SHELL INTERNATIONAL B.V.,MUMBAI vs. THE ACIT, INT.TAXA.-2, AHMEDABAD

These appeals have been filed by the Assessee against the orders passed by the Deputy Commissioner of Income Tax (International Taxation-I), Ahmedabad and Assistant Commissioner of Income Tax (International Taxation-1), Ahmedabad, Assistant Commissioner of Income Tax (International Taxation-2), Ahmedabad vide orders dated 05.10.2017, 03.10.2018, 17.11.2016, 05.10.2017, 19.09.2019, 11.09.2019, 29.09.2020 & & 09 others Shell International BV vs. DCIT(International Taxation) & 09 others Asst. Years –2009-10 to 2018-19 - 3 - 24.02.2022 passed for the Assessment Years 2009-10 to 2018-19. There are various Assessment Years before us for our consideration, however, since there are common facts and issues for consideration for all the impugned Assessment Years, all the appeals filed by the assessee are being taken up together.

We shall first take up Assessment Year 2011-12, and discuss the grounds of appeal raised by the assessee. This year shall serve as the lead Assessment Year, and thereafter as we take up the subsequent Assessment Years and our observations for this Assessment Year would apply to the years as well, wherever applicable. For additional services rendered by the assessee for the subsequent years / additional grounds taken, we shall deal with them separately for each of the Assessment Years.

The brief facts of the case are that the assessee is a company based out of the Netherlands. For the impugned years under consideration, the assessee provided various services to its group companies based in India. For Assessment Year 2011-12, the assessee provided certain services which were offered to tax as fee for technical services/royalty. However, revenues received from rendering certain services were claimed by the assessee as non-taxable in India. The Assessing Officer analysed the nature of services for various years under consideration, and held that the services were taxable as royalty/fee for technical services under the income tax act, read with the India-Netherlands tax treaty. The issue for consideration before us primarily revolves around the taxability of aforesaid services, which have been held by the Department to be taxable as royalty/fee for technical services for various years under & 09 others Shell International BV vs. DCIT(International Taxation) & 09 others Asst. Years –2009-10 to 2018-19 - 4 - consideration. The primary contention of the assessee is that these services do not qualify as royalty/fee for technical services and in view of the recent developments and judicial precedents on the subject in favour of the assessee, no taxability arises in India in respect of the aforesaid services. The stand of the Department, however continues to be that the services are taxable as royalty/fee for technical services, looking into the nature of services and taking into consideration the surrounding facts and circumstances of the instant case.

The assessee has raised the following grounds of appeal for Assessment Year 2011-12:

During the impugned year under consideration, the assessee had provided HR Shell People Support Services to its related group companies in India. The Assessing Officer observed that on perusal of the local services agreement (LSA), it did not mention any date and therefore, it is not clear whether this agreement is applicable for the impugned year under consideration. The AO observed that the assessee had furnished an addendum to the LSA, which was signed on 21st September 2016. Accordingly, on analysis of the LSA, the addendum submitted by the assessee and the copies of sample invoices, the AO was of the view that the services pertained to use of Shell HR software, along with incidental services and such payments are chargeable as royalty under the Act, read with the tax treaty provisions. So far as the contention of the assessee that these services have been rendered without any mark up, and on the cost to cost basis, the AO rejected the argument on the ground that taxation of royalty both as per the provisions of the Act as well as the Treaty is provided on “gross basis”. The taxation of royalty is not on net basis and had it been so, out of the receipts, expenses would have been required to be deducted for computing the net income. As regards the argument of the assessee that the payment received is for off the shelf software product, which is a copyrighted article and the argument of the assessee that the software products are standardized and not designed/customized, the AO relied & 09 others Shell International BV vs. DCIT(International Taxation) & 09 others Asst. Years –2009-10 to 2018-19 - 6 - on the case of Samsung Electronics Co Ltd (Karnataka High Court) to reject the arguments of the assessee. The AO further observed that the assessee could not produce the copy of board meeting/decision or any communication from the Indian associated enterprises, which show that any decision was taken to avail the services from the assessee company, by the Indian subsidiaries. Accordingly, the AO held that the above services qualify as royalty under the Act, read with the Tax Treaty.

