TaxTMI 
TaxTMI 
2024 (9) TMI 1712
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....2. erred in holding that the payments received by the Assessee constitutes 'income' in nature of 'Fees for Technical Services' (FTS) which is liable to be taxed in India 3 erred in not appreciating that the receipts from General Business Support Services (BSS') are in the nature of cost-recharge, which does not constitute as income chargeable to tax in India 4. without prejudice to the above, erred in holding that the payments received by the Appellant for providing General BSS constitutes FTS under the India-UK Double Taxation Avoidance Agreement (DTAA) 5. failed to appreciate that such advisory services do not 'make available' any technical knowledge, skill, experience etc to the service recipient under Article 12 of the India-UK DTAA and hence not subject to tax in India 6. erred in initiating penalty proceedings under section 271(1)(c) of the Act 3. The assessee had also filed an additional ground, challenging the assessment order as being barred by limitation as per the ratio laid down by the Hon'ble Madras High Court in the case of CIT vs. Roca Bathroom Ltd. [2022] 445 ITR 537 (Madras). 4. The brief facts o....
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....uld not be categorized as 'fees for technical services' as per India-UK DTAA. The ld. AR iterated that the lower authorities have relied on the decision of Hon'ble Authority for Advance Ruling (Hon'ble AAR for short) in the case of Shell India Market Pvt. Ltd. (vide Application No. 833 of 2009), which has held that the payment received for the services rendered by the assessee from Shell India Market Pvt. Ltd. to be in the nature of 'fees for technical services' which is for providing specialized, technical inputs, which are taxable in India as per the provisions of the I. T. Act and the India-UK DTAA. The ld. AR further stated that the said decision of the Hon'ble AAR was reversed by the Hon'ble Jurisdictional High Court in the case of Shell India Market Pvt. Ltd. The ld. AR contended that since the lower authorities had merely relied on the ruling of Hon'ble AAR on this issue and the same has been quashed by the Hon'ble High Court, which finding would squarely be covered in the case of assessee also. The ld. AR prayed that the addition be deleted. 8. The learned Departmental Representative (ld. DR for short), on the other hand, fairly agreed that the decision of th....
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....s and public affairs/media advice and other business support services. The assessee contends that the cost incurred by the assessee is to be allocated amongst Shell operating companies based on cost allocation keys as per the terms of CCA and further the said costs are without mark up and are charged to the cost sharers on the basis of actual cost incurred by the assessee. It also contended that the payments received without markup are in the nature of reimbursement and not in the character of income which is chargeable to tax in India. They are merely in the nature of cost-recharge as per the CCA. It is further observed that SIMPL filed an application before the Hon'ble AAR for determining its tax withholding obligation in respect of the cost contribution made by it to the assessee and the Hon'ble AAR vide its order dated 17.01.2012 held that the payments made by SIMPL to the assessee was in the nature of 'fee for technical service' as per Article 13 of India-UK DTAA for which SIMPL was liable to withhold taxes as per section 195 of the Act. Parallely the assessee's case was picked up for scrutiny where the lower authorities made an addition on the impugned payment received by the....
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....ndly, whether such services are 'made available' to Petitioner. Article 13 of DTAA reads as under: "ARTICLE 13 ROYALTIES AND FEES FOR TECHNICAL SERVICES 1. Royalties and fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 2. However, such royalties and fees for technical services may also be taxed in the Contracting State in which they arise and according to the law of that State; but if the beneficial owner of the royalties or fees for technical services is a resident of the other Contracting State, the tax so charged shall not exceed: (a) in the case of royalties within paragraph (3)(a) of this Article, and fees for technical services within paragraph (4)(a) and (c) of this Article; (i) during the first five years for which this Convention has effect; (aa) 15 per cent of the gross amount of such royalties or fees for technical services when the payer of the royalties or fees for technical services is the Government of the first-mentioned Contracting State or a political subdivision of that State, and (bb) 20 per cent of the gro....
