licence charges does not constitute income Ground No.5 & 9 Receipts towards access to SUN /GSAP software licence charges does not qualify as Royalty Ground No.6 to 8 and 10 to 12 Receipts towards SUN / GSAP maintenance charges does not constitute income Ground No.13 Ground No.5 & 9 Ground No. 5 Ground No. 6 Ground No. 6 Receipts towards SUN/GSAP maintenance charges does not qualify as FTS Ground No.14 to 16 Ground No. 10 to 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Company incorporated in UK and it is in the business of providing consultancy services to various Shell operating company. The assessee has entered into Cost Contribution Agreement (CCA) with various Shell concerns including Shell India Markets Pvt. Ltd. (SIMPL) for the provision of Business Support Services (BSS). The BSS are primarily in the nature of Management Support Services and the cost incurred towards rendering of such services is allocated among Shell Group concerns using the allocation key on a cost to cost basis. The AO held the BSS Arrangement as Fees for Technical Services (FTS) in the hands of the assessee and accordingly brought the same to tax. The AO in this regard placed reliance on the Ruling of Authority for Advance Ruling (AAR) in the case of SIMPL (application no. 833 of 2009 dated 17.01.2012). The AO further treated the amount received by the assessee towards usage charges of SUN Maintenance Software treating the same as royalty. The AO also treated the receipt towards cost allocation for GSAP license and Go-Live application as royalty. The assessee raised further objections against the draft assessment order of the AO, before the DRP who confirmed the addi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 to be 'fee for technical service' in the case of SIMPL. Though the assessee during the assessment proceeding had objected for placing reliance on the ruling of the Hon'ble AAR as being not binding on the assessee, the lower authorities failed to agree with the assessee's contention and held that as per section 245S of the I. T. Act, the ruling of the Hon'ble AAR had binding effect on the assessee unless there is a change in law or facts. The relevant extract of the Hon'ble AAR is cited herein under for ease of reference: "We therefore rule on Que.No.(i) & (ii) that the payment made by the applicant to SIPCL for availing the General BS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ragraph (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 royalties or fees for technical services; and (b) in the case of royalties within paragraph (3)(b) of this Article and fees for technical services defined in paragraph (4)(b) of this Article, 10 per cent of the gross amount of such royalties and fees for technical services. 3. For the purposes of this Article, the term "royalties" means: (a) payments of any kind received as a consideration for the use of, or the right to use, any copyright of a literary, artistic or scientific work, including cinematograph films or work on films, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsultancy' 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 * Performance Promotion of Professional Competence * Information Technology Advice and Services * General Financial Advice and Services * Taxation Advice and Services * Legal Services * Employee Relations and Public Affairs/Media Advice and Services * HR Advice and Services* Contracting and Procurement Services * Other Business Support Services A perusal of the list of services relate to managerial services not involving anything of a technical nature. The AAR has discussed the services appearing in the CCA and has concluded that these activities in a retail business are at the core of retail marketing and hence advice tendered in taking a dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... puty 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 special knowledge to be understood : a technical report. 2. of involving, or concerned with applied and industrial sciences : an important technical achievement. 3. resulting from mechanical failure : a technical fault. 4. according to a strict application or interpretation of the law or the rules : the arrest was a technical violation of the treaty. 9. Having regard to the fact that the term is required to be understood in the context in which it is used, "fee for technical services" could only be meant to cover such things technical as are capable of being provided by way of service for a fee. The popular meaning associated with "technical" is "involving or conce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 such discussion in the Impugned order and the finding is based on a generic reference to the meaning of the word 'consultancy' as given in the Oxford English Dictionary. The AAR further holds that the list of services mentioned in the CCA is not an exhaustive list and may include other technical services. Thus Petitioner is correct in contending that the AAR has proceeded on conjectures and surmises to render the finding in the impugned order. 21. The AAR has further held that the services are made available to Petitioner since while providing General BSS, SIPCL works closely with the employees of the applicant and supports/advises them. It is held that Petitioner is ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 extracted hereafter: "17. A perusal of the aforementioned provision shows that in order to qualify as FTS, the services rendered ought to satisfy the 'make available' test. Therefore, in our considered opinion, in order to bring the alleged managerial services within the ambit of FTS under the India-Singapore DTAA, the services would have to satisfy the 'make available' test and such services should enable the person acquiring the services to apply the technology contained therein. "18. As mentioned elsewhere, the agreement is effective from 01.01.2010 and we are in Assessment Years 2018-19 and 2019- 120.