The DRP confirmed the order of the Assessing Officer. The DRP observed that for assessment in 2014-15, the facts of the assessee with respect to the aforesaid services, along with additional evidences which were filed by the assessee, were analyzed in detail. Since the facts and issues for consideration are identical for the impugned Assessment Year as those for Assessment Year 2014-15, and there was no material change in facts, the DRP confirmed the findings of the Assessing Officer.

The assessee is in appeal before us against the aforesaid order, holding the Shell HR services as royalty under the Act, read with Tax Treaty.

Before us, the Counsel for the assessee submitted that firstly, the fact that services have been rendered by the assessee to its group companies in India, has not been disputed at any stage the proceedings. Even though, the LSA along with the addendum was not present during the impugned Assessment Year, the catalogue of services was available, and was also filed before the tax authorities, during the course of assessment proceedings. Further, the tax authorities have never doubted the nature of services which had been rendered and also never doubted that the services had in fact been rendered by the assessee. & 09 others Shell International BV vs. DCIT(International Taxation) & 09 others Asst. Years –2009-10 to 2018-19 - 7 - 9. Secondly, it was submitted before us that the Hon’ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P.) Ltd. 125 taxmann.com 42 (SC) has overturned every decision on which reliance was placed by the taxation authorities, for the purpose of holding that the payments qualify as royalty under the Act, read with the Tax Treaty.

Thirdly, the Counsel for the assessee submitted that HR shell people support services have been treated as non-taxable by the Assessing Officer in assessment proceedings for the A.Y. 2018-19, AY 2020-21and A.Y. 2021-22. Accordingly, it was submitted that when the Department in the later Assessment Years have themselves held that the payments do not qualify as royalty under the Act, read with the Treaty, in light of the Department’s own stand that these payments do not qualify as royalty for later years, for the impugned Assessment Year as well, the payment cannot be held to be taxable as royalty.

Fourthly, it was argued before us that in respect of Shell India Markets Private Limited (SIMPL, the Indian payer for HR Shell Services) from whom majority of cost recharge is recovered, proceedings under Section 201 of Act were carried out for non-withholding of tax at source at the time of making payment for availing HR Shell Services. The Hon'ble Mumbai ITAT in case of SIMPL (ITA No. 6064, 6065, 6066 and 6067/Mum/2019) has held that the payments made by SIMPL to the assessee on account of HR Shell Services is not taxable as royalty following the Hon'ble Supreme Court ruling in case of Engineering Analysis Centre of Excellence (P) Ltd. supra. The assessee placed reliance on the decision of Hon'ble Mumbai ITAT in case of SIMPL (ITA No.926 & 927/Bang/2012).Accordingly, in light of the above arguments, & 09 others Shell International BV vs. DCIT(International Taxation) & 09 others Asst. Years –2009-10 to 2018-19 - 8 - the Counsel for the assessee submitted that the HR Shell services to not qualify as royalty under the Act, read with the Tax Treaty.

In response, DR submitted that for the impugned year under consideration, there was no valid agreement in place, so as to have a complete understanding of the services rendered by the assessee to its group companies in India. The assessee has placed reliance on an addendum, which was signed in the year 2016, and there was no valid agreement in place for the impugned year under consideration. Accordingly, when the nature of services itself is not very clear, assessee cannot place reliance on the Tax Treaty provisions and also on the decision of Hon’ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P.) Ltd. supra.

We have heard the rival contentions and perused the material on record.

