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of <h1>AAR ruling quashed on TDS withholding under section 195 for non-resident payments under Cost Contribution Arrangement</h1> <h3>Shell India Markets Private Limited Versus The Union of India, The Authority for Advance Ruling, The Commissioner of Income Tax, (Large Tax Payer Unit) Mumbai, The Assistant Director of Income Tax, (International Taxation) -2 (1) Mumbai, The Deputy Director of Income Tax, (International Taxation) -2 (1) Mumbai</h3> Shell India Markets Private Limited Versus The Union of India, The Authority for Advance Ruling, The Commissioner of Income Tax, (Large Tax Payer Unit) ... Issues Involved:1. Determination of tax liability for payments made by Petitioner to SIPCL for General Business Support Services (BSS) under a Cost Contribution Arrangement (CCA).2. Nature of payments as 'Fees for Technical Services' (FTS) under Article 13 of the India-UK DTAA.3. Obligation to withhold tax under section 195 of the Income Tax Act, 1961.4. Whether services provided were technical or managerial in nature.5. Interpretation of 'make available' clause in the context of technical services.6. Status of SIPCL's Permanent Establishment (PE) in India.Summary:1. Determination of Tax Liability and Nature of Payments:The High Court addressed the question of whether payments made by the Petitioner to SIPCL for availing General Business Support Services (BSS) under a Cost Contribution Arrangement (CCA) constituted income in the hands of SIPCL and if they were in the nature of 'Fees for Technical Services' (FTS) under Article 13 of the India-UK Double Tax Avoidance Agreement (DTAA). The Authority for Advance Rulings (AAR) had earlier ruled that these payments were indeed FTS and thus taxable in India, obligating the Petitioner to withhold tax under section 195 of the Income Tax Act, 1961.2. Nature of Services - Technical vs. Managerial:The Petitioner argued that the services availed were managerial and excluded technical services. The High Court found that the services listed in the CCA, such as management support, marketing support, financial advice, and legal services, were managerial in nature and did not involve technical expertise. The Court emphasized that consultancy services under Article 13 must make available technical knowledge, skill, know-how, or processes, which was not the case here.3. Interpretation of 'Make Available' Clause:The Court highlighted that for services to be considered as 'made available,' the recipient must be able to apply the technical knowledge independently in the future. The AAR's conclusion that the services were made available because SIPCL worked closely with the Petitioner's employees was deemed incorrect. The Court noted that the ongoing nature of the CCA indicated that the services were not made available in the sense required by the DTAA.4. Permanent Establishment (PE) Status:The AAR had not conclusively determined whether SIPCL had a Permanent Establishment (PE) in India. The High Court noted that this issue was not addressed by the AAR and remained inconclusive.Conclusion:The High Court quashed the AAR's order, holding that the payments made by the Petitioner to SIPCL for availing General BSS under the CCA did not constitute 'Fees for Technical Services' under Article 13 of the India-UK DTAA and were not taxable in India. The Court declared that the transactions under the CCA were managerial in nature and did not involve the transfer of technical knowledge, skill, or processes. The Department was given the liberty to take necessary steps regarding the applicability of Article 7 of the DTAA, and the time taken in these proceedings would be excluded for the purpose of limitation.
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