TaxTMI 
TaxTMI 
2025 (5) TMI 865
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....he issues contended by the assessee in these appeals through various grounds are tabulated below - Issue AY 2016-17 AY 2017-18 AY 2018-19 AY 2019-20 AY 2020-21 General Ground No.1 Ground No.1 Ground No.1 Ground No.1&2 Ground No.1 Final assessment order passed by AO is bad in law. Ground No.2 Receipts from General Business Support Services ('BSS') does not constitute 'income' Ground No.2 Ground No.2 Ground No.2 Ground No.3 Ground No.3 Receipts from General BSS does not qualify as Fees for Technical Services ('FTS') Ground No.3 & 4 Ground No. 3 & 4 Ground No. 3 & 4 Ground No. 4 & 5 Ground No. 4 & 5 Receipts towards access to SUN / GSAP software licence charges does not constitute income Ground No.5 & 9 Receipts towards access to SUN /GSAP software licence charges does not qualify as Royalty Ground No.6 to 8 and 10 to 12 Receipts towards SUN / GSAP maintenance charges does not constitute income Ground No.13 Ground No.5 & 9 Ground No. 5 Grou....
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....ase of CIT vs. Roca Bathroom Products (P) Ltd. (2022) 445 ITR 537 (Mad.). However, during the course of hearing, the ld. AR did not press for the admission of the additional ground and accordingly the same is not admitted for adjudication. ITA No.7499/Mum/2019 - AY 2016-17 3. The assessee is a Shell Group Company incorporated in UK and it is in the business of providing consultancy services to various Shell operating company. The assessee has entered into Cost Contribution Agreement (CCA) with various Shell concerns including Shell India Markets Pvt. Ltd. (SIMPL) for the provision of Business Support Services (BSS). The BSS are primarily in the nature of Management Support Services and the cost incurred towards rendering of such services is allocated among Shell Group concerns using the allocation key on a cost to cost basis. The AO held the BSS Arrangement as Fees for Technical Services (FTS) in the hands of the assessee and accordingly brought the same to tax. The AO in this regard placed reliance on the Ruling of Authority for Advance Ruling (AAR) in the case of SIMPL (application no. 833 of 2009 dated 17.01.2012). The AO further treated the amount received by the assessee....
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....ed 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 assessee from SIMPL by extensively relying on the ruling of the Hon'ble AAR which held the same to be 'fee for technical service' in the case of SIMPL. Though the assessee during the assessment proceeding had objected for placing reliance on the ruling of the Hon'ble AAR as being not binding on the assessee, the lower authorities failed to agree with the assessee's contention and held that as per section 245S of t....
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....axed 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 gross amount of such royalties or fees for technical services in all other cases; and (ii) during subsequent years, 15 per cent of the gross amount of such royalties or fees for technical services; and (b) in the case of royalties within paragraph (3)(b) of this Article and fees for technical services defined in paragraph (4)(b) of this Article, 10 per cent of the gross amount of such royalties and fees for technical serv....
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.... 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 OF GENERAL BUSINESS SUPPORT SERVICES: *Management Support * Development and Provisions of Support and Business Tools * Provision of Marketing Support. * Development, Communication and Audit of Standards of * Performance Promotion of Professional Competence * Information Technology Advice and Services * General Financial Advice and Services * Taxation ....
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....ble 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 consultancy service, the Legislature has not set out with precision as to what would constitute "technical" service to render it "technical service". The meaning of the word "technical" as given in the New Oxford Dictionary is adjective 1. of or relating to a particular subject, art or craft or its techniques : technical terms (especially of a book or article) requiring special knowledge to be understood : a technical report. 2. of involving, or concerned....
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....rvices 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 technical services from the provider of the internet service, and such subscriber regarded as being obliged to deduct tax at source on the payment made to the internet service provider. 20. Thus, it is clear from the said decision that any service is construable as technical but one has to see the true import of the service actually rendered and the determination must be made in this context. There is no such discussion in the Impugned order and the finding....
