TaxTMI 
TaxTMI 
2026 (6) TMI 1074
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....costs does not constitute income, Receipts towards reimbursement of IT costs does not qualify as FTS 5) Ground 9 and 10 - Interest under section 234B of the Act 6) Ground 11 - Penalty u/s 270A of the Act" 2. Brief facts of the case are as under :- The assessee is a Shell Group Company incorporated in the U.K. It is in the business of providing consultancy services to various Shell operating companies. It is engaged in provision of business support services and research & development/technical services. Since assessee is a tax resident of the U.K., in view of provisions of section 90(2) of the Act, it is entitled to the beneficial provisions of the India-UK Double Tax Avoidance Agreement (DTAA) which it had availed while filing its return of income. According to the Id. Assessing Officer, during the year under consideration, assessee was in receipt of the following which were not offered for taxation in its return of income :- Sr. No. Nature of Receipts Amount in Rs. 1 Receipts towards cost allocation for Business Support Services ('BSS') 2248611796 2 Receipts towards cost allocation towards reimbursements of IT cost 2753954....
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....Finance Controllers * Regional Controllers. The DS Management Information ("MI") Team. Finance in the Business To support cost-out initiatives, eliminate unnecessary process, reduce duplicate and redundant reporting 2 Human Resources HR related services provided under BSS agreement includes: * Executive VP * VP Class of Function. VP HR Policy, Processes and Systems. Global & Regional HR services & operations Completing competence assessments for all men staff, Shell People Survey, Individual Performance 3 IT IT related services provided under BSS agreement includes: * Services are in the nature of providing hardware, creation of user account, hosting/ storage * scanning etc. * Routine/ day to day IT support services. IT support to Shell end users * Technology enabled business strategies and plans. Information Management Risks * Information Security & Compliance Streamlining of IT efforts to enable globalization within the Business IT and central IT organization. Also, to enable business by focusing on business outcomes, delivering fit for business technology solutions which empower agility and profitable growth. 4 Contracting and Procurement ("C&P")....
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.... to be received, accrued, arise, or deemed to receive, accrue or arise in India. These payments may be in the nature of, inter alia, interest, royalty, fees for technical services or where the source of income is in India; such income would be treated as income deemed to accrue in India. However, every receipt by a non-resident may not be income and hence not chargeable to tax under the provisions of the Act. 1.6 It is submitted that the receipts towards BSS are not liable to be taxed in India, as the same are in nature of cost recharge pursuant to the CCA and does not constitute income of SIPC under section 2(24) of the Act. 1.7 SIPC works on a cost-only arrangement i.e. the common costs incurred by SIPC for the various support services are charged to cost sharers including SIMPL, which avails such services on a cost basis. The costs are allocated to the entities availing the services on the basis of allocation keys depending upon the nature of cost. Further, the costs are not marked up and are charged to the cost sharers on the basis of actual costs incurred by SIPC. 1.8 The TP study report provides the details of cost allocation keys in respect of cost....
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.... In addition to this payment Company shall reimburse Shell, and Shell shall include Company in the relevant detailed costs incurred by Shell in connection with performing General Business Support Services under this Agreement, including but not limited to travelling and hotel expenses and reasonably living allowances of Shell's and / or any Service Provider's personnel rendering the General Business Support Services." 1.10 Further, the "Cost" is defined in the CCA as under: "Cost in relation to an activity undertaken by Shell ("SIPC") other Service Provider means the total cost of such Activity namely (i) those cost referable to it which can be allocated directly, and (ii) an allocation of direct salary and labour burden costs determined by time writing or estimation of time and effort and (iii) indirect costs attributable to the direct labour costs but shall not include any element of profit." (Emphasis supplied) 1.11 In view of the above, it is submitted that since the payment received by SIPC is in the nature of various Shell entities towards sharing of expenses in relation to services utilized by the group companies, the payments rece....
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....tta High Court in Dunlop Rubber Co. Ltd.'s case (supra). The Division Bench was answering the following question: Whether, on the facts and in the circumstances of the case, the amounts received by the assessee (English company) from M/ s. Dunlop Rubber Co. (India) Ltd. (Indian company) as per agreement dt. 29-1-1957 constituted income assessable to tax? On considering the issue, the Bench noted that the Tribunal was of the view that what was recouped by the Scottish company was part of the expenses incurred by it. The Court upheld the said finding. The Bench was pleased to hold that sharing of expenses of the research utilized by the subsidiaries as well as the head office organization would not be income which would be assessable to tax. A similar view was taken in Stewarts & Lloyds of India Ltd.'s case (supra). We are in respectful agreement with the view expressed by the Delhi and Calcutta High Courts."(A copy of the judgement is enclosed as Annexure 4) ABB Limited [2010] (322 ITR 564) The Authority for Advanced Ruling (AAR) while holding that reimbursement of R&D cost cannot be taxable income has held as follows: "... the co....
