SHELL INFORMATION TECHNOLOGY INTERNATIONAL BV,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION )-4(2)(1), MUMBAI

4. Failed to appreciate that the payments received were only for the „use of copyrighted article‟ as compared to „use of copyright‟, „use of process‟, „use of property similar to patents, design, trademark and invitation‟, which does not constitute „royalty‟ under the Act as well as India-Netherlands DTAA; Receipts towards IT Support services held as „Fees for Technical Services‟ („FTS‟) under the Act as well as the India-Netherlands DTAA.

5. Erred in holding that payments of Rs.4,85,28,53,200 received by the Appellant for IT Support Services constitutes „FTS‟ under the provisions of the Act and under Article 12 of the India- Netherlands DTAA;

6. Failed to appreciate that IT support service do not „make available‟ any technical knowledge, experience, skill, know-how or process, etc. to the service recipient under Article 12(5)(b) of the India-Netherlands DTAA and hence not subject to tax in India;

7. Failed to also appreciate that IT support services are not for providing specialized technical inputs or any technical services which are ancillary and subsidiary to the application/ enjoyment of the any right/property/information and hence cannot be termed as FTS under Article 12(5)(a) of the India- Netherlands DTAA and hence not subject to tax in India Incorrect tax rate on interest on income-tax refund 2 Receipts towards IT Support services held as „Royalty‟ under the Act as well as India-Netherlands DTAA.

8. Erred in holding that payments of Rs.4,85,28,53,200 received by the Appellant for IT Support Services constitutes „Royalty‟ under the provisions of the Act and under Article 12(4) of the India- Netherlands DTAA without appreciating the fact that receipts towards IT support services are not for information concerning industrial, commercial or scientific experience; Short granting of credit for TDS 9. Erred in not granting the TDS credit of Rs.2,06,98,133 without appreciating the facts and circumstance of the case. Interest under section 234B of the Act 10. Erred in levying interest of Rs.19,84,99,072 under section 234B of the Act without appreciating the facts and circumstance of the case.

11. Without prejudice to the above, while the AO has computed interest payable under Section 234B of the Act to be Rs.19,84,99,072. Subsequently, AO has inadvertently computed total interest and fees payable as Rs.20,28,24,832. Incorrect amount of refund issued 11. Erred in considering a refund amount of Rs 3,98,72,258 issued to the Appellant wherein no refund was received by the Appellant without appreciating the facts and circumstance of the case. Penalty under section 270A of the Act 12. Erred in levying penalty under section 270A of the Act for under- reporting particulars of income without appreciating the facts and circumstances of the case.”

3. The relevant facts in brief are that the Assessee is a company registered under the laws of Netherlands and is treated as non- resident under the provisions of the Act. The Assessee is engaged in providing IT Support Services to Shell Group Entities. For the Assessment Year 2022-2023, the Assessee filed return of income on 23/11/2022. The aforesaid return was revised on 29/12/2022. As per the revised return, the Assessee had offered to tax income of INR.2,62,49,082/- and claimed refund of INR.5,82,57,870/-. The case of the Assessee was selected for scrutiny. During the assessment 3 proceedings, the Assessing Officer noted that out of total revenue of INR.5,71,84,46,987/-, the Assessee has offered to tax only income of INR.2,62,49,082/- being interest on income tax refund. The balance receipts of INR.5,69,21,97,905/- which were not offered to tax by the Assessee included INR.83,74,43,533/- being revenue from software access, INR.19,01,172/- being reimbursement of cost and INR.4,85,28,53,200/- being revenue from IT Support Services. According to the Assessing Officer, the IT Support Services were liable to tax in the hands of the Assessee as ‘Fee for Technical Services’/’royalty’ in terms of Section 9(1)(vii) of the Act as well as in terms of Article 12(5)(a) & 12(5)(b) of the Double Taxation Avoidance Agreement between India and Netherlands (hereinafter referred to as ‘the DTAA’). Further, the Assessing Officer was of the view that revenue from software access amounting to INR.83,74,43,533/- was in the nature of royalty income liable to tax in the hands of the Assessee under Section 9(1)(vi) read with Article 12(4) of the DTAA. Therefore, the Assessing Officer issued Draft Assessment Order, dated 23/03/2024, under Section 144C(1) of the Act proposing addition of (a) IT Support Service Fee of INR.4,85,28,53,200/- holding the same to be fee for technical services/royalty and (b) income of INR.83,74,43,533/- from software access as royalty under Section 9(1)(vi) of the Act read with Article 12(4) of the DTAA in the hands of the Assessee. No addition was proposed in respect of reimbursement of expenses of INR.19,01,172/-. The Assessee filed objections on 10/10/2024 before the DRP. Vide Order, dated 24/12/2024, the DRP rejected the aforesaid objections raised by the Assessee. Therefore, the Assessing Officer passed the Final Assessment Order, dated 14/01/2025, under Section 143(3) read with Section 144C(13) of the Act making the proposed additions and assessing the taxable income of the Assessee at INR.5,71,65,45,815/- in the hands of the Assessee holding the same to be ‘Fee for Technical Services’ liable to tax at the rate of 10% in terms of Article 12 of the DTAA. Further, while computing tax liability the Assessing Officer did not grant credit of tax 4 deducted at source as claimed by the Assessee and took into account refund amount of INR.3,98,72,258/- (which is being disputed by the Assessee as not received).