First, before deciding the issue, it would be useful to briefly discuss the nature of services rendered by the assessee. From the documents placed on record, we observe that HR Shell People Support Services is basically the support provided by the assessee to various HR -related requirements of Shell group companies. It involves various services like open resourcing (identification of vacancies within the group, coordination within the & 09 others Shell International BV vs. DCIT(International Taxation) & 09 others Asst. Years –2009-10 to 2018-19 - 9 - employees for filling up such vacancies etc.), management services (preparation of group wide HR related matters such as guidance, procedures etc), personnel record maintenance (maintenance of records of employees of Shell group such as compensation structure, time and attendance, other benefits etc), Shell Open University (making arrangements for various managerial online courses for the employees of Shell group) etc. These services are provided through the HR portal known as “HR-online”. In the instant facts, we observe that the nature of services and the fact of the assessee having rendered the services to its group companies, is not in dispute by the Tax Authorities. The assessee had submitted the catalogue of services rendered by the assessee, during the course of assessment proceedings. Even from the order of DRP, wherein it held that the facts and additional evidences for the impugned Assessment Year is similar to that of Assessment Year 2014-15, the nature and fact of HR Shell support services having been provided by the assessee is not in dispute. Therefore, we shall analyze the taxability of services with the understanding that the nature and the fact of the services having been rendered by the assessee is not under dispute by the Tax Authorities.

On going to the facts of the instant case, we are inclined to hold that the payments do not qualify as royalty for several reasons. Firstly, the Department in the subsequent years (Assessment Years 2018-19, 2020-21 and 2021-2022) has itself not tax the aforesaid payments as royalty. Secondly, we observe that the Hon’ble Supreme Court in the case of Engineering Analysis Centre of Excellence Private Limited v. CIT (supra) has effectively overturned all the decisions, on which reliance was placed by the tax authorities to hold that the payments qualify as royalty. Further, the Tribunal in the case of mirror transaction, while dealing with the issue of non-deduction of tax at source with & 09 others Shell International BV vs. DCIT(International Taxation) & 09 others Asst. Years –2009-10 to 2018-19 - 10 - respect to the aforesaid payments made by the Indian group companies to the assessee, held that since the payments qualify as royalty under the Act, read with the Tax Treaty, and therefore, by placing reliance on the decision of Hon'ble Supreme Court, ITAT held that the Indian companies were not liable to deduct tax at source on such payments under Section 195 of the Act. In the case of Shell India Markets Private Limited v. ITO 6065, 6066 and 6067/Mum/2019 (Assessment Years : 2009-10 to 2012-13), the Tribunal made the following observations:

In the result, these appeals by the assessee are allowed.”

In the result, ground number 1 of the assessee’s appeal is allowed.

We shall first briefly discuss the nature of services performed by the assessee and the Assessing Officer’s position with respect to each of the respective services. Since largely common arguments have been taken by the Counsel for the assessee and DR with respect to the aforesaid services, therefore, all the three grounds of appeal raised by the assessee are taken up together.

Under the CHR recruitment services, the assessee manages the global recruitment and attraction team of Shell group. This team supports the regional recruitment team in the regular recruitment process apart from group related activities such as laying path to talent acquisition and presenting Shell as an attractive place. The cost incurred by the global recruitment team is shared across various shell entities, which have availed the services of the recruitment team. The said receipts towards recruiting candidates for respective Shell & 09 others Shell International BV vs. DCIT(International Taxation) & 09 others Asst. Years –2009-10 to 2018-19 - 12 - entities and the cost charge out is based on the actual number of recruitments made.

The Assessing Officer was of the view that the services qualify as fee for technical services since under the CHR recruitment service, the expertise and experience of the global recruitment and attraction team of the assessee is being offered to its affiliates. The nature of work performed by the Shell group companies is highly technical in nature. To attract such highly technical staff, industry experience and expertise is a sine qua non. The global recruitment and attraction team has accumulated such experience and expertise in conducting recruitment of highly technical staff. This team provides consultancy and assists the regional recruitment team of the affiliates in the regular recruitment process apart from the group related activities such as laying path to talent acquisition and presenting the Shell group as an attractive place. The costs incurred by the global recruitment team are shared across various Shell entities which have availed such consultancy services of the recruitment team possessing wide experience in the field. Thus, the critical decision-making function of recruitment has been performed by the affiliates through the assistance/consultancy of the assessee. Hence clearly identifiable and highly specialized services, requiring expertise and industrial experience have been provided by the assessee.

