AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2015 (12) TMI 142
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....ees for technical services and taxable in India. 2. The learned CIT(A) has erred in rejecting appellant's claim to seek nontaxability of 50% of the receipts in respect of Basic Refinery Package ('BRP') as exempt from tax for the following reasons: * The learned CIT(A) erred in holding that the agreement for BRP has to be read as a composite one. * The learned CIT(A) erred in holding that the appellant has no basis to claim that 50% of the services rendered were commercial. * The learned CIT(A) erred in holding that the appellant's attempt to bifurcate its service into technical and non-technical part is devoid of any basis, logic and is self-contradictory. * The learned CIT(A) erred in holding that the argument of 'make available' either does not apply or cannot be pinpointed by the appellant. * The learned CIT(A) erred in holding that the neither there is any relevance of Memorandum of Understanding ('MOU') to Indo-US DTAA in facts of the case nor can this MOU in that context extendable to Indo-Netherlands DTAA. 3. The learned CIT(A) has erred in rejecting the appellant's claim (which has been u....
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....ax The appellant prays that in view of the provisions of Section 209(1 )(d) read with section 195 of the Act, interest under Section 234B and Section 234C of the Act should not be charged. 11. Your appellant reserves the right to add, amend , alter or vary all or any of the above grounds of appeal as they or their representative may think fit". 3. The issue in appeal lies in a rather narrow compass of material facts. The assessee before us, i.e. Shell Global Solutions International BV, is a company incorporated in, and tax resident of, the Netherlands. During the course of the scrutiny assessment proceedings, the Assessing Officer noticed that while the assessee has duly accepted taxability of its receipts aggregating to Rs. 65,21,62,165 as fees for technical services, the assessee has claimed receipts aggregating to Euros 16,75,781, i.e. Rs. 17,26,50,194, as non taxable in nature. The non taxable receipts included reimbursement of expenses, aggregating to Rs. 1,78,40,156, received from Hazira Port Pvt Ltd, Hazira LNG Pvt Ltd and Welspun Gujarat Stahl Rohren Limited, in addition to fees for commercial services aggregating to Rs. 7,69,29,360 received from Reliance Industrie....
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....ts". He then observed that "it is found that this expression has been used in various enactments in the United States" and added that "The expression 'make available' has been used in enactment 'Terrorism Risk Insurance Act' of United States and in 'Copyright Infringement Act' of the United States, and, on these Acts, there are number of decisions have come up regarding meaning of the expression 'make available' which means offer or make accessible or provide, furnish things in this context". The Assessing Officer then referred to some more google searches justifying the meaning as "making accessible". He then proceeded to summarize his findings, at page 12 of the assessment order, as follows: This clearly suggests that the words 'make available' which were used in treaty in that context, and the treaty too suggests that these services in the nature of technical knowledge, skill etc were offered or made accessible to the other party, and it never meant that that the other party should be trained or made expert in such technical knowledge. It will be absurd on the part of a person to make other person expert of its own competency which will result in a situation that the recipien....
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....consideration for basic refinery package services as also entire consideration for certain optional services has been considered, by the assessee himself, as taxable and the due taxes, as applicable under Article 12 of the Indo Dutch treaty, were paid thereon. As to the nature of commercial services rendered by the assessee, the assessee submitted as follows: The scope of services to be rendered by Appellant under the aforesaid agreement is under: 2. Basic Refinery Package ('BRP') 2.1 Under this package Appellant would provide to RIL from outside India deliverables in the form of goods likes best practices, manuals, guidelines, standards, drawings, handbooks, training manual etc. developed by appellant based on their expertise and experience in running refineries all over the world. All these deliverables have been developed by appellant over a long period, as a result of their vast experience in commercial as well as technical matters relating to designing, engineering, installation, operation, maintenance and trouble shooting in refineries round the world and the same form a part of the existing library of Appellant. None of the deliverables have been specifically prepar....
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....ation, maintenance, manpower, training, procurement, safety and environmental areas etc. (iv) Appellant has accumulated a vast knowledge and has a database on the suppliers/manufactures for various inputs materials, catalyst and chemicals. Appellant will provide from time to time, relevant commercial data and information to RIL under the above agreement which can be used in our procurement activities for better negotiations, selection of better products (alternative products), alternative sources of suppliers/manufacturers around the world with objective to minimise cost of input materials and thus improve profitability of RIL's refinery. (v) The hydrocarbon management procedure contained in the abovementioned manual/guidelines can be used by RIL for analysing fuel and loss figures obtained in RIL's refinery during operation and identify the potential areas for reducing such loss and convert the hydrocarbons to more valuable products thus improving our overall profitability. (vi) RIL would also obtain certain software packages developed by Appellant which are related to optimisation, catalyst performance analysis, planning and scheduling, oil improvement functions, plant o....