Ground No. 3 to 8 5. When the appeal was taken up for hearing, the Ld. Authorised Representative for the Assessee pressed into service Ground No. 3 to 8 raised in the present appeal and submitted that the same stands decided in favour of the Assessee and against the Revenue in Assessee’s own cases for preceding assessment years. In this regard, reliance was placed on the following decisions of the Tribunal pertaining to Assessment Years 2009-2010 to Assessment Year 2021- 2022 placed before us as part of the paper-book:

S.No. Assessment Year 1. 2021-2022 4711/Mum/2023 06/09/2024 2. 2020-2021 3339/Mum/2023 04/04/2024 3. 2019-2020 2308/Mum/2022 30/11/2022 4. 2018-2019 996/Mum/2022 28/11/2022 5. 2017-2018 1245/Mum/2021 11/05/2022 6. 2016-2017 6638/Mum/2019 06/03/2020 7. 2015-2016 7283/Mum/2018 10/01/2020 8. 2014-2015 7428/Mum/2017 05/03/2019 9. 2012-2013 & 2192 /Mum/2017 & 24/10/2018 2013-2014 2193/Mum/2017 10. 2011-2012 2058/Mum/2016 28/05/2018 11. 2009-2010 & 2204/Mum/2014 & 16/11/2017 2010-2011 1203/Mum/2015 12. 2006-2007 & 5051/Mum/2009 & 15/03/2017 2007-2008 3818/Mum/2011 5 6. Per contra, the Ld. Departmental Representative, while accepting the fact that identical issues raised in the preceding assessment years stood decided in favour of the Assessee, placed reliance upon the order passed by the Assessing Officer and the directions issued by the DRP.

6 “9. We have considered the rival submissions and perused the material available on record. We find that the Co–ordinate Bench of the Tribunal in assessee‟s own case in Shell Information Technology International, B.V. v/s DCIT, in ITA no.6638/Mum./2019, vide order dated 06.03.2020, for assessment year 2016-17, inter–alia, while holding that the payment received by the assessee towards IT support services does not constitute Fee for Technical Services under the provisions of the Act as well as under Article–12 of the DTAA, observed as under: “9. We have perused the material on record including the decisions of the coordinate Benches of the Tribunal relied upon by the Ld. counsel. As pointed out by the Ld. counsel, the coordinate Benches have decided the identical issue in favour of the assessee in the assessee‟s appeals pertaining to the AYs 2011-12 to 2014-15. We further notice that Ground No. 5 and 6 of the present appeal are identical to the assessee‟s appeal for the AY 2015-16 and the coordinate Bench has decided the said issue in favour of the assessee by following the decision of the Tribunal in assessee‟s own appeals pertaining to the earlier assessment years. The findings of the coordinate Bench are as under:- 7. Coming to Ground Nos. 5 and 6 of Grounds of appeal

, Ld. Counsel for the assessee submitted that these grounds relates to receipts towards IT support services held as FTS under the Act as well as the India Netherlands DTAA, and it was decided in favour of the assessee for the A.Y.2011-12 to 2014- 15 by the Tribunal. Copy of the order is placed on record.