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.... 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 between the respondent/assessee and its Indian affiliate had been effective from 01.01.2010, and if, as contended by the appellant/revenue, technical knowledge, experience, skill, and other processes had been made available to the Indian affiliate, the agreement would not have run its course for such a long period. 14.1 Notably, this aspect is adverted to in paragraphs 17 to 23 of the impugned order. For convenience, the relevant paragraphs are extracted hereafte....
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....rs 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 the issue relating to the 'Permanent Establishment' of SIPCL and there is no determination on the same. Of course, that was not a subject of reference before AAR. 26. Thus, we have no hesitation in holding that the impugned order dated 17th January 2012 of AAR suffers from legal infirmity and is quashed and set aside. 27. During the course of the arguments, Mr. Mistry stated that Petitioner only seeks relief prayed in clauses (a)....
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.... to be treated as FTS in the hands of the assessee which has not been reversed by the Hon'ble Jurisdictional High Court. Since the BSS rendered by the assessee is arising out of the same CCA as in the case of SIMPL, we are of the view that the decision of the Hon'ble High Court has a binding precedence in assessee's case also. Further the facts for the year under consideration are identical to AY 2009-10 and the revenue did not bring anything on record to controvert the same. Therefore in our considered view the above decision of the Co-ordinate Bench on the impugned issue is applicable for the year under consideration also. Accordingly, we direct the AO to delete the addition made towards BSS in the hands of the assessee. Ground No.3 & 4 of the assessee raised in this regard are allowed. Ground No.2 has become academic in view of our decision on Ground No.3 & 4. Treatment of access & cost allocation towards SUN software and SAP / GSAP software application Royalty 6. We heard the parties and perused the material on record. At the outset the ld AR submitted that the issue is identical to the issue contended in AY 2012-13 and that the coordinate bench has held the i....
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.... held to be not liable for deduction of tax at source. The Tribunal, following the decision of its co-ordinate Bench, in assessee's own case, dismissed the appeal filed by the Revenue by the impugned order. 8. At the outset, Learned Counsel for the parties would fairly state that the question of law as raised in the present appeals, is no more res integra in view of the authoritative pronouncement of the Supreme Court in the case of Engineering Analysis Centre of Excellence (P) Ltd. v. CIT [2021] 125 taxmann.com 42/281 Taxman 19/432 ITR 471 In the said case the Assessing Officer, applying Article 12(3) of the DTAA entered between India and U.S.A. as also the provisions of Section 9(1)(vi) of the IT Act to the transaction between the parties, held that the transaction involved copyright, which attracted the payment of royalty and accordingly, tax was required to be deducted at source by the Indian importer. Since this was not done, it was held that the assessee was liable to make good the payment of TDS which it had not deducted. Also interest under Section 201(1)(A) of the Act was levied. The Appeal before the Commissioner was also dismissed. 9. In these circu....
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....ct 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)(v), along with explanations 2 and 4 thereof), which deal with royalty, not being more beneficial to the assessee's, have no application in the facts of these cases. 169. 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 computer software through EULAs/distribution agreements, is not the payment of royalty for the use of copyright in the computer software, and that the same does not give rise to any income taxable in India, as a result of which the persons referred to in section 195 of the Income-tax Act were not liable to deduct any TDS under section 195 of the Income-tax Act. The answer to this question will apply to all four categories of cases enumerated by us in paragraph 4 of this judgment. 170. The appeals from the impugned ju....
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.... / GSAP charges. The AO alleged that these services are 'ancillary and subsidiary' to GSAP software application and treated the receipts as FTS under Article 13(4)(a) and Article 13(4)(c) of the DTAA. The AO also alternatively held that these receipts are royalty. 8.3. The DRP held that since SAP/GSAP software charges are royalty, maintenance charges for the said software are taxable under article 13(4)(a) of the DTAA as 'ancillary and subsidiary' to providing GSAP software application. Alternatively, the DRP also held that these charges to be akin to BSS and, therefore, and accordingly the receipts fall within purview of 'make available' in view of its findings for BSS and is taxable as FTS. Further, the DRP held that since these receipts are taxed as FTS, question of taxing the same receipts as royalty becomes infructuous. 9. The ld AR submitted that Article 13(4)(a) of the DTAA provides that fees for technical services means payment to any person in consideration for rendering of any technical or consultancy services which are 'ancillary and subsidiary' to the application or enjoyment of the right, property or information for which a payment described in parag....