Under these services, the assessee subscribes to various EIS providers on behalf of Shell group and the cost for the same are pooled in by the assessee. The services provided by EIS service providers mainly consist of providing standard research reports, newsletters, market data analysis etc. The & 09 others Shell International BV vs. DCIT(International Taxation) & 09 others Asst. Years –2009-10 to 2018-19 - 13 - services are akin to providing access to online databases for obtaining such reports. The databases prepare and maintain standard reports, journals etc pertaining to the oil and gas sector. The group companies access the databases for the purpose of using it internally. The assessee has an arrangement with various Shell group entities for use of these EIS services. The cost incurred by assessee for EIS services is charged to Shell group entities based on their usage of EIS services.

The Ld. Assessing Officer was of the view that under the external information services, the expertise and experience of the global support team of the assessee is being offered to its affiliates. The nature of work performed by the Shell group companies is highly technical in nature. This team provides consultancy and assists the regional team of the affiliates in providing standard research reports, newsletters and market data analysis. The costs incurred by the assessee company are shared across various Shell entities which have availed such information. Thus, the critical decision-making function has been performed by the affiliates through the assistance/consultancy of the assessee. Hence, it is established that identifiable and highly specialized services, requiring expertise and industrial experience have been provided by the assessee.

Under these services, the assessee has set up a “shared services Centre” to provide a shared services to Shell group. The services pertaining to guidance/support provided by the assessee in setting up IT infrastructure of the shared services centers. Also, IT services in relation to migration of certain operations from other similar centers over the globe to Indian Centre have also & 09 others Shell International BV vs. DCIT(International Taxation) & 09 others Asst. Years –2009-10 to 2018-19 - 14 - been provided by the assessee. Based on the time spent by the assessee’s personnel assisting SIMPL in setting up its IT hardware system, the assessee has recharged the cost incurred.

The Ld. Assessing Officer was of the view that under the Shell inter- com charges, the expertise and experience of the global support team of the assessee is being offered to its affiliates. The nature of expat services work performed by the Shell group companies is highly technical in nature. This team provides consultancy and assists the regional team of the affiliates in providing services in the nature of tax administration. The costs incurred by the assessee company are shared across various Shell entities which have availed such facilities. Thus, Shell intercom function has been performed by the affiliates through the assistance/consultancy of the assessee. Hence it is established that clearly identifiable and highly specialized services, requiring expertise and experience have been provided by the assessee.

Further, the Ld. Assessing Officer was of the view that in all the above three services, that providing of such services would invariably lead to imparting of suitable skill sets / knowledge in the hands of the affiliates in the area in which the services are rendered with consequent improvement in experience and skill set of local employees of the affiliates. In this case, the assessee has, through its personnel, provided 'technical' services to assessee, especially since the DTAA definition of FTS expressly includes the provision of the services of personnel. Further as per the definition of FTS in the DTAA, when imparting of suitable experience or skill possessed by the assessee to the affiliates takes place, it amounts to making available the FIS/FTS and therefore the amounts received are taxable as per the DTAA. The services are enduring and they help in promoting the business of the affiliates. The employees of the & 09 others Shell International BV vs. DCIT(International Taxation) & 09 others Asst. Years –2009-10 to 2018-19 - 15 - affiliates are in a position to and actually they are expected to use the knowledge gained, in the business of the affiliates. Thus, knowledge and know-how are made available to the affiliates. Hence, on an understanding of the overall effect of the services, it has to be held that the technical knowledge, experience, and skill are made available to the affiliates. Further on perusal of the nature of services, the Ld. Assessing Officer was of the view that the service provider possesses or have access to resources, know-how and expertise required to provide the covered services to service recipient. Thus, the assessee is providing services which require resources, know how, experience, skill and expertise and the service provider has been selected since it is capable of delivering such services which require resources, knowhow and expertise. Thus, the services are highly specialized services requiring expertise and skill. According to the Ld. Assessing Officer, a perusal of the services makes it obvious that the assessee provides highly technical services which are used by the affiliates of the assessee for taking important and strategic decisions.

