TaxTMI 
TaxTMI 
2025 (1) TMI 1469
X X X X Extracts X X X X
X X X X Extracts X X X X
....red on the facts and in law and learned DRP has further erred in confirming the action of the learned AO on the facts and in law in assessing the total income of the Appellant at INR 164,61,90,700 by making total amount of impugned additions amounting to INR 127,70,63,435. 3. The learned AO has erred on the facts and in law and learned DRP has further erred in confirming the action of the learned AD on the facts and in law in treating the aggregate cost recovery of INR 9,80,37,334 received from Shell India Markets Private Limited (SIMPL), Shell Energy India Private Limited (SEIPL), BG Exploration and Production India Limited (BGEPIL) and Shell Energy Marketing & Trading India Private Limited (SEIMTIPL) for CHR Recruitment fees as Fees for Technical Services (FIS) under Article 12 of India Netherlands Double Taxation Avoidance Agreement (DTAA or Tax Treaty). 4. The learned AO has erred on the facts and in law and learned DRP has further erred in confirming the action of the learned AO on the facts and in law in treating the aggregate cost recovery of INR 17,71,40,242 received from SIMPL, SEIPL, BGEIPL, SEMIIPL and Hazira Port Private Limited (HPPL) for Internal Com....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as FTS under Article 12 of India- Netherlands DTAA. 12. The learned AO has erred on the facts and in law and learned DRP has further erred in confirming the action of the learned AO on the facts and in law in treating the aggregate cost recoveries of INR 24,92,547 received SIMPL and BGEPIL for Media relation services as FTS under Article 12 of India-Netherlands DTAA. 13. The learned AO has erred on the facts and in law and learned DRP has further erred in confirming the action of the learned AO on the facts and in law in treating the aggregate cost recoveries of INR 50,99,802 received SIMPL and BGEPIL for Social Performance services as FTS under Article 12 of India Netherlands DTAA. 14. The learned AO has erred on the facts and in law and learned DRP has further erred in confirming the action of the learned AO on the facts and in law in treating the aggregate cost recoveries of INR 49,60,567 received SIMPL and BGEPIL for ER Strategy and Planning services as FTS under Article 12 of India Netherlands DTAA. 15. The learned AO has erred on the facts and in law and learned DRP has further erred in confirming the action of the learned AO on the facts a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... on the facts and in law in initiating penalty proceedings under section 270A 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." 3. Before us, the Counsel for the assessee submitted that the case of the assessee is covered by order passed in the case of this entity i.e. Shell International B.V. for A.Ys. 2009-10 to 2018-19 vide order dated 20.03.2024. The Counsel for the assessee submitted that out of a total 13 services rendered by the assessee during the impugned assessment year, 5 services i.e. CHR Recruitment Fees - FTS, External Information Services - FTS, Real Estate Corporate Travel Services - FTS, Health Ecotox Services - FTS and IT Services - FTS have been dealt with in the order referred to above. Therefore, the taxability regarding these services are directly covered by the aforesaid order. For the balance 8 new services, although the services are different, however, the legal contention that in the instant facts the services do not qualify as fee for technical services, since the services do not "make available" technology to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e, all the three grounds of appeal raised by the assessee are taken up together. CHR recruitment services 20. Under the CHR recruitment services, the assessee manages the global recruitment and attraction team of Shell group. This team supports the regional recruitment team 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. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n performed by the affiliates through the assistance/consultancy of the assessee. Hence, it is established that identifiable and highly specialized services, requiring expertise and industrial experience have been provided by the assessee. IT migration services: 24. Under these services, the assessee 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 inter-com 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 assis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Ld. Assessing Officer, a perusal of the services makes it obvious that the assessee provides highly technical services which are used by the affiliates of the assessee for taking important and strategic decisions. 27. The Ld. Assessing Officer further relied on the case of GVK Industries Ltd. v. ITO 54taxmann.com 347 (SC), where 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 tieup required loans. The nat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....m "managerial services", therefore, the services fall outside the ambit/scope of fee for technical services under the India--Netherlands Tax Treaty and hence cannot be subject to tax in India. 29. In response, DR placed reliance on the observations made by the Assessing Officer/DRP in respect of the aforesaid services. The DR submitted that 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....do not qualify as "managerial" services, so as to take the services away from the ambit of fee for technical services. We observe that on analysis of various services which have been provided in later assessment years, the same also, going by the nature of services, do not qualify as 'managerial services'. 32. Secondly, with regard to the arguments that the 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 recovere....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ology relating to engineering, manufacturing or other applied sciences ? We do not think so. The expression 'technical' ought not to be construed in a narrow sense. It has received a wide interpretation in tune with its dictionary meaning in several cases. In Continental Construction Ltd. v. CIT [1992] 195 ITR 81 the Supreme Court observed that "the expression '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, t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ient of services in such manner, so that in the future, they have been enabled/ empowered to perform the services themselves, without any necessity of recourse to future services being provided by the assessee. It would be useful to reproduce the relevant extracts of the India-Netherlands tax treaty for ready reference: "5. For purposes of this Article, "fees for technical 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, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s could not be roped into FTS when person utilizing services was unable to make use of technical knowledge etc. 38. Recently, the issue of "make available" came up before the Hon'ble Supreme Court in the case of Ad2pro Media Solutions (P.) Ltd. [2024] 158 taxmann.com 432 (SC). The facts were that the assessee was a private limited company engaged in business of providing graphic design 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 ba....