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....t Group HSE Management System (Feb-2002) TA Management Best Practice M-122 Manufacturing Business Economics Profits and principles - does there have to be a choice ? Performance and Efficiency Conference Year 2002 Impact services and technology to improve margins Reliance Laboratory Efficiency - February 2003 Fuels Product Quality - June 2004 Help Desk Query Consolidated List Sr List of CD's 1 2 Performance and Efficiency conference Oil movement, crude oil and product quality conference 1. Oil Movement Newsletter The Oil Movement News letter contains general information/articles on Oil and Gas industry, which are contributed by refineries from all over the world. Further this newsletter aims to maximise the synergy by bringing together the full range of specialism involved in Oil Movements. 2. Hydrocarbon Logistics Newsletter The hydrocarbon logistics newsletter is intended as a source of informal information on all matters in the field of planning and scheduling of interest to staff active in the area. Each of the news letter issue covers various topics in the field of planning and scheduling. 3. Guidelines for ....
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....riving policies and procedures for their Rod Transport operations and inclusions with HSSE case document. 10. Incident classification, investigation and reporting (HSE) This document provides guidance on the classification, investigation and reporting of incidents which results in injury or illness and in damage to assets, the environment or company reputation. It also addresses incidents that had no adverse outcomes (near misses). It sets out rules for the reporting of incident by Shell companies and joint ventures. 11. Man Made Vitreous Fibers ('MMVF')(HSE) MMVF include products containing refractory ceramic fibers, Fiberglass and mineral wool. This guideline establishes requirements for managing and working with MMVF because available toxicity information and recommendations from manufacturers support controlling exposures to these materials. 12. Benchmarking training seminar This is the material provided by Shell during "Benchmarking Training Seminar" conducted at their training centre "Leeuwenhorst", Netherlands. 13. Fitness to work (HSE) The purpose of this document is to ensure that a lack of Fitness to Work (FTW) does not result in significant injury....
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....y 2003 As a part of the process of continuous improvement, RIL wished to compare their laboratory with Shell facilities in terms of manpower efficiency and numbers of samples/tests. This document records the finding of Shell, based on the questionnaire which was developed to identify and gain insight into the factors that influence laboratory efficiency. 22. Fuels Product Quality Refinery News ('FPORN') - June 2004 EPQRN is a news letter which is issued up to 4 times a year and present tropical information in brief, easily accessible articles on fuel issues affecting refinery customers. I also provide information on developments in fields of automotive fuels (including non-traditional fuels like bio-fuels), aviation fuels, industrial gas oil and residual fuel oil. 23. Help Desk Query Consolidated List This document the consolidated list of closed query which were faced by the operating personnel and other personnel during the functioning of refinery. 1. Oil Movement Newsletter The Oil Movement News letter contains general information/articles on Oil and Gas industry, which are contributed by refineries from all over the world. Further this newsletter aims to maximise....
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....tional Performance. The information provided in the said document can be used for further analysis and benchmarking, a reference document and as guide for target setting. 9. Roads Transportation of goods, Equipment and Product (HSE) This guide sets outs the Group's requirements for effective safety management in Road Transport. It has been designed for use by Shell management and supervisory staff in developing safe driving policies and procedures for their Rod Transport operations and inclusions with HSSE case document. 10. Incident classification, investigation and reporting (HSE) This document provides guidance on the classification, investigation and reporting of incidents which results in injury or illness and in damage to assets, the environment or company reputation. It also addresses incidents that had no adverse outcomes (near misses). It sets out rules for the reporting of incident by Shell companies and joint ventures. 11. Man Made Vitreous Fibers ('MMVF')(HSE) MMVF include products containing refractory ceramic fibers, Fiberglass and mineral wool. This guideline establishes requirements for managing and working with MMVF because available toxicity info....