The Ld. Assessing Officer further relied on the case of GVK Industries Ltd. v. ITO 54taxmann.com 347 (SC), where the assessee-company was incorporated for the purpose of setting up a 235 MW gas based power project. With the intention to utilize the expert services of qualified and experienced professionals who could prepare a scheme for raising the required finance and tie-up the required loan, assessee sought services of a consultant and eventually entered into an agreement with NRC, a Switzerland based company. The Hon'ble Supreme Court held that payment made to Swiss company for rendering such consultancy services amounted to 'fee for technical service' liable to tax in India. The Hon'ble SC observed that as the factual matrix in the & 09 others Shell International BV vs. DCIT(International Taxation) & 09 others Asst. Years –2009-10 to 2018-19 - 16 - case at hand would exposit, NRC had acted as a consultant. It had the skill, acumen and knowledge in the specialized field i.e. preparation of a scheme for required finances and to tie-up required loans. The nature of service rendered by the NRC, can be said with certainty would come within the ambit and sweep of the term 'consultancy service' and, therefore, it has been rightly held that the tax at source should have been deducted as the amount paid as fee could be taxable under the head 'fee for technical service. Accordingly, the Assessing Officer relied upon the aforesaid decision to come to the conclusion that the instant services were in the nature of consultancy services, and hence in the view of the aforesaid decision rendered in the context of India-Swiss tax treaty, the services qualified as fee for technical services.

The assessee is in appeal before us against the aforesaid services being taxed as fee for technical services under the Act, read with India Swiss Tax Treaty. The Counsel for the assessee took before us various arguments, which can be primarily summed up as Firstly, under the India-Netherlands Tax Treaty, there is a specific clause, which provides that unless the services which were provided “make available” technology to the recipient of services, such services do not qualify as fee for technical services under the Treaty Law. In the instant facts, looking into the nature of instant services, there is nothing on record which would establish that technology was “made available” to the recipients of services, so as to fall within the ambit of fee for technical services under the India-Netherlands tax treaty. Secondly, the Counsel for the assessee argued that reliance on the GVK industries case supra is misplaced for the simple reason that the aforesaid case was rendered in the context of domestic Income Tax law provisions and the interpretation of India-Switzerland tax treaty was not under consideration before the Hon’ble Supreme Court, since & 09 others Shell International BV vs. DCIT(International Taxation) & 09 others Asst. Years –2009-10 to 2018-19 - 17 - the same was never pressed into arguments. Thirdly, the Counsel for the assessee submitted that the aforesaid services have been rendered on cost to cost basis and without any mark up, and hence since, there is no income element while rendering the aforesaid services, in absence of income element/profit element, the services are not liable to taxed as fee for technical services in India. Fourthly, it was argued that these services qualify as “managerial services” and since the definition of fee for technical services under the India-Netherlands tax treaty does not contain the term “managerial services”, therefore, the services fall outside the ambit/scope of fee for technical services under the India--Netherlands Tax Treaty and hence cannot be subject to tax in India.

In response, DR placed reliance on the observations made by the Assessing Officer/DRP in respect of the aforesaid services. The DR submitted that in the instant facts, the services are clearly technical in nature, under the Indian domestic taxation laws as well as under the tax treaty law. The DR submitted that in the instant facts, clearly, technology has been made available to the recipient of services, and since both these service provider recipients are working closely with each other over a period of time, there is a transmission of knowledge during the course of rendering the aforesaid services. Further, the argument of the Counsel for the assessee that the services qualify as managerial services is also flawed, since looking into the nature of services these are primarily technical/consultancy services and fall squarely within the definition of fee for technical services under the India-Netherlands tax treaty. Further, so far as the argument of services been rendered on a cost to cost basis is concerned, the assessee has not been able to establish that there is no profit element/income element during the course of rendering the services, even if & 09 others Shell International BV vs. DCIT(International Taxation) & 09 others Asst. Years –2009-10 to 2018-19 - 18 - the argument were to be accepted that in absence of any income element, the services are not taxable in India. The profit and loss account presented by the assessee is a self serving documents and nothing concrete has been placed on record to show that services have been rendered on cost to cost basis. Further, in absence of valid agreement in place for the period under consideration, the nature of services is also not clear to decide to what extent protection of “make available” clause is available to the assessee.

