TaxTMI 
TaxTMI 
2024 (3) TMI 1066
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....on-2), Ahmedabad vide orders dated 05.10.2017, 03.10.2018, 17.11.2016, 05.10.2017, 19.09.2019, 11.09.2019, 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....
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....PL for CHR recruitment fee as fees for technical services under Section 9(1)(vii) of the Act and Article 12 of the Tax Treaty. 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." Gr....
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....he impugned Assessment Year as those for Assessment Year 2014-15, and there was no material change in facts, the DRP confirmed the findings of the Assessing Officer. 7. 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 purp....
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....dium of Intranet, and as held by the Assessing Officer, in the assessment order, the services pertained to use of Shell HR software and therefore, the services are taxable as royalty 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 arra....
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....ing Analysis Centre of Excellence Private Limited v. CIT (supra) is acceptable. The Hon'ble Supreme Court has elaborately examined the issue and has decided the issue in favour of the assessee. 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 que....
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....in the regular recruitment process apart from group related activities such as laying path to talent acquisition and presenting Shell as an attractive place. The cost incurred by the global recruitment team 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 r....
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....has set up a "shared services Centre" to provide a shared services to Shell group. The services pertaining to guidance/support provided by the assessee in setting up IT infrastructure of the shared services centers. Also, 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 ....
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.... the assessee-company was incorporated for the purpose of setting up a 235 MW gas based power project. With the intention to utilize the expert services of qualified and experienced professionals who could prepare a scheme 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, th....
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....t in the instant facts, the services are clearly technical in nature, under the Indian domestic taxation laws as well as under the tax treaty law. The DR submitted that in the instant facts, clearly, technology has been made available 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 sel....
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.... services are not liable to be taxed in India since only costs incurred in rendering the services have been recovered and in absence of any income element, the services are not taxable in India as FTS/royalty, as discussed and analysed 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 grou....
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....ession 'technical services' has a very broad connotation and it has been used elsewhere in the Statute also so widely as to comprehend professional services : vide Section 9(1) (vii) ". The relevant meanings of the word 'technical' given in 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 ....
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.... services" means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including through the provision of services of technical or other personnel) if such services : ....... (b) make available technical knowledge, 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, experie....
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.... solutions for advertising and marketing communications. It had remitted huge amounts to US based company for marketing services without deduction of TDS. The Assessing Officer held that assessee utilized services of US Company even in negotiations with customers and in finalizing contracts, and same 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'....
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...., the Counsel for the assessee relied upon the case of Mitsubishi Corporation 130 taxmann.com 276 (SC), wherein the Hon'ble Supreme Court held that proviso to Section 209(1) issued by Finance Act, 2012 providing that if a non-resident assessee received any amount on which tax was deductible at source, assessee could not 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 ....
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....ost 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." 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 (lice....
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.... 14(b) of the Copyright Act. The EULAs in all the appeals do not grant any such right or interest, least of all, a right or interest to reproduce the computer software. In point of fact, such reproduction is expressly interdicted, and it is also expressly stated that no vestige of copyright is at all transferred, either to the distributor or to the end-user. A simple illustration to explain the aforesaid 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 ....
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....tate and Corporate Travel Services as fees for technical services under section 9(1)(vii) of the Act and Article 12 of Tax Treaty. 6. 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. 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, ....
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....us judicial precedents in support of the above contention. 61. The assessee is in appeal before us against the aforesaid order passed by Assessing Officer holding the services as fees for technical services under the Act read with the Tax Treaty. Before us, the arguments of the Counsel for the assessee remain the same as discussed in earlier paragraphs while dealing with other services which were held to be FTS for Assessment Year 2011-12. 62. 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. 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 ....
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....g the cost recovery of Rs. 3,11,42,515 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. 8. 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. 9. The learned AO 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....
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....arly identifiable and highly specialized services, requiring expertise and industrial experience have been provided by the assessee International Tax Administration 70. Under these services, the Shell group is availing services of a professional consultancy firm for preparation and filing of tax returns of expatriates. The said firm raises its consolidated invoice on the Assessee in relation to the preparation and filing of tax returns of all the expatriates in the Shell group. Thus, all the costs relating to the personal tax compliances of such expatriates are pooled in the assessee. 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 compa....
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....w 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. 76. Accordingly, in our considered view, the aforesaid services do not qualify as FTS under the India-Netherlands tax treaty. 77. In the result, ground numbers 5 and 6 of 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 roy....
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....AO 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 the assessee without markup and hence the same is not chargeable to tax in India. 10. 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 levying surcharge, education cess and secondary and higher education cess on the tax levied at 10% rate prescribed under Article 12 of Tax Treaty. 11. Without prejudice to the Ground No. 10 above, the learned AO has erred on the facts and in law in levying surcharge at the rate of 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....
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....ccess Control System ('PACS') being implemented at each location. This requires experience and expertise of highly technical and trained staff. Thus, in such a scenario it cannot be said that technical knowledge, experience, skill etc has not been made available to the Indian entity. It is seen that the advice and assistance rendered by the assessee to the Indian entity are not transient in nature and are capable of being used by the Indian entity on its own. Health Ecotox services: 83. During the year under consideration, the assessee rendered Health Ecotox services to SIMPL which pertains to "One Health IT System". The One Health IT system is for keeping and maintaining confidential medical information of Shell employees. 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 ta....
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.... the business of the affiliates. The employees of the affiliates are in a position to, actually they are expected to use the knowledge gained, in the business of the affiliates. Thus, knowledge and know-how are made available to the affiliates. Hence, on an understanding of the overall effect of the services, it has to be held that the technical knowledge, experience, and skill are made available to the affiliates. 86. The assessee is in appeal before us against the aforesaid order passed by Assessing Officer holding the services as fees for technical services under the Act read with the Tax Treaty. Before us, the arguments of the Counsel for the assessee remain the same as discussed in earlier paragraphs while dealing with other services 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 w....
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....in Ground No. 10, Ground No. 11 of the assessee's appeal does not require any separate adjudication. 92. Further, vide Ground No. 12, the assessee has raised the contention of grant of short credit of TDS, wherein the allegation of Department is that tax deduction has taken place in year 2, however, the Department has also not given any credit for the tax deducted in the subsequent year as well. 93. Accordingly, the matter is being restored to the file of Assessing Officer to carry out the necessary verification, and to grant credit of TDS deducted, in accordance with law. 94. In the result, Ground No. 12 of the assessee's appeal is allowed for statistical purposes. Assessment Years 2016-17, 2017-18 and 2017-18 95. For Assessment Years 2016-17, 2017-18 and 2017-18, we observe that the grounds raised by the assessee have already been covered as part of our order while dealing with various issues raised by the assessee for earlier Assessment Years, before us. Accordingly, our observations for earlier Assessment Years, would also apply to similar issues for Assessment Years 2016-17, 2017-18 and 2017-18. We further observe that no new/additional services have been render....