SHELL ENERGY INDIA PRIVATE LIMITED (FORMERLY KNOWN AS HAZIRA LNG PRIVATE LIMITED),AHMEDABAD vs. THE ACIT, CIRCLE-2(1)(1), AHMEDABAD

PER NARENDRA PRASAD SINHA, ACCOUNTANT MEMBER:

This appeal is filed by the Assessee against the order of National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as “CIT(A)”] dated 07.01.2025 for the Assessment Year (A.Y.) 2016-17 in the proceeding u/s 143(3) of the Income Tax Act [hereinafter referred as “the Act”].

ITA No. 592/Ahd/2025 Shell Energy India Pvt Ltd(Formerly known as Hazira LNG Pvt Ltd Vs ACIT, AY-2016-17 2

Rs.326,13,54,228/- u/s. 115JB of the Act. The case was selected for scrutiny under CASS. In the course of assessment, the AO noticed that the assessee had made payment of Rs. 6,74,19,939/- to M/s. Siemens Industrial Turbomachinery Limited (hereinafter referred as “SITL”), a non- resident entity, on which no TDS was deducted. Therefore, the payment of Rs.6,74,19,939/- was disallowed u/s. 40(a)(i) of the Act. The assessment was completed u/s. 143(3) on 20.12.2018 at total income of Rs. 351,49,76,430/-.

ITA No. 592/Ahd/2025 Shell Energy India Pvt Ltd(Formerly known as Hazira LNG Pvt Ltd Vs ACIT, AY-2016-17 3 5. The only effective ground taken by the assessee in this appeal is in respect of addition of Rs. 6,74,19,939/- made u/s 40(a)(i) of the Act for non-deduction of TDS. Shri Vartik Choksi, the Ld. AR of the assessee explained that the assessee company is engaged in the business of developing, owning, operating and maintaining the Liquefied Nature Gas (LNG) terminal at Hazira Port. The payment of Rs. 6,74,19,939/- was made to SITL, a foreign company incorporated in UK, in respect of the work order regarding modernization and up-gradation of engines and other equipment’s. He explained that the AO had treated this expenditure as capital in nature on the ground that the modernization and up-gradation will generate enduring benefit to the assessee and had disallowed the same u/s. 37 of the Act. At the same time, the alternative stand of the AO was that the amount was also liable for disallowance u/s. 40(a)(i) of the Act, as no TDS was deducted on the payment made to SITL. The assessee had explained that the services provided by SITL were in the nature of “Fee for Technical Services (FTS)” and as per Double Tax Avoidance Agreement (hereinafter “DTAA”) between India and UK the payment was not liable for deduction of tax at source, as the condition of “make available criteria” as stated in Article 13 of India UK DTAA, was not fulfilled. The AO had, however, rejected the contention of the assessee and held that the services provided included transfer of design, software and hardware to the assessee and the services rendered was falling within Article 13(4)(c) of the India UK DTAA and, therefore, the disallowance was made for non-deduction of TDS thereon. The Ld. AR explained that the Ld. CIT(A) had held that the services provided by SITL did not fulfil the “make available criteria” as stated in Article 13 of India UK DTAA and, therefore, the AO was not correct in making the disallowance for this reason. Further, he had also held that the payment made by the

ITA No. 592/Ahd/2025 Shell Energy India Pvt Ltd(Formerly known as Hazira LNG Pvt Ltd Vs ACIT, AY-2016-17 4 assessee was not capital in nature. However, the Ld. CIT(A) had upheld the addition u/s. 40(a)(i) of the Act, on an altogether different ground that SITL had a permanent establishment (hereinafter “PE”) in India in accordance with Article 5 of India UK DTAA and, therefore, the income of SITL was taxable in India and the payment made by the assessee to SITL was liable for deduction of tax at source u/s. 194J of the Act.

5.1 The Ld. AR submitted that the above decision was given by the Ld. CIT(A) without allowing any opportunity to the assessee to counter his findings that SITL had PE in India. He explained that SITL had furnished Tax Residency Certificate (TRC) of the competent authority to effect that it was a tax resident of UK for the purpose of Article 4, Article 7 and Article 13 of India UK DTAA. Further that, no PE declaration was furnished by SITL. Thus, the assessee did not deduct TDS on the payment made, on the genuine belief that SITL had no PE in India. The Ld. AR further submitted that the fulfilment of the conditions as stipulated in clause 2(j) of Article 5 of India UK DTAA was neither examined by the AO nor by the Ld. CIT(A), before holding that the same was applicable in the case of SITL. He, therefore, requested the matter may be set aside to the file of the Jurisdictional AO with a direction to verify as to whether SITL had any PE in India as per Article 5 of India UK DTAA.

