TaxTMI 
TaxTMI 
2024 (3) TMI 1066
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....09.2019, 29.09.2020 & 24.02.2022 passed for the Assessment Years 2009-10 to 2018-19. There are various Assessment Years before us for our consideration, however, since there are common facts and issues for consideration for all the impugned Assessment Years, all the appeals filed by the assessee are being taken up together. 2. We shall first take up Assessment Year 2011-12, and discuss the grounds of appeal raised by the assessee. This year shall serve as the lead Assessment Year, and thereafter as we take up the subsequent Assessment Years and our observations for this Assessment Year would apply to the years as well, wherever applicable. For additional services rendered by the assessee for the subsequent years / additional grounds taken, we shall deal with them separately for each of the Assessment Years. Assessment Year 2011-12 3. The brief facts of the case are that the assessee is a company based out of the Netherlands. For the impugned years under consideration, the assessee provided various services to its group companies based in India. For Assessment Year 2011-12, the assessee provided certain services which were offered to tax as fee for technical services/royalty. How....
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.... 4. The learned AO based on the directions of the DRP has erred on the facts and in law in treating the cost recovery of Rs. 30,50,296 received from SIMPL for IT migration support as fees for technical services under Section 9(1)(vii) of the Act and Article 12 of Tax Treaty. 5. Without prejudice to the above mentioned grounds, the learned AO based on the directions of the DRP has erred on the facts and in law in disregarding the fact that the amount received for the above mentioned cost recoveries is a mere allocation of cost incurred by SIBV without markup and hence the same is not chargeable to tax in India. 6. The learned AO has erred in levy of interest under Section 234A and 234B of the Act. 7. The learned AO based on the directions of the DRP has erred in initiating penalty proceedings under Section 274 r.w.s. 271(1)(c) of the Act against the Appellant. The 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." Ground number 1: taxability of HR Shall People Support as royalty: 5. During the impugned year under consideration, the assessee had provided HR Shell People Support....
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..... The assessee is in appeal before us against the aforesaid order, holding the Shell HR services as royalty under the Act, read with Tax Treaty. 8. Before us, the Counsel for the assessee submitted that firstly, the fact that services have been rendered by the assessee to its group companies in India, has not been disputed at any stage the proceedings. Even though, the LSA along with the addendum was not present during the impugned Assessment Year, the catalogue of services was available, and was also filed before the tax authorities, during the course of assessment proceedings. Further, the tax authorities have never doubted the nature of services which had been rendered and also never doubted that the services had in fact been rendered by the assessee. 9. Secondly, it was submitted before us that the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P.) Ltd. 125 taxmann.com 42 (SC) has overturned every decision on which reliance was placed by the taxation authorities, for the purpose of holding that the payments qualify as royalty under the Act, read with the Tax Treaty. 10. Thirdly, the Counsel for the assessee submitted that HR shell people suppo....
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....ty under the Act read with the tax treaty. Accordingly, DR placed reliance on the observations made by the Assessing Officer/DRP in their respective orders. 14. We have heard the rival contentions and perused the material on record. 15. First, before deciding the issue, it would be useful to briefly discuss the nature of services rendered by the assessee. From the documents placed on record, we observe that HR Shell People Support Services is basically the support provided by the assessee to various HR -related requirements of Shell group companies. It involves various services like open resourcing (identification of vacancies within the group, coordination within the employees for filling up such vacancies etc.), management services (preparation of group wide HR related matters such as guidance, procedures etc), personnel record maintenance (maintenance of records of employees of Shell group such as compensation structure, time and attendance, other benefits etc), Shell Open University (making arrangements for various managerial online courses for the employees of Shell group) etc. These services are provided through the HR portal known as "HR-online". In the instant facts, we o....
