SHELL INFORMATION TECHNOLOGY INTERNATIONAL BV,MUMBAI vs. DCIT (IT) 4 (2) (1), MUMBAI

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

Erred in applying the tax rate of 40% plus applicable surcharge and cess on interest on income-tax refund, without appreciating the facts and circumstance of the case. Short granting of credit for TDS 8 Erred in not granting the TDS credit of Rs. 1,21,98,857 without appreciating the facts and circumstance of the case. Interest under section 234A of the Act 9 Erred in levying interest under section 234A of the Act without appreciating the facts and circumstance of the case. Interest under section 234B of the Act

Erred in levying interest under section 234B of the Act without appreciating the facts and circumstance of the case Incorrect amount of refund issued

Erred in considering a refund amount of Rs 8,49,588 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

Erred in levying penalty under section 270A of the Act for misreporting/underreporting particulars of income appreciating the facts and circumstances of the case.” without

The relevant facts in brief are that the Appellant is a company registered under the laws of Netherlands and is treated as non-resident under the provisions of the Act. The Appellant is engaged in providing IT Support Services to Shell Group Entities.

For the Assessment Year 2020-2021, the Appellant filed return of income on 10/02/2021 declaring income of INR 2,41,13,630/- and claimed a refund of INR 6,24,52,024/-. The aforesaid return was revised on 29/05/2021. As per the revised return, the Appellant had offered to tax income of INR 2,41,13,630/- and claimed refund of INR 6,32,55,940/-. The case of the Appellant was selected for scrutiny. During the assessment proceedings, the Assessing Officer noted that out of total revenue of INR 317,04,06,042/-, the Appellant has offered to tax only income of INR 2,41,13,633/- being interest on income tax refund. The balance receipts of INR 314,62,92,409/- which were not offered to tax by the Appellant included INR 7,68,95,558/- being revenue from software access, INR 4,03,009/- being reimbursement of cost and INR 306,89,93,842/- being revenue from IT Support Services. According to the Assessing Officer, the IT Support Services were liable to tax in the hands of the Appellant as Fee for Technical Services 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'). Therefore, the Assessing Officer issued Draft Assessment Order, dated 15/09/2022, under Section 143(3) read with Section 144C of the Act proposing addition of IT Support Service Fee of INR 306,89,93,843/- in the hands of the Appellant. The Appellant filed objections on 11/10/2022 before the Dispute Resolution Panel-2, Mumbai (for short `DRP'). Vide order, dated 21/06/2023, the DRP rejected the aforesaid objections raised by the Appellant. Therefore, the Assessing Officer passed the Final Assessment Order, dated 27/07/2023, under Section 143(3) read with Section 144C(13) of the Act making an addition of INR 306,89,93,843/- in the hands of the Appellant 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 the tax liability the Assessing Officer computed tax on interest on refund (offered to tax by the Appellant in the return of income) by adopting rate of 40% [plus applicable surcharge and cess] as against the rate of 10% adopted by the Appellant in terms of Article 11 of the DTAA. Further, while computing tax liability the Assessing Officer did not grant credit of tax deducted at source as claimed by the Appellant and took into account refund amount of INR 8,49,588/- (which is being disputed by the Appellant has not being received).

Being aggrieved, the Appellant has preferred the present appeal before the Tribunal on the grounds reproduced in paragraph 2 above.

Ground No. 4, 5 & 6 When the appeal was taken up for hearing, the Ld. Authorised Representative for the Appellant pressed into service Ground No. 4, 5 and 6 raised in the present appeal and submitted that the same stands decided in favour of the Appellant and against the Revenue in Appellant's own cases for preceding assessment years. In this regard, reliance was placed on decision of the Tribunal pertaining to Assessment Years 2009- 2010 to Assessment Year 2019-2020 placed before us as part of the paper-book. In the aforesaid decisions it has been held by the Tribunal that IT Support Services Fee is neither in the nature of Royalties in terms of Article 12(4) of the DTAA, nor in the nature of Fee for Technical Services in terms of Article 12(5) of the DTAA. The Ld. Authorised Representative for the Appellant submitted that the agreements in terms of which IT Support Service Fee was received by the Appellant, and the nature of the IT Support Service continues to be the same. Therefore, the addition of INR 306,89,93,843/- made by the Assessing Officer (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) cannot be sustained and be deleted.