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.... the Act. Without prejudice to the above contention, it is submitted that the payment towards BSS do not constitute FTS under Article 13 of India-UK Tax Treaty. In this regard, our submissions are as under: Provisions of the Act 1.16 Explanation 2 to Section 9(1)(vii) of the Act defines, 'fees for technical services' as "consideration for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include... " Taxability under India-UK Tax Treaty 1.17 Section 90(2) of the Act gives an option to the Company to apply the provisions of the Act or the provisions of the applicable tax treaty, whichever is more beneficial. This view is supported by the Andhra Pradesh High Court in the CIT v Visakhapatnam Port Trust [144 ITR 146 (AP)] and also by Circular No. 333 dated 2 April 1982 (A copy of the judgement and circular is enclosed as Annexure 6 as a copy). SIPC is a tax resident of UK and accordingly, SIPC is entitled to the beneficial provisions of the India-UK Tax Treaty. 1.18 Further, Article 13(4) of the India-UK Tax Treaty de....
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....fer of a technical plan or design; and Such knowledge, skill, experience, etc. is technical. Given the above, under the India-UK Tax Treaty the services would be taxable as "fees for technical services" only if the services make available technical knowledge, experience, etc. SIMPL. 1.22 It is submitted that a mere rendering of services does not qualify as FTS unless further / an additional condition is satisfied, i.e. the services make available technical knowledge, experience, skill etc. Also, from jurisprudence it is reasonable to conclude this further/additional condition is intended to apply to cases where the person utilizing the services is able to make use of the technical knowledge, etc. by himself in his business or for his own benefit and without recourse to the performer of the services in future. The technical knowledge, experience, skill, etc. must remain with the person utilizing the services even after rendering of the services has come to an end. A transmission of the technical knowledge, experience, skills, etc. from the person rendering the services to the person utilizing the same is contemplated by the Article to qualify as F....
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.... to reiterate that the term 'make available' is akin to the concept of transfer and involves the transfer of technical knowledge, experience, skill, knowhow, or processes to the recipient by the service provider so that the recipient can apply the same on his own. From the description, it is apparent that the BSS provided by SIPC are mainly for standardization and to support day to day business operations and that it does not provide any technical knowledge or skill through the BSS to SIMPL. 1.26 In view of the above, payments received by SIPC for providing BSS cannot be construed as FTS under the Act and since the services are not technical or consultancy in nature and rendering of such services does not make available any technical knowledge, skill, experience, etc. to the service recipient (i.e. SIMPL), the same cannot be termed as FTS under Article 13(4)(c) of the India - UK Tax Treaty. 1.26 In view of the above, we wish to draw your attention to following judicial precedents: Mumbai ITAT in the case of Raymond Limited vs DCIT (86 ITD 791) [2003] (Mum ITAT) held that the MOU contained in the India - US Tax Treaty can be used as a guide in inte....
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....) (A copy of the judgement is enclosed as Annexure 13) Sandvik Australia Pty. Ltd. vs. DDIT, IT [2013] 141 ITD 598 (Pune - ITAT) (A copy of the judgement is enclosed as Annexure 14) Ernst and Young Private Limited (323 ITR 184) (AAR) Bharati AXA General Insurance Co Ltd (326 ITR 477) R.R Donnelley India Outsource Private Limited (AAR No. 883 of 2010) M/ s Invensys Systems Inc. v. DIT (2009) 317 ITR 438 (AAR) Anapharm Inc., In re (2008) 305 ITR 394 (AAR) DCIT vs Boston Consulting Group Private Limited (2005) 280 ITR 1 (Mum) DIT vs Guy Carpenter & Co [2012] [207 Taxman 121] (Del ITAT) Endemol India P. Ltd (340 ITR 361)(AAR) DDIT(IT) vs IATA BSP India (64 SOT 290) (Mum ITAT) CIT (International Taxation) - 1, DELHI vs. Bio-Rad Laboratories (Singapore) Pte Ltd [2023] 155 taxmann.com 646 (Delhi - HC) US Technology Resources (P.) Ltd vs. CIT, Thiruvananthapuram [2018] 97 taxmann.com 642 (Kerela) 1.32 Based on the above, it is submitted that the term 'make available' is akin to the concept of transfer and involves the transfer of technical knowledge, experience, skil....