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.... The Hon'ble Supreme Court has set aside the decision of Hon'ble Karnataka High Court in the case of Samsung Electronics Company Ltd. (supra), which has been relied upon by the AO. We may gainfully refer to the concluding portion of Hon'ble Apex Court order in that case as under:- "Given the definition of royalties contained in Article 12 of the DTAAs mentioned in paragraph 41 of this judgment, it is clear that there is no obligation on the persons mentioned in Section 195 of the Income Tax Act to deduct tax at source, as the distribution agreements/EULAs in the facts of these cases do not create any interest or right in such distributors/end-users, which would amount to the use of or right to use any copyright. The provisions contained in the Income Tax Act (Section 9(1)(vi), along with Shell India Markets Private Limited 12 explanations 2 and 4 thereof, which deal with royalty, not being more beneficial to the assessees, have no application in the facts of these cases. Our answer to the question posed before us, is that the amounts paid by resident Indian end-users/distributors to non-resident computer software manufacturers/suppliers, as consideration for the resale/use of the c....
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....m 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 apart from the group related activities such as laying path to talent acquisition and presenting the Shell group as an attractive place. The costs incurred by the global recruitment team are shared across various Shell entities w....
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....lso, 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 intercom 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/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. 26. Further, the Ld. Assessing Officer was of the view....
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....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 tie-up 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. Accordingly, the Assessing Officer relied upon the aforesaid decision to come to the conclusion that the instant services were in the nature of consultancy services, and hence in the view of the aforesaid decision rendered in the context ....
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....ailable 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 is a self serving documents and nothing concrete has been placed on record to show that services have been rendered on cost to cost basis. Further, in absence of valid agreement in place for the period under consideration, the nature o....
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....ed 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 its group companies. It is not a case where the assessee has incurred certain costs in purchasing certain third party software or obtained these services from a third party etc, which have been reimbursed/recovered on cost to cost basis from....
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.... 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 professional service that amounts to technical service. Professionalism and an element of expertise should be at the back of such services. There is a decision of Andhra Pradesh High Court in which the ambit of expression 'technical service'....
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....e, 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 meaning of the language employed, is that a mere rendering of services is not roped in unless the person utilising the services is able to make use of the technical knowledge, etc., by himself in his business or for his own benefit and with....
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.... 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 against said impugned order of High Court. 39. Further, in our considered view, the decision of GVK industries supra is also not relevant to the instant facts, since in such case, the issue for consideration before the Hon'ble Supreme Court wa....
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....ot reduce such tax while computing its advance tax liability, was applicable prospectively after Assessment Year 2012-13. Therefore, during relevant Assessment Year, since assessee was a non-resident, and entire tax was to be deducted at source on payment made by payer to it and there was no question of advance tax payment by assessee, accordingly, no interest under Section 234B could be levied upon assessee. Accordingly, the Counsel for the assessee submitted that in view of the aforesaid decision clarifying the position that proviso to Section 209(1) issued by Finance Act, 2012 was applicable prospectively after Assessment Year 2012-13, there was no liability for the assessee to pay interest under Section 234B of the Act for the impugned Assessment Year, since the entire income was tax deductible at source in the hands of the payer. 46. In our considered view, in light of the aforesaid decision by the Hon'ble Supreme Court, Ground No. 7 of the assessee's appeal is allowed. We must also add that recently, the Gujarat High Court in the case of Shell Global Solutions International BV [2024] 158 taxmann.com 352 (Gujarat) held that where during relevant Assessment Year assessee was a....
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....ct against the Appellant. The 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." 49. We observe that all the issues covered in the grounds of appeal for Assessment Year 2012-13, have been dealt with by us while deciding the issue is for Assessment Year 2011-12. Accordingly, our observations for Assessment Year 2011-12 would apply to Assessment Year 2012-13 as well. 50. However, we observe that for Assessment Year 2012-13, External Information Services (EIS) has been taxed as royalty under Section 9(1)(vi) of the Act read with Tax Treaty (EIS has also been taxed as royalty for Assessment Year 2013-14 as well, though for Assessment Year 2011-12, it was taxed as FTS). External information services (license fees patent and subscription) 51. Under these services, the assessee subscribes to various EIS providers on behalf of Shell group and the cost for the same are pooled in by the assessee. The services provided by EIS service providers mainly consist of providing standard research reports, newsletters market data analysis. The services are akin to providing access to online databases....