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.... services and technology to improve margins This editorial provides an extensive portfolio of technical and business solutions that actively improve the operations and bottom line cost of companies in the following industries: additives, chemicals, gas and liquefied natural gas, hydrocarbon logistics, industrial markets, motorspirit, refining and oil marketing and upstream. 21. Reliance Laboratory Efficiency - February 2003 As a part of the process of continuous improvement, RIL wished to compare their laboratory with Shell facilities in terms of manpower efficiency and numbers of samples/tests. This document records the finding of Shell, based on the questionnaire which was developed to identify and gain insight into the factors that influence laboratory efficiency. 22. Fuels Product Quality Refinery News ('FPORN') - June 2004 EPQRN is a news letter which is issued up to 4 times a year and present tropical information in brief, easily accessible articles on fuel issues affecting refinery customers. I also provide information on developments in fields of automotive fuels (including non-traditional fuels like bio-fuels), aviation fuels, industrial gas oil and residual....
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....into various components and like any civil contract between two parties it has to be seen in totality. Although it is Authorised Representative's argument that the basic package includes certain technical and commercial services that are independent of each other and can be provided on standalone basis and hence can be considered singly, I am afraid I do not agree to that. This is becauseI. i) The various services are being offered as a package for which a single consideration is being charged. ii) RPL or RIL has the option to use various services and hence imputing value to each of the service is not possible at the time of contract. iii) Each service itself contains four or five components and clearly it will depend on the situation in real-time as to what component is utilized by RIL and to what extent, making it mathematically still more uncertain the pricing of each service. iv) The underlying purpose of the package in RIL context is the is the operationalising the refinery of RIL. Obviously in such a scenario the various services are inter-dependent and complimentary and cannot be segregated. 5.12. Notwithstanding that contract has to be....
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....al part; not only this is conceptually incongruent with the scheme of Act, it is also in conflict with the contract under security. ii) Total manhour listed for three years for the purpose are 52690. This amount of time spent is not possible for Basic Refinery Package which was for 1200 hrs per year, i.e. at the most the RIL could have clocked in 3600 manhour. Obviously, items covered by other packages have been included in this chart. iii) The splitting done has no basis and makes no sense. For example, the maximum amount of the (67.5%) has been claimed to have been spent inRefSim, NetSim etc. etc." 5.15 The activity would fall in the service Planning & Scheduling of Annexure A. As per the appellant's classification, it has 40% Technical component while 60% non-technical component. This split up would completely fail any logical test. If improvement and development of systems is treated as passing on the experience or skill or processes it has to be 100% technical. If because of any reason, it is thought otherwise, it has to be 100% non-technical or commercial. There can not be a middle ground. Similarly, service management is part of consultancy services, whi....
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....s. It needs to be appreciated that it is different thing to compare and look for items which have been included or excluded in two treaties (as done by Karnataka High Court in case of AEG Telefunker Vs. CJT 151 1TR 222) but attributing meaning on the basis of language being paramateria when one of the treaty has a supplementary MOU and other not, is comparing uncomparable. ii) MOU has been signed, in context of lndo-U.S. Treaty. Having not signed such a memorandum with U.K. Government for an instrument which is signed later, in fact shows the true intention of the parties, namely that the parties to this agreement did not want to restrict the meaning of word "fee for technical services". iii) Even if the two DTAAs can be compared, the fact that the title being used by the two are different would have its due significance. While the U K. Treaty uses the term "fee for technical services", the ITS. Treaty talks of "fee for included services" If, as the various authors have stated, the provisions are para-materia, it needs to be sorted out why did the two treaties have used different nomenclature to describe such services. These can not be a case redundanc....
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....that we need to take a look at the original Article 12 and the protocol to the Indo Dutch tax treaty. ARTICLE 12 Royalties, fees for technical services and payments for the use of equipment 5. The term "fees for technical services" as used in this Article means payments of any kind to any person, other than payments to an employee of the person making the payments and to any individual for independent personal services mentioned in Article 14, in consideration for services of a managerial, technical or consultancy nature. V. Ad ARTICLE 12 It is understood that, in case India applies a levy, not being a levy covered by Article 2, such as the Research and Development Cess, on payments meant in Article 12, and if, after the signature of this Convention under any Convention or Agreement between India and a third State which is a member of the OECD, India should give relief from such levy, directly, by reducing the rate or the scope of the levy, either in full or in part, or, indirectly, by reducing the rate or the scope of the Indian tax allowed under the Convention or Agreement in question on payments as meant in Article 12 of this Convention with the levy, either in fu....