We have heard the rival contentions and perused the material on record.

One of the arguments which was taken before us was that the services are “managerial” in nature, and hence falling outside the scope of FTS as given under the India-Netherlands tax treaty, since the definition of FTS does not contain the term “managerial” in the India-Netherlands tax treaty. However, on going through the nature of services being rendered under consideration, we are of the considered view that the services do not qualify as “managerial services” and looking into the nature of services, these are regular technical/consultancy services being provided by the assessee towards group associate companies. The terms managerial, technical and consultancy are not defined anywhere in the Income Tax Act, 1961. In the absence of definition under Income Tax Act the common and general meaning of these terns should be taken into consideration (GVK Industries v ITO supra). The ordinary meaning of the term “management” involves the application of knowledge, skill or expertise in the control or administration of the conduct of a commercial enterprise or organization. Thus, if the management of all or a significant part of an enterprise is contracted out to persons other than the directors, officers or employees of the enterprise, payments made by the enterprise for those management services, it would fall within the definition of & 09 others Shell International BV vs. DCIT(International Taxation) & 09 others Asst. Years –2009-10 to 2018-19 - 19 - managerial services, within the meaning of paragraph 3 (UN-MCC). However, in the instant facts, we observe that looking into the nature of services, these services are in the nature of technical/consultancy services, and in our considered view, the same do not qualify as “managerial” services, so as to take the services away from the ambit of fee for technical services. We observe that on analysis of various services which have been provided in later assessment years, the same also, going by the nature of services, do not qualify as ‘managerial services’.

Secondly, with regard to the arguments that the services are not liable to be taxed in India since only costs incurred in rendering the services have been recovered and in absence of any income element, the services are not taxable in India as FTS/royalty, as discussed and analysed even during the course of arguments, we observe that it is not a case where there is a clear case of cost to cost reimbursement with respect to only costs having been recovered from the respective associated enterprises, which have been incurred by the assessee in rendering the services. In the instant case, though the assessee submitted/contended that while charging for the services rendered, the assessee has only recovered the cost incurred in rendering the aforesaid services and nothing over and above the cost which has been incurred for rendering the various services, has been recovered from it’s associated Enterprises. However, from the facts placed on record, the assessee, in our view (and as also noted by the Department for some of the Assessment Years under consideration) has not been able to establish that only the cost which has been incurred for rendering the services through its various employees etc alone has been recovered from its group companies. It is not a case where the assessee has incurred certain costs in purchasing certain third party software or obtained & 09 others Shell International BV vs. DCIT(International Taxation) & 09 others Asst. Years –2009-10 to 2018-19 - 20 - these services from a third party etc, which have been reimbursed/recovered on cost to cost basis from its associated Enterprises India. In this case, we observe that the employees of the assessee are engaged in providing certain services, and the assertion of the assessee is that the precise cost incurred in rendering of these services have been recovered from its various addicted enterprise, on a cost basis. However, in our considered view, the assessee has not been able to demonstrate that only the precise cost incurred for rendering services has been recovered, and therefore, there is no income element at the India level, during the course of rendering of the services. Accordingly, we are not inclined to agree with the aforesaid argument of the assessee.

Thirdly, we observe that the Counsel for the assessee has for few years also taken the plea that the services in question/under consideration are “non- technical” services in the first instance, and hence, they are falling outside the scope of technical services under the Act read with India-Netherlands tax treaty. However, on going to the nature of services for various Assessment Years under consideration before us, we are of the considered view that these services are clearly technical in nature, involving use of technology. The authority for advance rulings in the case of Intertek testing 175 Taxman 375 (AAR), while explaining the scope of the term “technical” has held that the expression 'technical' ought not to be construed in a narrow sense. It has received a wide interpretation in tune with its dictionary meaning in several cases. The AAR made the following relevant observations in this regard:

Accordingly, given the wide interpretation to the term “technical” having been taken by the Courts, and looking into the nature of services which have been rendered by the assessee, we are of the considered view that the services involve extensive use of technology, and the same are “technical” in nature. & 09 others Shell International BV vs. DCIT(International Taxation) & 09 others Asst. Years –2009-10 to 2018-19 - 22 -