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....aid position will suffice. If an English publisher sells 2000 copies of a particular book to an Indian distributor, who then resells the same at a profit, no copyright in the aforesaid books is transferred to the Indian distributor, either by way of licence or otherwise, inasmuch as the Indian distributor only makes a profit on the sale of each book. Importantly, there is no right in the Indian distributor to reproduce the aforesaid book and then sell copies of the same. On the other hand, if an English publisher were to sell the same book to an Indian publisher, this time with the right to reproduce and make copies of the aforesaid book with the permission of the author, it can be said that copyright in the book has been transferred by way of licence or otherwise, and what the Indian publisher will pay for, is the right to reproduce the book, which can then be characterised as royalty for the exclusive right to reproduce the book in the territory mentioned by the licence." 54. In the instant case, payments for grant of access to software database would not take the case of the assessee within the definition of royalty, as defined under the India-Netherlands tax Treaty. In the ins....
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....chargeable to tax in India. 7. The learned AO has erred in levy of interest under section 234A and 234B of the Act. 8. The learned AO based on the directions of the DRP has erred in initiating penalty proceedings under section 274 r.w.s. 271(1)(c) of the Act against the Appellant. The 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." 57. We observe that all the issues covered in the grounds of appeal for Assessment Year 2013-14, barring one issue, have been dealt with by us while deciding the issues for Assessment Years 2011-12 and 2012-13. Accordingly, our observations for Assessment Year 2011-12 and 2012-13, would apply to Assessment Year 2013-14 as well in respect of Grounds 1-4 and Grounds 6-8. 58. Now we shall discuss Ground No. 5 of the assessee's appeal for Assessment Year 2013-14, in which payments in respect of a new service have been received by the assessee. Ground number 5: taxability of Real Estate And Corporate Travel Services as fees for technical services under Section 9(1)(vii) of the Act read with article 12 of Tax Treaty 59. The brief facts relating to thes....
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....our observations made in the preceding paragraphs, we are of the considered view that in respect of the aforesaid services, the condition of "make available" is not satisfied and the Department has not brought anything on record to demonstrate that in the instant case, the technology was "made available" to the recipient of services, so as to fall within the ambit/definition of FTS under the India-Netherlands tax treaty. Accordingly, in our considered view, the aforesaid services do not qualify as FTS under the India-Netherlands tax treaty. 63. In the result, ground number 5 of the assessee's appeal is allowed for Assessment Year 2013-14. Assessment Year 2014-15 64. Now we shall deal with the assessee's appeal for Assessment Year 2014-15. The assessee has raised the following grounds of appeal: "1. The learned AO based on the directions of the DRP has erred on the facts and in law in treating the aggregate cost recovery of Rs. 13,47,31,296 received from Hazira LNG Private Limited ('HLPL'), Hazira Port Private Limited ('HPPL') and Shell India Markets Private Limited ('SIMPL') for HR Shell People Support as royalty under section 9(1)(vi) of the Act and Ar....
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....has erred in levying interest under section 234A and 234B of the Act. 10. The learned AO based on the directions of the DRP has erred in initiating penalty proceedings under section 274 r.w.s 271(1)(c) of the Act against the Appellant. The 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." 65. We observe that all the issues covered in the grounds of appeal for Assessment Year 2014-15, barring two issues, have been dealt with by us while deciding the issues for earlier Assessment Years. Accordingly, our observations for Assessment Years would apply to Assessment Year 2014-15 as well in respect of Grounds 1-4 and Grounds 7-10. 66. Now we shall discuss ground numbers 5 and 6 of the assessee's appeal for Assessment Year 2014-15, in which payments in respect of two new services have been received by the assessee. Ground 5: taxability of HRIT-System Administration services as fees for technical services under Section 9(1)(vii) of the Act read with Article 12 of tax treaty Ground 6: taxability of International Tax Administration services as fees for technical services under Section 9(1....