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.... This memorandum describes in some detail the category of services defined in paragraph 4 of Article 12 (Royalties and fees for included services). It also provides examples of services intended to be covered within the definition of included services and those intended to be excluded, either because they do not satisfy the tests of paragraph 4, or because, notwithstanding the fact that they meet the tests of paragraph 4, they are dealt with under paragraph 5. The examples in either case are not intended as an exhaustive list but rather as illustrating a few typical cases. For ease of understanding, the examples in this memorandum describe U.S. person providing services to Indian persons, but the rules of Article 12 are reciprocal in application. Article 12 includes only certain technical and consultancy services. By technical services, we mean in this context service requiring expertise in a technology. But consultancy services, we mean in this context advisory services. The categories of technical and consultancy services are to some extent overlapping because a consultancy service could also be a technical service. However, the category of consultancy services also includes....
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....include : 1. the extent to which the services in question facilitate the effective application or enjoyment of the right, property, or information described in paragraph 3; 2. the extent to which such services are customarily provided in the ordinary course of business arrangements involving royalties described in paragraph 3; 3. whether the amount paid for the services (or which would be paid by parties operating at arm's length) is an insubstantial portion of the combined payments for the services and the right, property, or information described in paragraph 3; 4. whether the payment made for the services and the royalty described in paragraph 3 are made under a single contract (or a set of related contracts); and 5. whether the person performing the services is the same person as, or a related person to, the person receiving the royalties described in paragraph 3 [for this purpose, persons are considered related if their relationship is described in Article 9 (Associated enterprises) or if the person providing the service is doing so in connection with an overall arrangement which includes the payer or and recipient of the royalties]. To the extent that se....
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....ation of mineral oil or natural gas; 7. geological surveys; 8. scientific services; and 9. technical training. 15. It is important to note that the MFN clause set out in the Indo Dutch tax treaty is a clause which does not need anything other than a greater relief, vis-àvis the scope and rate of 'fees for technical services' in the Indo Dutch tax treaty, being given in any other tax treaty with another OECD country. Any such relief being extended automatically incorporates such beneficial arrangement being read into the Indo Dutch tax treaty as well. This MFN clauses clearly stipulates that in the event of India extending any benefits to another OECD country, inter alia, directly by reducing the rate or "indirectly, by reducing the rate or the scope of the Indian tax allowed under the Convention or Agreement in question on payments as meant in Article 12 of this Convention with the levy, either in full or in part" then, as from the date on which the relevant Indian tax treaty enters into force, "such relief as provided for in that Convention or Agreement shall also apply under this Convention". Unlike many other tax treaties, such as with Philip....
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....cy service rendered should be of such a nature that it "makes available" to the recipient technical knowledge, know-how and the like. The service should be aimed at and result in transmitting technical knowledge, etc., so that the payer of the service could derive an enduring benefit and utilize the knowledge or know-how on his own in future without the aid of the service provider. In other words, to fit into the terminology "making available", the technical knowledge, skill?, etc., must remain with the person receiving the services even after the particular contract comes to an end. It is not enough that the services offered are the product of intense technological effort and a lot of technical knowledge and experience of the service provider have gone into it. The technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider. Technology will be considered "made available" when the person acquiring the service is enabled to apply the technology. The fact that the provision of the service that may require technical knowledge, skills, ....
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.... agreement with the views so expressed by the Authority for Advance Ruling. On the same lines are various decisions of this Tribunal in the cases of ICICI Bank Limited Vs DCIT [(2008) 20 SOT 453 (Mum)] and McKinsey & Co Inc Vs ADIT [(2006) 99 ITD 549 (Mum)]. What essentially follows, therefore, is that as long as the services rendered by the assessee are managerial or consultancy services in nature, which do not involve or transmit the technology, the same cannot be brought to tax as fees for technical services. An example of this type is a service is set out in example no. 7 to the MoU appended to the Indo US tax treaty, which is adopted in respect of Indo Dutch tax treaty as well- as noted earlier in this order, as follows: Example (7) Facts: The Indian vegetable oil manufacturing firm has mastered the science of producing cholesterol-free oil and wishes to market the product worldwide. It hires an American marketing consulting firm to do a computer simulation of the world market for such oil and to advise it on marketing strategies. Are the fees paid to U.S. company for included services? Analysis: The fees would not be for included services. The American company ....