[sic.....20]. In our considered opinion, if the assessee had enabled the servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 prayers. Rule is thus made absolute in terms of prayer clauses (a) and (b) which read as follows - "a) That this Hon'ble Court be pleased to declare that the transactions under CCA do not amount to being technical in nature per Article 13 of DTAA between India and UK and therefore, would not be taxable in India; b) That this Hon'ble Court may be pleased to issue a Writ of Certiorari or a Writ in the nature of Certiorari and/or any other appropriate writ, order or direction under Article 226 of the Constitution of India calling for the records and papers of the Petitioner's case and after examining the legality and validity thereof quash and set aside the impugned order dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this regard are allowed. Ground No.2 has become academic in view of our decision on Ground No.3 & 4. Treatment of access & cost allocation towards SUN software and SAP / GSAP software application Royalty 6. We heard the parties and perused the material on record. At the outset the ld AR submitted that the issue is identical to the issue contended in AY 2012-13 and that the coordinate bench has held the issue in favour of the assessee. We notice in this regard the below observations of the coordinate bench in assessee's own case for AY 2012-13 vide order dated 27.02.2025 - 6. The next issue for our consideration is whether the amount received by the assessee on account of cost allocation of SUN Maintenance Software application and GSAP maintenance charges is royalty under the DTAA between India and UK. In this regard the ld AR submitted that the assessee has migrated to GSAP from SUN software during the year under consideration and that the assessee has paid maintenance charges towards both the applications. The ld AR argued that it is a settled position that the amount received towards maintenance of computer software is not a payment of royalty since the charges paid ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the payment of royalty and accordingly, tax was required to be deducted at source by the Indian importer. Since this was not done, it was held that the assessee was liable to make good the payment of TDS which it had not deducted. Also interest under Section 201(1)(A) of the Act was levied. The Appeal before the Commissioner was also dismissed. 9. In these circumstances, the proceedings had reached the Tribunal at the instance of the assessee. The assessee succeeded in these proceedings, with the ITAT setting aside the concurrent findings of both the authorities below. On such backdrop, the proceedings reached the High Court 10. The High Court of Karnataka, in similar proceedings, on examination of the End User Licence Agreement ("EULA") involved in such transactions found that what was sold by way of computer software, including the right or interest in copyright, which gave rise to the payment of royalty, would be an income deemed to have accrued in India under Section 9(1)(vi) requiring deduction of tax at source. The orders passed by the High Court were assailed before the Supreme Court. It is also required to be noted that similar issues had arisen before the Delhi Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income taxable in India, as a result of which the persons referred to in section 195 of the Income-tax Act were not liable to deduct any TDS under section 195 of the Income-tax Act. The answer to this question will apply to all four categories of cases enumerated by us in paragraph 4 of this judgment. 170. The appeals from the impugned judgments of the High Court of Karnataka are allowed, and the aforesaid judgments are set aside. The ruling of the AAR in Citrix Systems (AAR) (pra) is set aside. The appeals from the impugned judgments of the High Court of Delhi are dismissed." (emphasis supplied) 11. It is not in dispute that transactions in the present case are similar to what had fell for consideration of the Supreme Court in Engineering Analysis Centre of Excellence (P) Ltd (supra). Also there is no dispute that there is a DTAA entered with the countries in question, with whose residents the transactions were entered into by the assessee. 12. In the aforesaid circumstances, it is clear that the approach of the Assessing Officer in the present case was against the correct position in law as held by the Tribunal, and now also endorsed by the Supreme Court in Engineering Ana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 13(4)(a) of the DTAA provides that fees for technical services means payment to any person in consideration for rendering of any technical or consultancy services which are 'ancillary and subsidiary' to the application or enjoyment of the right, property or information for which a payment described in paragraph 3(a) of this article is received. The ld AR further submitted that article 13(4)(a) of the DTAA can only be invoked when there is a payment which is chargeable to tax under article 13(3)(a) as royalty and further payment is made for technical or consultancy services which are ancillary and subsidiary to such royalty. The ld AR accordingly submitted that if there is no payment which is chargeable to tax as royalty under article 13 (3)(a) of the DTAA, question of applicability of article 13(4)(a) would not arise. The ld AR argued that in assessee's case it has already been held that the receipt for giving access to software is not in the nature of royalty as defined in Article 13(3) of the DTAA and, therefore, the receipt for providing maintenance services cannot be treated as FTS under article 13(4)(a) of the DTAA. With respect to the alternate contention of the Revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hnical knowledge, experience, skill, know-how or processes, or consist of the development and transfer of a technical plan or technical design." 