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 Appellant, submitted that the position taken by the Appellant in the present case as well as the Group Companies was required to be examined from a broader perspective. The Ld. Departmental Representative submitted that the Appellant had received IT Support Services Fee from the following companies: SNo Name of Entity Amount (INR) 1 Shell Energy India Private Limited 3,17,16,969 2 CGI Information Systems and Management Consultants Private Limited 10,17,06,351 3 IBM India Private Limited 7,32,79,609 4 Accenture Solution Private Limited 9,90,78,265 5 BG Exploration and Production India Limited 14,29,05,300 6 Shell India Markets Private Limited 2,48,46,48,774 7 Wipro Limited 13,56,58,575 Grand Total 3,06,89,93,842 Inviting our attention to the break-up of the above IT Support Services Fee received by the Appellant, the Ld. Departmental Representative submitted that the nature of the services rendered by the Appellant as well as the purpose/use of the same by the recipient of such services required investigation. The recipient of IT Support Services provided by the Appellant include IT Company such as IBM India Private Limited, Accenture Solutions Private Limited and WIPRO Limited.

We have heard the rival submission and perused the material on record. We find that the issue under consideration relating to taxability of IT Support Services Fee in the hands of the Appellant as Fee for Technical Services or as royalties in terms of provisions of the Act read with Article 12 of the DTAA is recurring in nature. While disposing of appeal preferred by the Appellant for the Assessment Year 2017-2018 [ITA No. 1245/Mum/2021, dated 11/05/2022] the Mumbai Bench of the Tribunal had concluded as under:

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 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 Porfetti Van Melle Holdings B.VI 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 tr'1nernv ion 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 binding in the present case, the 7 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 assessees business. 5.3.2 considering the above factual and leg& matrix we are of the opinion that the action of the AO in treating the above receipt is 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”.

The learned Counsel for the assessee explained the facts that the SITI BV is a company registered in the Netherlands. SIT! BV is in the business of providing information technology (IT') support services. During the financial year ended 31.03.2006 SIT! 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 c-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 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 S/TI BV to she IT Services Provider wider this Agreement, which Sub- services include the (if Services, the STO Services and she provision by S/TI BV to the IT Service Provider and Service Personnel of access to and/or use -of GI software and/or Optional Software.... 11.Further, SIT! 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 Actor as per the provisions of the relevant double taxation avoidance agreement, whichever is more beneficial. SIT! 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 SIT! By. 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 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.'

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 (DelHC), 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 '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)() 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:

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

The definition of fees for technical services in paragraph 4 of this Article shall not include amounts paid: (a) for services that are ancillary and subsidiary, as well as inextricable and essentially linked, to the sale of property, other than property described in paragraph 3 (a) of this Article; (b) For services that are ancillary and subsidiary to the rental of ships, aircraft, containers or other equipment used in connection with the operation of ships, or aircraft in international traffic; (c) For teaching in or by educational institutions; (d) For services for the private use of the individual or individuals making the payment, or (e) TO an employee of the person making the payments --Or to any individual or partnership for professional services as defined in Article 15 (Independent personal services) of this Convention (3), (7), (8) XX XX

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 dye/lab/c 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.

The Tribunal examined the evidence available on record 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 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 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 assessee an intermediary services while acting as 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 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 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 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.

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.

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."

Further, the learned Counsel for the asséssee stated that the reliance placed by DRP in Arevay T and D India Limited of Perfeti Van Melle Holdings B.V. In re [2011] 16 taxmann.com 207 (AAR - New Delhi) was reversed by Hon'ble Delhi High Court and reported in 2014 52 taxmann.com 161 (Delhi), wherein Hon'ble Delhi High Court has considered as under:

Rulings; It-was submitted that the said Authority refused to look into the IndoPortugese DTAA or the Indo USA DTAA and memorandum of understanding between India and USA on the ground that only the Indo Netherlands DTAC needed to be looked into.

The learned counsel for the respondent states that the Authority for Advance Rulings was correct in not looking, into the Indo - Portugese DTAA, but insofar as the Indo-USA DTAA is concerned a provision similar to that DTAA has been incorporated in the IndoNetherlands DTAC by virtue of paragraph 5 of Article 12 of the same, whereby the very same make available clause, which is to be found in the DTAA between India and USA read with the memorandum of understanding connected therewith, has been incorporated into IndoNetherlands convention by way of amendment on 30.08.1999, notification No. S.O. 693 (E) [reported in (1999) 239 ITR (Stat) 56]. It is evident that the Authority for Advance Rulings had not considered the said amendment." In view of the above, we are of the that the concept of 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. Accordingly, we delete the addition and allow this issue of assessee