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....d ensure the required management information is available in terms of services delivered versus service plan and feedback related to quality of individual service contributions. The review process will include operational-, systems-, organisational- and training progress, and staff performance. * Promote implementation of the aged corrective actions produced by the review and appraisal process. Communications and relations * Familiarise with the Site, its organisation and policies. Stay abreast of economic and other drivers of the decision making process of Reliance Petroleum Limited * Ensure rapid familiarisation of Reliance Staff with Shell Global Solutions organisation,- people, and - information sources. * Ensure full participation by Reliance Staff in Shell Global Solutions workshops, seminars, conferences etc. * Put in place a communication and reporting structure between Shell Global Solutions staff at Site, Reliance, and Shell Global Solutions' home bases. Stay in good contact with other stake holders at site. The main purposes of these communication structures are to enhance concerted on-going activities, maximum pro-activity....
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....ance, electrical, instrumentation, projects), training management, and technical and laboratory management. This review is always done for a Shell-owned facility and experience shows that it allows the refinery to eliminate a significant number of problems and achieve a smoother start up (yielding in effect the equivalent of a minimum of two weeks additional profitable processing time). DELIVERABLES The review team, consisting of professionals with extensive refining experience, will deliver a report which includes prioritised list of recommendations for change based on the review findings. This list is developed in a consensus manner between Reliance management and the review team. TERMS OF REFERENCE Typical terms of reference are given below. These should be adopted to include specific items, such as limitations to scope, and agreed with Reliance prior to the review. 1. SIOP will carry out a review of all appropriate facilities (including the marine terminal, outside plot and inside plot). SIOP will report the finding of the review to Reliance and will seek an understanding on the action items with Reliance prior to departure of the review team....
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....ment. It will not address fire safety issues; these may be covered by a separate fire safety review if Reliance wishes. * Review the interfaces between the various plants to ensure that the safety and environment integrity of the interconnected plants (including utility systems) is not violated by the interconnections. 2. A site inspection will be carried out to: * Ensure that the safety and environmental integrity of the design is reflected in the as-built facilities. * Review by inspection operability aspects, safe exists and accessibility, with reference to process engineering flow schemes or design drawings when required. * Review general safety equipment and safety facilities (e.g. safety showers, gas detectors and alarms). Note: The site inspection does not replace the final and detailed P&I check. 3. A check will be carried out on the availability and status of start-up/shutdown and emergency procedures, standing instructions, operating manual and start-up planning and training programmes (with detailed spot checks as considered appropriate). 4. A list will be prepared showing the deficiencies identified and placing them in one....
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....(SC)]. Speaking through Hon'ble Justice Ranganathan, one of the most distinguished former Presidents of this Tribunal adorning the office of Hon'ble Supreme Court judges at the relevant point of time, Hon'ble Supreme Court had observed as follows: An assessee cannot claim deduction under s. 80-O in respect of certain receipts merely on the basis that they are described as royalty, fee or commission in the contract between the parties. By the same token, the absence of a specific label cannot be destructive of the right of an assessee to claim a deduction, if, in fact, the consideration for the receipts can be attributed to the sources indicated in the section. The second proposition is equally untenable. Contracts of the type envisaged by s. 80-O are usually very complex ones and cover a multitude of obligations and responsibilities. It is not always possible or worthwhile for the parties to dissect the consideration and apportion it to the various ingredients or elements comprised in the contract. The cases referred to by the Tribunal and Sri Ahuja as to the indivisibility of a contract arose in an entirely different context. For purposes of income-tax, a principle of apportion....
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....axable as 'fees for technical services'. However, during the assessment proceedings, this aspect of the matter was not examined at all. In the course of the appellate proceedings, learned CIT(A) has rejected the apportionment on the ground that it is not possible to do so. He has observed that "the underlying purpose of the package is operationalising the refinery " and " obviously in such a scenario the various services are interdependent and complimentary and cannot be segregated". We are, for the detailed reasons set out above, unable to see any merits in this approach. We have also noted that the learned CIT(A) was in error in rejecting the apportionment by observing that "total man-hours listed for three years for the purpose are 52690, and that "this amount of time spent is not possible for Basic Refinery Package which was for 1200 hrs per year, i.e. at the most the RIL could have clocked in 3600 man-hours" and thus coming to the conclusion that "Obviously, items covered by other packages have been included in this chart". He was in error in concluding the total time spent for service rendered in connection with BRP cannot exceed 3,600 man-hours i.e 1,200 man-hours per contra....