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....specifically include managerial services within its ambit. Therefore, BSS being managerial nature, are not taxable as per Article 12(5) of the tax treaty. The Company also wishes to place reliance on the following rulings wherein it is held that the similar services are not taxable in India as they are managerial services in nature and not technical. Steria (India) Ltd v. CIT [2016] 72 taxmann.com 1 (Delhi High Court) DCIT v. Hyva Holding B.V. [2019] 106 taxmann.com 24 (Mumbai ITAT) Everest Global Inc. vs DDIT [2023] 156 taxmann.com 404 (Delhi ITAT)" 6.1. It is submitted that the facts in the present year are identical with the facts considered by this Tribunal in assessee's own case for assessment year 2022-23 in ITA No. 1751/Mum/2025, vide order dated 11/02/2026. The Ld. AR submitted that identical issues relating to validity of assessment proceedings, taxability of receipts from General Business Support Services (BSS), reimbursement of IT costs, characterization of such receipts as Fees for Technical Services (FTS), were decided in favour of the assessee. 6.2. The Ld. DR fairly conceded that the issues raised in the present appeal are co....
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.... the Hon'ble AAR had binding effect on the assessee unless there is a change in law or facts. 7.1. Further, this Tribunal in assessee's own case for assessment year 2022-23 in ITA No. 1751/Mum/2025, vide order dated 11/02/2026 observed as under :- "4.1. Based on the above sample data, assessee contended that said services do not involve any technical know-how or skill, etc. These are provided mainly for standardization and to support the day-to-day business operations. On this assessee contended that whereas under Explanation 2 to section 9(1)(vii) of the Act, mere rendering of technical services is enough for the services to be taxable as FTS, however, Article 13 of the India-UK DTAA requires that technical knowledge, experience, etc. should be made available' to the recipient. Assessee thus, availed the treaty benefit as its BSS would not fall under Article 13(4)(a)/ (b) of the said treaty. 4.2. Assessee strongly asserted before the ld. DRP that it has received a favourable order from the Hon'ble jurisdictional High Court of Bombay in the case of a group concern Shell India Markets Pvt Ltd in WP No. 10788 Of 2012 against the ld. AAR order wherein ....
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....ssee. For the first time, this came up in Assessment Year 2009-10 in ITA no. 1253/Mum/2014 vide order dated 10.09.2024 and has been subsequently followed in all the other years. There being no material change in the factual matrix and the position of law, respectfully following the decision of the Hon'ble jurisdictional High Court of Bombay in Shell India Markets Pvt Ltd (supra) as well as decisions of the Coordinate Bench in assessee's own case for past several years, ground no. 3 and 4 raised by the assessee are allowed. Ground no. 2 mentions about 'cost recharge' for general BSS. The same is rendered academic and left open in view of our finding arrived at for ground nos. 3 and 4. 5. On the issue relating to receipt of IT service and software license charges treated as royalty under the provisions of section 9(1)(vi) of the Act and under Article 13 of the India - UK DTAA, factual position states that assessee had received Rs 12,00,53,602/- towards IT services and Rs 25,93,419/- for software license charges on account of cost allocation from its AE towards usage of Permit Vision software' supplied by eVision Industry. Permit Vision software is a leadi....
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.... FTS, fact of the matter is that assessee received Rs. 11,39,89,058/- towards IT support services. According to the assessee, these receipts do not qualify as FTS under the provision of the Act as well as under the India - UK DTAA. These services are for downstream business in connection with IT, providing IT services to improve/facilitate the functioning of various software/systems including: a. Improvement to Customer Relationship Management system to integrate data in order to enable having a single view of the customer b. Transitioning of a real estate system to enable better customization and integration with Shell ecosystem c. Establishment of Fuel Stock management system to enhance monitoring d. Enabling liaison interface for logistic service provider e. Vendor loyalty system f. Providing latest update patches into a particular system 6.1. We note the observation of Id. DRP whereby it is mentioned that this issue had come up for its directions in AY 20201-22 and earlier years. Ld. DRP in AY 2016-17 considered the issue and gave its directions to bring it to tax. Ld. AO has allegedly relied on the clause of servic....