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....ny kind in consideration for the rendering of any technical or consultancy services. Sub-para (c) to Article 13(4) further restricts the meaning of the term to only that which makes available technical knowledge, experience, skill, know-how or processes, or consists of the development or transfer of a technical plan or technical design. 17. The principle of noscitur a sociis mandates that the meaning of a word is to be judged by the company of other words which it keeps. The word 'consultancy' services follows 'technical' which is further followed by the phrase "which make available technical knowledge, experience, skill, know-how or processes, or consist of development and transfer of a technical plan or technical design." A clear reading indicates that even if consultancy services is 'stand alone', the bunch of words indicate that the said 'consultancy' necessarily relates to consultancy which makes available technical or any other knowledge, experience, skill, know-how or processes and does not relate to consultancy on managerial issues. 18. The Appendix 2 of CCA contains the General BSS. The list of services availed are as follows: EXAMPLES ....
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....ed included services only to the following extent: (1) as described in paragraph 4(a), if they are ancillary and subsidiary to the application or enjoyment of a right, property or information for which a payment described in paragraph (3)(a) of Article 13 is received; (2) are ancillary and subsidiary to the enjoyment of the property for which a payment described in paragraph (3)(b) of Article 13 is received; or (3) as described in paragraph 4(c), if they make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design. Thus, under paragraph 4(c), consultancy services which are not of a technical nature cannot be included services. Thus, the services availed by Petitioner cannot be said to be technical services and Article 13 is wholly inapplicable in the facts and circumstances of the present case. 19. It will be useful to refer to a decision of the Madras High Court in the case of Skycell Communications Ltd and Anr. v. Deputy Commissioner of Income-Tax and Ors.8 which held as follows: "8. Thus while stating that "technical service" would include managerial and consult....
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....service is rendering technical service to the passenger and, therefore, the passenger must deduct tax at source on the payment made to the bus service provider, for having used the bus. The electricity supplied to a consumer cannot, on the ground that generators are used to generate electricity, transmission lines to carry the power, transformers to regulate the flow of current, meters to measure the consumption, be regarded as amounting to provision of technical services to the consumer resulting in the consumer having to deduct tax at source on the payment made for the power consumed and remit the same to the Revenue. 15.The use of the internet and the world wide web is increasing by leaps and bounds, and there are hundreds of thousands, if not millions, of subscribers to that facility. The internet is very much a product of technology, and without the sophisticated equipment installed by the internet service providers and the use of the telephone fixed or mobile through which the connection is established, the service cannot be provided. However, on that score, every subscriber of the internet service provider cannot be regarded as having entered into a contract for availing of ....
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.... 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, etc., does not mean that technology is made available to the person purchasing the service, within the meaning of paragraph (4)(b). Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available. In other words, payment of consideration would be regarded as "fee for technical/included services" only if the twin test of rendering services and making technical knowledge available at the same time is satisfied." (emphasis supplied) 22. Similarly, the Delhi High Court in the CIT (International Taxation)-1, Delhi v. M/s Biorad (Supra) has discussed the said concept accordingly. Paragraphs 14 and 15 read as under: 14. According to the Tribunal, the agreement betwee....
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.... We tend to agree with the analysis and conclusion arrived at by the Tribunal." (emphasis supplied) 23. Therefore, even if it is fees for technical or consultancy services, it can be only where fees are paid in consideration for making available technical knowledge, experience etc. Thus the view of the AAR that SIPCL works closely and advises the employees of Petitioner and hence makes available the services is not correct. This view in fact suffers from fallacy since the agreement continues to operate till date. If the view of AAR is to be held as correct then the contract must stand concluded as once the services and the know how, skill etc is transferred to Petitioner, the need of continuing to render said services must end. This is factually not so as the CCA is in effect till date. 24. Considering the above discussion it is clear that the AAR has interpreted the requirements to be satisfied for 'make available' based on its own general notion of the said term without appreciating the applicable law on the subject and also reached an erroneous conclusion that the services availed are technical services. 25. Moreover, the AAR has not dealt with....