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....ssee. These costs, along with certain administrative costs incurred by the Assessee are then allocated by the Assessee among various Shell group entities based on the number of expatriates working with each entity. Accordingly, the Assessee has raised certain invoices on SIMPL in respect of the expatriates working with SIMPL. 71. The Ld. Assessing Officer observed that under the international tax administration services, the expertise and experience of the global support team of the assessee is being offered to its affiliates. The nature of tax administration 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, tax administration 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. 72. For both the above....
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.... the assessee's appeal are allowed for Assessment Year 2014-15. Assessment Year 2015-16 78. Now we shall deal with the assessee's appeal for Assessment Year 2015-16. The assessee has raised the following grounds of appeal: "1. The learned AO has erred on the facts and in law and learned DRP has further erred in confirming the action of the AO on the facts and in law in treating the aggregate cost recovery of INR 11,60,44,189 received from Hazira LNG Private Limited ('HLPL') and Shell India Markets Private Limited ('SIMPL') for HR Shell People Support as royalty under Article 12 of India - Netherlands tax treaty ('Tax Treaty'). 2. The learned AO has erred on the facts and in law and learned DRP has further erred in confirming the action of the AO on the facts and in law in treating the cost recovery of INR 4,31,42,846 received from SIMPL for CHR Recruitment fees as Fees for Technical Services ('FTS') under Article 12 of Tax Treaty. 3. The learned AO has erred on the facts and in law and learned DRP has further erred in confirming the action of the AO on the facts and in law in treating the cost recovery of INR 7,37,15,011 received from SIMPL f....
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....f 10% instead of applicable rate of 5% as per the provisions of the Act. 12. The learned AO has erred on the facts and in circumstances of the case and in law in giving short credit of Tax Deducted at Source to the extent of INR 30,677. 13. The learned AO has erred on the facts and in law in levying interest under Section 234A of the Act even though the Assessee has filed its return within the due date prescribed under Section 139 of the Act. 14. The learned AO has erred in levying interest under Section 234B of the Act. 15. The learned AO has erred on the facts and in law in initiating penalty proceedings under Section 274 r.w.s 271(l)(c) of the Act against the Appellant. The 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." 79. We observe that all the issues covered in the grounds of appeal for Assessment Year 2013-14, barring few issues, have been dealt with by us while deciding the issues for earlier Assessment Years. Accordingly, our observations for Assessment Years would apply to Assessment Year 2015-16 as well in respect of Grounds 1-4, 6, 8, 9 and Grounds 12-15. 80....
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....The system is managed by Shell Health. The cost incurred for these services has been allocated between group companies using these services based on the actual number of full time employee per entity. As per the assessee, the fee is in relation to keeping and maintaining confidential medical information of Shell employees and therefore represents commercial / management / advisory services which are not technical in nature and therefore, the same is not taxable as FTS under Article 12 of India- Netherlands Tax Treaty. Without prejudice to the above and even for sake of argument it is assumed that the above services are technical in nature, the same does not make available any technical knowledge, experience, skills, know how, etc. and also do not consist of the development and transfer of technical plan or technical design and therefore, the revenue received by the Assessee for these services do not qualify as FTS under Article 12 of the India- Netherland tax treaty and as such not taxable in India. Without prejudice to the above, the assessee submitted that the amounts received for Health Ecotox Services represents the cost allocations and no mark-up has been charged on the said c....
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....vices 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 paragraphs, we are of the considered view that in respect of the aforesaid services, the condition of "make available" is not satisfied and the Department has not brought anything on record to demonstrate that in the instant case, the technology was "made available" to the recipient of services, so as to fall within the ambit/definition of FTS under the India-Netherlands tax treaty. 88. Accordingly, in our considered view, the aforesaid services do not qualify as FTS under the India-Netherlands tax treaty. 89. In the result, Ground Nos. 5 and 7 of the assessee's appeal are allowed for Assessment Year 2015-16. 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 an....