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Act read with article 12 of Tax Treaty 59. The brief facts relating to these services are that Shell group has business facilities across various countries which is managed by a real estate team of the assessee. During the impugned year under consideration, payments have been made to the assessee for the work done by the real estate team of the assessee in managing the Group's property portfolio, corporate travel program, office facilities and business centers. During the year under consideration, the assessee was engaged in provision of general business support services and other services, with respect to real estate operations and inter-company services to SIMPL. 60. The AO was of the view that under the Real Estate and Corporate Travel Services, the assessee provides consultancy and assists the regional team of the affiliates in managing real estate transactions and leveraging of global relationships and contract management with key suppliers and real estate information technology tool. The critical decision-making function of real estate consultancy has been performed by the affiliates through the assistance/consultancy of the assessee. As per the Ld. Ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the following components: a) Prowatch (Physical Access Control System) - a software which is being implemented at each location to read the EVI cards when any person swipe in and out of the building: b) Prowatch configuration - updating the card readers to Prowatch: c) Recovery of project management and other overhead costs - recovery of Manpower costs for the resources working on these projects. 82. In respect of these services, the Ld. Assessing Officer was of the view that the assessee accepts that the services are technical in nature and the only objection is that the same are not taxable as such services do not fall in the scope of make available clause. The assessee has rendered certain IT services to Shell India Markets Pvt. Ltd. ('SIMPL'), a group entity, which inter alia, includes certain services in relation to the Physical Access 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ove services, the Ld. Assessing Officer was of the view that it is clear that such services would invariably lead to imparting of suitable skill sets / knowledge in the hands of the affiliates in the area in which the services are rendered with consequent improvement in experience and skill set of local employees of the affiliates. In this case, the assessee have, through its personnel, undoubtedly provided 'technical' services to assessee, especially since the DTAA definition of FTS expressly includes the provision of the services of personnel. Further as per the definition of FTS in the DTAA, when imparting of suitable experience or skill possessed by the assessee to the affiliates takes place it amounts to making available the FIS/FTS and therefore the amounts received are taxable as per the DTAA. The services are enduring and they help in promoting 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s established that clearly identifiable and highly specialized services, requiring expertise and experience have been provided by the assessee. H. Talent & Development fees:- (Ground No. 6 Rs. 143,618,345/-) Under the Talent & Development Fees, the expertise and experience of the global support team of the assessee is being offered to its affiliates. The nature of Talent & Development Fees paid 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 co-ordinate global talent policies and processes and ensure they align with business need for a diverse, inclusive and competitive workforce - senior leader's succession planning, diversity & inclusion, talent operations/excellence, skill pool management, career development, resourcing strategy and advice, support the execution of Talent process and policy within dedicated business HR teams, and provide leadership, direction and strategy for those teams. The purpose is to create competitive advantage through attracting talented people from diverse sources, developing them, motivating them, creat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re of Social performance Fees by the Shell group companies is highly technical in nature requires special skill to analyze. This team provides advice and support to shell entities on the matter of social performance and social investment. Thus 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. L. ER strategy and planning:- (Ground No. 14 Rs. 4,960,567/-) Under the ER strategy and planning Services, the expertise and experience of the global support 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 being crisis management. This team provides consultancy and assists the regional team of the affiliates in providing excellence supports critical scenarios in terms of reputation management and crisis management. The ER Strategy and Planning Center of Excellence is involved in corporate reputation, annual ER planning, measurement and insights, planning and operations, coordinating....
X X X X Extracts X X X X
X X X X Extracts X X X X
....owledge 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." 9. On going through the nature of services and the contentions of the AO, we concur with the view of the assessee that there is no specific reference as to how the "make available" under the India-Netherlands Tax Treaty has been satisfied while rendering the above services, so as to fall within the ambit of FTS under the India-Netherlands Tax Treaty. Accordingly, in view of our observations in the preceding paragraphs while dealing with the issue for A.Y. 2009-10 to 2018-19 vide order dated 20.03.2024, we are of the considered view that the "make available" clause has not been satisfied in the instant facts and therefore, the services mentioned above do not qualify as FTS under India-Netherlands Tax Treaty. 10. In the result, we hold that the above services did not qualify as FTS under the India-Netherlands Tax Treaty, since the "make available" clause has not been satisfied in the instan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cted enterprise, on a cost basis. However, in our considered view, the assessee has not been able to demonstrate that only the precise cost incurred for rendering services has been recovered, and therefore, there is no income element at the India level, during the course of rendering of the services. Accordingly, we are not inclined to agree with the aforesaid argument of the assessee." 13. In the result, Ground No. 16.1 of the assessee's appeal is dismissed. 14. With regard to Ground No. 17 & 18, regarding the rate of tax on total income @ 12% instead of 10%, we observe that this issue has been decided in favour of the assessee in the aforesaid order dated 20.03.2024. The relevant extracts of the ruling are reproduced for ready reference: "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....