ITA No. 592/Ahd/2025 Shell Energy India Pvt Ltd(Formerly known as Hazira LNG Pvt Ltd Vs ACIT, AY-2016-17 5

services rendered by SITL were falling under 13(4)(c) of India UK DTAA and no TDS was made by the assessee. The Ld. CIT(A) had held that the amount paid was not in the nature of FTS as per Article 13 of India UK DTAA as the ‘make available clause’ was not fulfilled. The Ld. CIT(A), however, has gone through the agreement between the assessee and the SITL and held that the SITL had a PE in India. A copy of the work order dated 16.07.2014 has been brought on record and the scope of work to be done by SITL was as under:

Sr. Description No.

1 SITL Modernisation & Upgrades

Engine Model – SGT – 300-1S Generator Set RW066 Repair, Overhaul

The scope of work should be as per Attachment – 1 & includes

• Returning the engine to Zero Hour condition. The seller shall overhaul RW066 to a Zero Hour condition. The unit shall be fully tested by the Seller prior to dispatch in accordance with the Seller’s Standard performance test procedure.

2 Conversion of GTG-2001-A and GTG-2001-B- from dual fuel to Single Fuel

3 Performance Guarantee (As per Clause Performance Guarantee on Page 13 of 28 of SELLER’s proposal ref. 131425 Rev 04 Date 18/06/2014

“The seller will nominate an appropriate qualified representative from its affiliate in India which is Siemens Limited at the Buyer Site, who shall supervise installation & Commissioning including 72 hour nonstop running trials so that successful installation

ITA No. 592/Ahd/2025 Shell Energy India Pvt Ltd(Formerly known as Hazira LNG Pvt Ltd Vs ACIT, AY-2016-17 6 and commissioning is achieved. The seller shall be informed about the supervision of installation & commissioning requirement via separate Work Order/Contract placed on Siemens Limited”. 9. It is thus evident that the installation and commissioning was to be done by representative of SITL viz. Siemens Limited at the buyers site. As per clause 2(j) of Article 5 of India UK DTAA, a building site or installation or assembly project or supervisory activities in connection therewith, will be considered as PE only if the activities continues for a period of more than six months. In case of supervisory activity incidental to sale of machinery of equipment, the activity may continue for a period of less than six months but in that case charges payable for supervisory activities should exceed 10% of sale price of machinery and equipment. It prima facie appears that the Ld. CIT(A) did not examine the applicability of these provisions in the present case, as no finding was given regarding the duration of supervisory activities for installation and commissioning of the project. According to the assessee, the installation and commissioning was completed during the period from 12.12.2016 to 20.12.2016 only and supervisory activities was performed by employees of Siemens Limited from 04.11.2016 to 16.11.2016, which was less than six months. Thus, according to the assessee, no PE of SITL existed in India as per clause 2(j) of Article 5 of India UK DTAA.

ITA No. 592/Ahd/2025 Shell Energy India Pvt Ltd(Formerly known as Hazira LNG Pvt Ltd Vs ACIT, AY-2016-17 7

a finding that SITL also had a fixed place PE as SITL was required to nominate a qualified representative at the site to supervise the installation, commissioning and trial. The AO should call for the details of the stay of the qualified representative at the site and, thereafter, decide whether SITL had any fixed place PE. The AO will also be free to examine as to whether any service PE of SITL was in existence in accordance with India UK DTAA. The decision regarding existence of PE of SITL or otherwise, should be taken after allowing a proper opportunity of being heard to the assessee. Further, the decision regarding disallowance u/s 40(a)(i) of the Act may be taken as per law, after first deciding the issue of existence of PE of SITL. In the result, the grounds taken by the assessee are allowed for statistical purpose.

Order pronounced in the Court on 06/08/2026 at Ahmedabad.

Sd/- Sd/- (SANJAY GARG) (NARENDRA PRASAD SINHA) Judicial Member Accountant Member Dated – 06th August, 2026 Neelesh, Sr. PS (True Copy) आदेश आदेश क� आदेश आदेश क� क� �ितिलिप क� �ितिलिप �ितिलिप अ�ेिषत �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order forwarded to : अ�ेिषत 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबंिधत आयकर आयु� / Concerned CIT 4. आयकर आयु�(अपील) / The CIT(A) 5. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण / DR, ITAT, 6. गाड� फाईल /Guard file. आदेशानुसार/BY ORDER, आदेशानुसार आदेशानुसार आदेशानुसार पंजीकार (Dy./Asstt.Registrar) उप उप/सहायक उप उप सहायक सहायक पंजीकार सहायक पंजीकार पंजीकार आयकर अपीलीय आयकर अपीलीय अिधकरण अिधकरण, अहमदाबाद अहमदाबाद / ITAT, Ahmedabad आयकर आयकर अपीलीय अपीलीय अिधकरण अिधकरण अहमदाबाद अहमदाबाद