8. Ld. DR vehemently supported the orders of the authorities below.

9. We have heard the rival submissions and perused the orders of the authorities below. We have perused the order of the Tribunal for the A.Y.2010- 11 to 2011-12 in dated 28.05.2018 wherein the Tribunal following the order for the A.Y. 2009-10 to 2010-11 in ITA. No. 2204/MUM/2014 and 1203/Mum/2015, held as under: - “16. We have heard the rival submissions and also perused the material on record. The co- ordinate Bench has decided the identical issue in favour of the assessee in the assessee‟s own case ITA No. 2204/Mum/2014 for the A.Y. 2009-10 and ITA No. 1203/Mum/2015, 7 for the A.Y. 2010-11 holding as under:- “7. The next issue common issue in both the appeals of assessee is as regards to taxability of payment received by assessee from IT support services which constitutes Fees for Technical Services ('FTS') and royalty under the India Netherlands Treaty DTAA. For this Assessee has raised following ground:- "Payments towards IT Support fees held in be Fees for Technical Services 'FTS') and royalty.

4. Erred in holding that payments received by the Appellant for IT support DTAA.

5. Failed to appreciate that IT support services do not 'make available any technical knowledge, skill, experience etc. to the services recipient under Article 12 of the India-Netherlands DTAA and hence not subject to tax in India.

6. Erred in alternatively holding that the receipt from IT - support services qualify as Royalty' under the IndiaNetherlands DTAA.”

8. The facts and circumstances are exactly identical in both the AYrs i.e. 2009-10 and 2010-11 and also the grounds raised are identically worded hence, we will take- the facts from 2009-10.

9. The learned Counsel for the assessee, first of all, took us through the findings of the DRP on the issue which is recorded in Para 53 as under: "5.3 Discussions and directions of DRP 5.3.1 We have considered the draft assessment order, submissions of assessee and material. We have seen that under the Master Services Agreement, the assessee SITI BV has furnished technical and advisory services to various clients based in India. The delineated services are significantly technical in nature and the resultant fees are liable to be treated 8 as Fees for Technical Services. We are also in agreement with the AO that the Ruling of Hon'ble Authority for Advance Rulings in the case of ARE VA T&D India Limited (A TD/L) is applicable in the case of assessee. In this case, the Aar held as below: "We have noted that under-the IT Agreement, the French company is to provide support services through a central team in the area of Information Technology to the Applicant and to its other subsidiaries in the world. The provision of support services by the French company would 'itself make available, the technical knowledge/ experience to the Applicant. In Perfetti Van Melle Holdings B.V1 this Authority held the view that the expression 'in available only means that the recipient of the service should be in a position to derive an enduring benefit and be in a position to utilize the knowledge or knowhow in future on his own". Here, information technology relating to design, engineering, manufacturing and supply of electric equipment that help in transmission and distribution of power, commissioning and servicing of transmission and distribution system is provided to the Indian entity Which is applied in running the business of the Applicant and the employees of the Applicant would got equipped to carry on the systems on their own without reference to the French Company, when the IT Agreement comes to an end. It is not as if for making available, the recipient must also be conveyed specifically the right to continue the practice put into effect and adopted under the agreement on its expiry. We are of the view that the services provided under the IT agreement are in the nature of Fees for Technical Services and taxable under' the DTAA as well as under the Act. Though the ruling is technically not 9 binding in the present case, the ratio and logic followed by the Hon'ble Authority have very high degree of persuasive value. In any case, this technical know-how is of an enduring nature and has a direct nexus with the assessee‟s business. 5.3.2 Considering the above factual and legal matrix we are of the opinion that the action of the AO in treating the above receipt as fee for technical services does not require any interference. The alternate arguments on taxability of the receipt as royalty do not require any direction from the penal as we have already upheld the taxability of the services as "fees for included service”.