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....tion for the use of, or the right to use, any industrial, commercial or scientific equipment, other than income derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic 4. For the purposes of paragraph (2) of this Article, and subject to paragraph (5), of this Article, the term "fees for technical services" means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including the provisions of services of technical or other personnel) which: (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph (3)(a) of this Article is received; or (b) are ancillary and subsidiary to the enjoyment of the property for which a payment described in paragraph (3)(b) of this Article is received; or (c) make available technical knowledge, experience, skill, know-how or processes, or consist of the development and transfer of a technical plan or technical design." 11. A combined perusal of the clause (3) and (4) of Article 13 makes it clear that for the purpose of....
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....towards customisation existing systems to comply with the GST regulations implemented in India. The assessee recharged the said costs to its Indian AE and the same was reimbursed. The AO treated the said customisation receipts as FTS. The DRP held that these receipts are not independent service and very much part of BSS, thereby, holding that these services being akin to / part of BSS fall within purview of make available and is taxable as FTS. 14. The ld AR submitted that the GST scoping / customisation receipts are akin to the Go-Live charges of GSAP applications received during the earlier AYs and that the coordinate bench has held the said payments as not taxable in India. The ld AR therefore argued that the GST scoping / customisation receipts cannot be treated as FTS to be taxed in India. The ld AR further submitted that the DRP has held the impugned receipts as similar to BSS receipts which are held as not taxable in India by the coordinate bench. The ld AR accordingly argued that the impugned receipts are not taxable on both counts. 15. The ld DR relied on the order of the lower authorities. 16. We heard the parties and perused the materials on record. We have alre....
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....e and therefore, the decision of the Hon'ble Supreme Court in the case of Engineering Analysis (supra) is applicable for the impugned issue also. 10. We heard the parties and perused the record. The assessee during the year under consideration has migrated to GSAP Software and has incurred expenses towards procurement of licence to use the Software also expenses towards customization of the Software for Go-live. These expenses have been allocated across the group on a cost to cost basis based on the number of users. The contention of the AO is that the amount received by the assessee is in the nature of Royalty as per explanation-4 to section 9(1)(vi) of the Act. The argument of the assessee is that the amendment to section 9(1)(vi) cannot be read into the DTAA and thus the provisions as per DTAA which is more beneficial to the assessee should only be applied in assessee's case as per section 90(2) of the Act. In this regard it is relevant to consider the following observations of the Hon'ble Supreme Court in the case of Engineering Analysis (supra) - 100. Also, any ruling on the more expansive language contained in the explanations to section of the I....
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....DTAA between India and UK. Further the amount received by the assessee is on a cost to cost basis without any income element in it and on that count also, the amount received cannot be treated as taxable in India. In view of this discussion and, respectfully following the above decision of the Hon'ble Supreme Court, we hold that the receipt towards cost allocation of GSAP licence and Go-live of GSAP application cannot be treated as Royalty and the addition made by the AO in this regard is not tenable. Ground No. 11, 12, 14 & 15 are allowed. Ground No. 10 & 13 are left open in view of our decision in Ground No. 11, 12, 14 & 15. 17. In view of these discussions, we hold that the treatment of GST scoping / customisation receipts as FTS is not correct and the addition made in this regard is liable to be deleted. Ground No.21 to 23 are allowed and Ground No.20 has become academic. Treatment cost allocations in respect of IT service and local project costs as FTS 18. During the year under consideration, there was a need for the assessee to relocate warehouses / depots from existing locations to new locations, since the existing contracts with supplier expired. Accordingly, t....