However, we also observe that in the instant facts, the India- Netherlands Tax Treaty, contains a specific restriction in the form of “make available” clause, which restricts the definition of fee for technical services under the Treaty Law to only those cases where services have been rendered in a manner that the technology have been “made available” to the recipient of services, meaning thereby, the necessary information/knowledge has been imparted to the recipient of services in such manner, so that in the future, they have been enabled/ empowered to perform the services themselves, without any necessity of recourse to future services being provided by the assessee. It would be useful to reproduce the relevant extracts of the India-Netherlands tax treaty for ready reference:

The scope of the term “make available” was discussed at length in the case of Raymond Ltd. v. Dy. CIT [2003] 86 ITD 791, in the following words:

The scope of the term “make available” came up for consideration recently before the Gujarat High Court in the case of Star Rays 153 taxmann.com 226 (Gujarat), where the Assessee, a partnership firm, was engaged in business of cutting and polishing diamonds and export of diamonds. It had made remittances qua diamond testing service for certification of diamonds to GIA USA which set up a laboratory at Hong Kong as GIA Hong Kong and claimed that said sum was not tax deductible at source. The Assessing Officer held that assessee had made payment to GIA Hong Kong Laboratory and not GIA USA and, therefore, could not claim treaty benefit between India-USA and, that assessee was liable to deduct TDS from said remittance. Invoices for payment of fees were issued by GIA USA and accounts reflected that payment was received in offshore bank account of GIA USA. The High Court held that the assessee's case was protected under India- USA DTAA as mere rendering of services could not be roped into FTS when person utilizing services was unable to make use of technical knowledge etc.

Recently, the issue of “make available” came up before the Hon'ble Supreme Court in the case of Ad2pro Media Solutions (P.) Ltd. [2024] 158 taxmann.com 432 (SC). The facts were that the assessee was a private limited company engaged in business of providing graphic design solutions for advertising and marketing communications. It had remitted huge amounts to & 09 others Shell International BV vs. DCIT(International Taxation) & 09 others Asst. Years –2009-10 to 2018-19 - 24 - US based company for marketing services without deduction of TDS. The Assessing Officer held that assessee utilized services of US Company even in negotiations with customers and in finalizing contracts, and same could not be done without sharing technical knowledge, know-how, processes or experience, hence, payment was taxable in India as FTS. The Tribunal allowed assessee's appeal holding that payments made could not be considered as royalty or FTS and hence, no TDS was required to be deducted. It was found that US Company did not have any permanent establishment in India. Further Tribunal in its order had noted that scope of work was to generate customer leads using/subscribing customer data base, market research, analysis, and online research data and that service provider had not made available any technical knowledge, experience, know-how, process to develop and transfer technical plan or technical design. The High Court by impugned order held that in view of admitted fact that services were utilized in USA, findings returned by Tribunal did not call for any interference. The Hon'ble Supreme Court dismissed the SLP filed by revenue against said impugned order of High Court.

Further, in our considered view, the decision of GVK industries supra is also not relevant to the instant facts, since in such case, the issue for consideration before the Hon'ble Supreme Court was whether the services relating to obtaining loan qualifies as managerial services. The aforesaid decision, is not applicable to the instant case for the reason that Hon’ble Supreme Court did not have the occasion to discuss the relevant Tax Treaty provisions, and the decision was rendered on the domestic Income Tax provisions. Accordingly, in our view, since the aforesaid decision does not apply to the instant facts, much credence cannot be given to the observations made in the decision. & 09 others Shell International BV vs. DCIT(International Taxation) & 09 others Asst. Years –2009-10 to 2018-19 - 25 - 40. Now coming to the instant facts, looking into the nature of services, there is nothing on record to establish that during the course of rendering of services, the technology was “made available” to the recipient of services, in such a manner that the recipient of services were enabled to perform the services in the future, by itself, without any requirement of recourse/further assistance from the assessee company. From the contents of the nature of services, we observe that neither has technology be made available to the recipient of services, nor there is any such intention to render services in a manner that the recipient of services is enabled to perform the services itself without recourse to the assessee. Accordingly, looking into the facts, we are of the considered view that the services have not “made available” technology to the recipient of services, so as to fall within the definition of FTS under the India-Netherlands tax treaty.