10. The learned Counsel for the assessee explained the facts that the SITI BV is a company registered in the Netherlands. SITI BV is in the business of providing information technology („IT') support services. During the financial year ended 31.03.2006 SITI BV provided IT (mobile office) support services, IT helpdesk and network infrastructure related services to: Indian customers. SITI BV is a tax resident of the Netherland and is eligible to claim benefits under the Double Taxation Avoidance Agreement entered into between India and The Netherlands. He explained that SITI BV is in the business of providing information technology support services SITI BV typically, provides helpdesk services-and network infrastructure services to Shell group companies comprising. Information Technology (II) support for solving any IT related problems faced by users i.e. any problem faced by users for accessing any application software e- mails, Computer repairs and maintenance etc. desktop laptop and workstation support, Services related to Wide area network ('WAN') arid Local area network ('LAN') for connection to the global servers', and Facilitating teleconferencing and video 10 conferencing services Further, in the event Shell requires IT services from external service providers like WIPRO and IBM SITI BV is engaged in providing the necessary network access and related services as well. For this purpose, reference can be made to the scope of services to be rendered by SITI BV to WIPRO under the Services Agreement (copy of which is enclosed in the paper book of the assessee) and from the same Article 3 is reproduced below: Article 3 - Provision of Services SITI BV shall provide the IT Service Provider with the service." Further, 'Service' has been defined in Article I - Definitions as 'the combined Sub- services provided by SITI BV to the IT Services Provider wider this Agreement, which Sub-services include the (if Services, the STO Services and she provision by SITI BV to the IT Service Provider and Service Personnel of access to and/or use of GI software and/or Optional Software….

11. Further, SITI BV is company incorporated in The Netherlands. SITI BV is a tax resident of The Netherlands eligible to claim the benefits, conferred by the Double Taxation Avoidance Agreement entered into between India and The Netherlands (Treaty'). Section 90 of the Act read with the Circulars and several judicial precedents issued thereunder provide that a non-resident taxpayer is eligible to be assessed as per the provisions of the Act or as per the provisions of the relevant double taxation avoidance agreement, whichever is more beneficial. SITI BV is a nonresident for Indian tax purposes. Accordingly, SITI BV could be assessed as per the provisions of the Actor as per the Treaty, whichever is more beneficial to SITI BV. In view of the same, the non-taxability of the services rendered by SITI BV has been examined under the provisions of the Treaty. Article 12(4) of the Treaty 11 defines the term. "Payments of any kind received as a consideration for the use, or the right to use, any copyright of literacy, artistic or scientific work including cinematograph films, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience.' 12. From the above, it is clear that SITI BV is engaged in providing IT services to Indian entities but does not provide any right to use any copyright of literary, artistic or scientific work including cinematograph films, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience. Even under the agreements entered into with WIPRO and IBM, SITI BV only provides them access to the software i.e. computer Programme. SITI BV does not provide them the right to use the copyright embedded in the software. In other words, WIPRO, IBM are not permitted to make copies and sell the software. Under the Services Agreements, WIPRO and IBM-have been granted the mere under the right in the copyrighted software and not the right of, use of copyright'. Whereas use of copyright' encompasses exploitation of the rights embedded in a copyright but a mere user right is a limited right and consideration paid for Such user right cannot be regarded as consideration for use of or right to use a copyright. In view of the above, the learned Counsel for the assessee stated that the issue is fully covered by the decision of Hon'ble Delhi High Court in the case of DIT Vs Guy Carpenter & Co Ltd (2012) 20 taxmann.com 807 (De- HC), wherein India-UK DTAA was under consideration of Hon‟ble Delhi High Court and Hon'ble High Court after considering the Article 13 of the DTAA of India-UK and also the facts of the assessee finally held the concept of 12 'make available' of technical services that such receipts would not amount to fee for technical services so as to the "concept of make available clause' contained in Article 13(4)(c) of the treaty has not been satisfied In the given facts and circumstances of the case Hon‟ble Delhi High Court vide Para 8 to 13 held as under: - "8. Before we go on to examine the findings of the Tribunal it would be pertinent to refer to article 13 of the DTAA to the extent it is relevant: "ARTICLE 13- Royalties and fees for technical services 1. to 8 xx xx 9. A plain reading of Article 13(4)(c) of the DTAA indicates that 'fees for technical services' would mean payments of any kind to any person in consideration for the rendering of any technical or consultancy services which, inter alia, "makes available" technical knowledge, experience, skill, know-how or processes, or consist of the development and transfer of a technical plan or technical design. According to the Tribunal this make available condition has not been satisfied inasmuch as no technical knowledge, experience, skill, knowhow, processes, have been made available by the assessee to the insurance companies operating in India. It also does not consist of the development and transfer of any technical plan or technical design.