11. A combined perusal of the clause (3) and (4) of Article 13 makes it clear that for the purpose of receipt to fall within the purview of FTS, it should be ancillary and subsidiary to the application or enjoyment of the right, property or information which is Royalty within clause (3). In assessee's case the impugned receipts are towards maintenance of the SUN/GSAP applications. We have while considering the issue of SUN / GSAP application charges being treated as Royalty, have already held that the said receipts are not in the nature of Royalty by following the decision of the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt. Ltd.(supra). Accordingly the receipts towards maintenance of the SUN / GSAP application in our considered view will not fall within the purview of clause (4) of Article 13. Therefore the revenue's contention that the receipt towards maintenance is FTS in nature is not tenable. Further from the perusal of DRP order we notice that the DRP has observed that the nature of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e bench. The ld AR accordingly argued that the impugned receipts are not taxable on both counts. 15. The ld DR relied on the order of the lower authorities. 16. We heard the parties and perused the materials on record. We have already held that the BSS charges are not in the nature of FTS by following the earlier orders in assessee's own case. We notice that the DRP has given a categorical finding that the GST scoping / customisation receipts are similar to BSS charges. Therefore we hold that the GST charges cannot be treated as FTS. Further GST scoping / customisation receipts are incurred towards modifying the existing systems especially the billing module to comply with GST regulations and the said services are carried out by third party service providers. The assessee has made payments towards the same which is allocated to the Indian AE who paid the same to the assessee. In our view the impugned receipts are not towards any services rendered by the assessee which makes available any technical knowledge or skill and cannot be treated as FTS. We have while considering the issue of receipts towards SUN/GSAP application have held the same as not in the nature of Royalty. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the following observations of the Hon'ble Supreme Court in the case of Engineering Analysis (supra) - 100. Also, any ruling on the more expansive language contained in the explanations to section of the Income-tax Act would have to be ignored if it is wider and less beneficial to the assessee than the definition contained in the DTAA, as per section 90(2) of the Income-tax Act read with explanation 4 thereof, and Article 3(2) of the DTAA. Further, the expression "copyright" has to be understood in the context of the statute which deals with it, it being accepted that municipal laws which apply in the Contracting States must be applied unless there is any repugnancy to the terms of the DTAA. For all these reasons, the determination of the AAR in Citrix Systems Asia Pacific Pty Ltd. (supra) does not state the law correctly and is the aside. 11. From the perusal of above finding, it is clear that the if the definition of Royalty as contained in the DTAA is more beneficial to the assessee then the same should only be applied as per section 90(2) of the Act. The term "Royalty" as per Article 13(3) of the DTAA between India and UK reads as under - 3. For the purposes of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re was a need for the assessee to relocate warehouses / depots from existing locations to new locations, since the existing contracts with supplier expired. Accordingly, this relocation triggered the need for IT infrastructure / eRouter setup at new locations to ensure business continuity and the cost incurred towards the same are allocated. In furtherance of the same, the assessee received cost allocation charges towards IT service and local project costs. The AO though held that the same is in the nature of BSS treated the same FTS and alternatively as royalty. The DRP held that these receipts are not independent service and very much part of BSS. Thereby the DRP held that these services being akin to / part of BSS fall within purview of make available and is taxable as FTS. Subsequently, following the DRP directions, the AO in the final assessment order recorded that the said receipts are similar to BSS (i.e., taxable as FTS) and question of taxing the same receipts as royalty becomes infructuous. 19. We heard the parties and perused the material on record. From the perusal of the orders of the lower authorities we notice that the revenue has held the impugned services to be si ..... X X X X Extracts X X X X X X X X Extracts X X X X
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