DY. COMMISSIONER OF INCOME TAX, INTERNATIONAL TAXATION, CIRCLE-421, MUMBAI, MUMBAI vs. SITA INFORMATION NETWORKING COMPUTING USA INC., USA

We heard the parties and perused the material on record. The facts pertaining to the issue under consideration are that the assessee has entered into Passenger Services contracts with Indian airlines, mainly to National Aviation Company of India Limited [‘NACIL’, otherwise known as Air India Limited] towards rendering of services through Passenger System Solutions. These Passenger services are provided from the assessee's data centre in Atlanta, Georgia, USA. Under the agreement in order to provide NACIL and its travel agents with on-line access to the service, remote access to the software is granted by the assessee. The services provided by the appellant as contained in Schedule 5A_1 of the agreement are in connection with the Core PSS and Related Applications, Frequent Flyer Program (FFP) and Internet Booking Engine (IBE). The assessee provides a full airline passenger reservation and departure control service comprising of the following elements:  Reservations  Fares &Pricing  Departure Control  Message Switching  Flight Information & Flight Tracking  Baggage Reconciliation  Internet Booking and  Frequent Flyer services 5 ITA 6436, 6439, 6470 & 6440 to 6444 /Mum/2024 Sita Information Networking Computing USA Inc.

The main contention of the ld AR before us is that these services are standard services rendered using the software technology and that they are not the technical services. The ld AR argued that the Passenger Reservation System Services (“PSS”) software of the Assessee is not made available to either NACIL or any of the other customers worldwide but is used by the Assessee itself on the mainframe computers which it owns in its Atlanta Data Center, in Georgia, USA, in order to provide services to those customers in connection with passenger reservations, flight bookings, electronic tickets, etc. The ld AR further submitted that the prospective passengers, travel agents and airline staff can access the services remotely using the e-commerce web site located at the Atlanta Data Center of the Assessee. The AO held that the services rendered by assessee would fall in line with technical services within the ambit of section 9(1)(vii). The AO also held that the services rendered are in the nature of fee for Included services under Article 12(4)(b) of the India US DTAA. The ld AO in this regard placed reliance on the decision of Authority for Advance Ruling (AAR) in the case of AREVA T&D India Limited (ATDIL) (Application No. 876 of 2010, Dated. 7th February, 2012) and Perfetti Van Melle Holding B.V., (AAR No 869 of 2010, dated 9 December 2011), and also on the decision of the Cochin Bench of the Tribunal in the case of US Technology Resources P. Ltd [(2013) 28 ITR 26 (Cochin) (Trib.)]. During the course of hearing the ld AR brought to our attention that the said ruling of AAR and the decision of the coordinate bench have been subsequently reversed by the Hon'ble High Courts.

For the purpose of examining the taxability of the impugned receipts towards passenger services under DTAA, we will look at the relevant provisions of Article 12 of the India USA DTAA which reads as under – ARTICLE 12 ROYALTIES AND FEES FOR INCLUDED SERVICES 6 ITA 6436, 6439, 6470 & 6440 to 6444 /Mum/2024 Sita Information Networking Computing USA Inc.

Royalties and fees for included services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 2. to 3. *** 4. For purposes of this Article, "fees for included services" means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including through the provision of services of technical or other personnel) if such services : (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received ; or (b) make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design.

A combined perusal of the above makes it clear that a particular service will be considered as fees for included services only when the person acquiring the service is enabled to apply the technology. It is also clear that even if the provision 7 ITA 6436, 6439, 6470 & 6440 to 6444 /Mum/2024 Sita Information Networking Computing USA Inc. of the service requires technical input by the person providing the service, it may not fall within the ambit of Article 12(4)(b) unless the technical knowledge, skills, etc., are made available to the person purchasing the service. In assessee's case from the perusal of the nature of Passenger Services, it is clear that no technology per se is made available to NACIL and that the services are rendered using the software supported by the data centre of the assessee in USA. Accordingly there is merit in the contention of the ld AR that these services are rendered using the technology and are not in the nature of technical services. Further we notice that there are plethora of judicial pronouncements where it has been held that unless the technical knowledge, skills etc., are made available by the service provider, the same cannot be held as FTS to be taxed in India under the DTAA which specifically provides so. the observations of CIT(A) in this regard in AY 2016-17 as extracted below are relevant – “6.5.7. As held in the various decisions listed hereunder, for a payment to qualify as being in the nature of Fee for Included Services under the tax treaty, it is necessary that the services make available technical knowledge, experience, skill, know-how or processes, or consist of the development and transfer of a technical plan or technical design.  Shell India Markets (P.) Ltd. [2024] 463 ITR 222 (Bombay High Court)  Interoute Communications Ltd. [2023] 153 taxmann.com 392(Bombay High Court)  Guy Carpenter & Co. Ltd. [2012] 346 ITR 504 (Delhi High Court)  Buro Happold Ltd. [2019] 103 taxmann.com 344 (Mumbai ITAT)  Reliance Jio Infocomm Ltd. [2019] 111 taxmann.com 371 (Mumbai ITAT)  Mahindra & Mahindra Limited [2009] 30 SOT 374 (SB - Mumbai ITAT)  WNS North America Inc. [2013] 146 ITD 435 (Mumbai ITAT)  United Helicharters (P.) Ltd. [2013] 60 SOT 58 (Mumbai ITAT)  Raymonds Limited 86 ITD 791 (Mumbai ITAT)  B4U International Holdings Ltd. [2012] 52 SOT 545 (Mumbai ITAT)  IATA BSP India [2014] 64 SOT 290 (Mumbai ITAT)  ONGC [2019] 103 taxmann.com 165 (Delhi ITAT)  NQA Quality Systems Registrar Ltd [2005] 92 TTJ 946 (Delhi ITAT)  Outotec India (P.) Ltd. [2015] 59 taxmann.com 108 (Delhi ITAT)

The Appendix 2 of CCA contains the General BSS. The list of services availed are as follows: ……………. A perusal of the list of services relate to managerial services not involving anything of a technical nature. The AAR has discussed the services appearing in 9 ITA 6436, 6439, 6470 & 6440 to 6444 /Mum/2024 Sita Information Networking Computing USA Inc. the CCA and has concluded that these activities in a retail business are at the core of retail marketing and hence advice tendered in taking a decision of commercial nature is a consultancy service. The AAR has further considered the definition of the word "Consultancy' as defined in the Oxford English dictionary and has observed that a consultant is a person who gives professional advice or services in a specialized field. However, the AAR failed to appreciate that the word 'Consultancy' appearing in the Article is to be interpreted in the context of consultancy which makes available technical knowledge, etc. and not of managerial nature. The reading of the Article clearly indicates that the consultancy service must be which makes available technical knowledge, etc. Sub-para (c) to article 13(4) restricts such services to those which make available technical knowledge or consist of development and transfer of a technical plan or technical design. Thus, a harmonious reading of the provision of Article 13 in its entirety, clearly establishes the intent of the DTAA in making income chargeable to tax only if the services availed pertain to technical services or consultancy services. Technical services in this context mean services requiring expertise in a technology. By Consultancy Services, in this context, would mean advisory services. The categories of technical and consultancy services are to some extent, overlapping. Under paragraph 4, technical and consultancy services are considered 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."