10. The Tribunal examined the evidence available on record 13 in order to return a finding on the issue as to whether the payments received by the assessee from the insurance companies operating in India would fall within the expression 'fees for technical services' as appearing in article,13(4)(c) of the DTAA read with section 9(1)(vii) of the said Act. While doing so the Tribunal, inter alia, found that the assessee company was an international reinsurance intermediary (broker) and was a tax resident of United Kingdom. Further, that it was a recognized broker by the financial services authority of United Kingdom, it was also an admitted position that the assessee did not maintain any office in India and mat it had a referral relationship with J B Boda reinsurance (Broker) Pvt. Ltd of Mumbai and that J. B. Boda was duly licenced by the Insurance Regulatory & Development Authority to transact reinsurance business in India 11.The Tribunal also observed as under. – “27. In the illustrative transaction, New India Insurance Co. Ltd in India has entered into an agreement to reinsure on an Excess Loss basis the catastrophe risk arising from its primary insurance cover in conjunction with J.B. Boda and Alsford Page and gems Ltd. (the reinsurance brokers). The terms of the agreement specifies that the assessee in conjunction with J.B. Bode are recognized as 14 intermediary, through whom all communications relating to this agreement shall pass. The terms of the agreement further provides that the assessee will provide all the details of agreed endorsements to the reinsurers by e-mail or facsimile and shall submit the slip policy to XIS (Lloyd's processing market) for signing. The assessee will act as a claim administrator and will submit claims advices to relevant market systems. For the services rendered, the assessee along with the other reinsurance brokers acting as an intermediary in the reinsurance process for New India Assurance Co. will be entitled to 10% brokerage. From the role played by the assessee in the reinsurance process as discussed above, it is evident to us that the assessee was rendering only intermediary services while acting as an intermediary/facilitator in getting the reinsurance cover for New India Insurance Co. There exists no material or basis on the basis of which, it would be said that the assessee was rendering any kind of technical/consultancy service within the meaning of Article 13 of Indo-UK treaty. The consideration received by the assessee acting as an intermediary in the reinsurance process cannot, by any stretch of imagination, be qualified as a consideration received for rendering any financial analysis related consultancy services rating agency advisory services, risk based 15 capital analysis etc. as alleged by the A.O." The Tribunal also noted the process by which the transactions takes place It has been pointed out that the originating insurer in India would contact J. B. Boda/ M. B. Boda for placing identified risks/ class of risks with international reinsurers. J.B. Boda, in turn, would contact one or more international firm(s) of reinsurance broker(s) like the assessee for competitive proposals from the international reinsurer. Then, the international reinsurance brokers like the assessee would contact other primary brokers and various syndicates in the Lloyds market for competitive proposals. Based on the various offers or proposals given by the international reinsurance brokers, like the assessee, to J.B. Boda, the latter would present various options to the originating insurer in India, which would take a final-decision in the matter. Based on the decision of the originating insurer in India, the policy terms would then be agreed upon and the risk would be placed with the international reinsurer it was also pointed out that as per the normal industry practice, tea reinsurance premium net of brokerage al 10% as per the policy contract is remitted to the assessee, i.e., reinsurance brokers, for onward transmission to international reinsurers. The intermediation fee which is another word for brokerage 16 is paid separately by the originating insurance in India to J.B. Bodo, the international reinsurance brokers like the assessee and other intermediaries, based on a mutually agreed ratio which accounts for their relative contribution in the reinsurance process. 12.Based on this manner of transacting, the Tribunal came to a conclusion that the payment received by the assessee could not be regarded as 'fees for technical services'. Further, more, the Tribunal also held that such receipts would not amount to fees for technical services as the "make available" clause contained in article 13(4)(c) had not been satisfied in the facts and circumstances of the present case.

13. In our view, the Tribunal has arrived at these conclusions purely on assessing the factual matrix of the case at hand. The findings are in, the nature of factual findings and, therefore, according to us, no substantial question of law arises for our consideration, particularly, because the learned counsel for the Revenue was unable to point out any perversity in the recording of such findings. As such no substantial question of law arises for our consideration. The appeal is dismissed. There shall be no order as to costs."

10. Facts being identical, respectfully following the said decision of the Tribunal we allow Ground Nos. 5 and 6 of the assessee.

11. In so far as Ground No.2 is concerned the Ld. Counsel for the assessee submitted that since it was held in favour of the assessee on Royalty and FTS ground, the ground raised

by the assessee in respect of receipts towards access to use software and IT support services does not constitute “income” may be kept open. Accordingly, this ground is kept open which may be contested as and when the situation arises.

12. The rest of the grounds are only consequential in nature and the same are restored to the file of the Assessing Officer for adjudication in accordance with law.”

10. The coordinate Bench has decided the identical issue in favour of the assessee in assessee‟s own appeal AY 2015-16 by following 19 the decisions of the coordinate Benches rendered in assessee‟s own appeals pertaining to the AY 2011- 12 to 2014-15 and AY 2015-16. Since there is no change in the facts of the present case and since the findings of the AO are not in accordance with the decision of coordinate Benches discussed above, we respectfully following the decision of the coordinate Bench, set aside the impugned order and allow ground No. 5 and 6 of the assessee‟s appeal.”

10. The learned Departmental Representative could not show us any reason to deviate from the aforesaid order and no change in facts and in law was alleged in the relevant assessment year. The issue arising in present appeal is recurring in nature and has been decided in favour of the assessee by decisions of Co- ordinate Bench of the Tribunal for preceding assessment years. Thus, respectfully following the order passed by Co–ordinate Bench of the Tribunal in assessee‟s own case cited supra, which has also followed the judicial precedents in assessee‟s own case, the impugned addition made by treating payment received for IT support services as Fee for Technical Services under the provisions of the Act and under Article–12 of the DTAA, is deleted. As a result, ground nos.3, 4 and 5 raised in assessee‟s appeal are allowed.

Ground No. 9 11. Ground No. 9 raised by the Assessee is directed against short grant of credit for tax deducted at source amounting to INR.2,06,98,133/-. The Assessee has claimed that the Assessing Officer has failed to grant credit of tax deducted at source as claimed by the Assessee in the return of income. In order to redress the grievance of the Assessee, we direct the Assessing Officer to verify the records and grant credit of tax deducted at source to the Assessee as per law. In terms of the aforesaid Ground No. 8 raised by the Assessee is disposed off as allowed for statistical purposes.

Ground No. 10 & 11 12. Ground Nos. 10 & 11 raised by the Assessee pertains to levy of interest under Section 234B of the Act, respectively. Both the grounds are disposed off as being consequential in nature.

21 Ground No. 12 13. Ground No. 12 pertains to computation of tax liability by taking into consideration refund amount of INR.3,98,72,258/-. According to the Assessee no such refund was issued to the Assessee. We direct the Assessing Officer to verify the records and re-compute the tax liability as per law. Ground No. 12 is disposed off as allowed for statistical purposes.

Ground No. 13 14. Ground No. 13 raised by the Assessee pertains to initiation of penalty proceedings under Section 270A of the Act. Since the penalty proceedings are separate and distinct from the assessment proceedings, Ground No. 13 directed against the initiation of penalty proceedings is dismissed as being premature.

Ground No. 1, & 2 15. In view of our findings/adjudication pertaining to Ground No. 3 to 12 above, Ground No. 1 raised by the Assessee is disposed off as being general in nature. While, Ground No. 2 is also left open and disposed off as being infructuous at this stage.