In the result, grounds 2, 3 and 4 of the assessee’s appeal are allowed.

Before us, the Counsel for the assessee submitted that ground number 6 is not being pressed, since this issue has been rectified by way of subsequent order under Section 154 of the Act.

Accordingly, ground number 6 of the assessee’s appeal is dismissed as not pressed.

Ground Nos. 8 and 9 of the assessee’s appeal or consequential, and hence, the same are not being adjudicated. & 09 others Shell International BV vs. DCIT(International Taxation) & 09 others Asst. Years –2009-10 to 2018-19 - 26 - Ground number 7 (levy of interest under Section 234B in respect of non-- residents)

Before us, the Counsel for the assessee relied upon the case of Mitsubishi Corporation 130 taxmann.com 276 (SC), wherein the Hon’ble Supreme Court held that proviso to Section 209(1) issued by Finance Act, 2012 providing that if a non-resident assessee received any amount on which tax was deductible at source, assessee could not reduce such tax while computing its advance tax liability, was applicable prospectively after Assessment Year 2012-13. Therefore, during relevant Assessment Year, since assessee was a non-resident, and entire tax was to be deducted at source on payment made by payer to it and there was no question of advance tax payment by assessee, accordingly, no interest under Section 234B could be levied upon assessee. Accordingly, the Counsel for the assessee submitted that in view of the aforesaid decision clarifying the position that proviso to Section 209(1) issued by Finance Act, 2012 was applicable prospectively after Assessment Year 2012-13, there was no liability for the assessee to pay interest under Section 234B of the Act for the impugned Assessment Year, since the entire income was tax deductible at source in the hands of the payer.

In our considered view, in light of the aforesaid decision by the Hon’ble Supreme Court, Ground No. 7 of the assessee’s appeal is allowed. We must also add that recently, the Gujarat High Court in the case of Shell Global Solutions International BV [2024] 158 taxmann.com 352 (Gujarat) held that where during relevant Assessment Year assessee was a non-resident, entire tax was liable to be deducted at source on payment made by payer to the assessee u/s 195 and there was no question of advance tax payment by assessee and thus, no interest under Section 234B could be levied upon assessee. & 09 others Shell International BV vs. DCIT(International Taxation) & 09 others Asst. Years –2009-10 to 2018-19 - 27 -

In the result, Ground No. 7 of the assessee’s appeal is allowed.

Now we shall deal with the assessee’s appeal for Assessment Year 2012-13. The assessee has raised the following grounds of appeal:

However, we observe that for Assessment Year 2012-13, External Information Services (EIS) has been taxed as royalty under Section 9(1)(vi) of the Act read with Tax Treaty (EIS has also been taxed as royalty for Assessment Year 2013-14 as well, though for Assessment Year 2011-12, it was taxed as FTS).

Under these services, the assessee subscribes to various EIS providers on behalf of Shell group and the cost for the same are pooled in by the assessee. The services provided by EIS service providers mainly consist of providing standard research reports, newsletters market data analysis. The services are akin to providing access to online databases for obtaining such reports. The databases prepared and maintain standard reports, journals etc. pertaining to the oil and gas sector. The group companies access the databases for the purpose of using it internally. The assessee has an arrangement with various Shell group entities for use of these EIS services. The cost incurred by assessee for EIS services is charged to Shell group entities based on their usage of EIS services.

The Assessing Officer was of the view that the services qualify as royalty since access to database is not publicly available and is only available to authorized users. Further though access to database is granted online, such a & 09 others Shell International BV vs. DCIT(International Taxation) & 09 others Asst. Years –2009-10 to 2018-19 - 29 - right to access would amount to transfer of right to use the copyright. Therefore, the payment received by the assessee from its affiliates is for such license to use the database maintained by EIG and such payment is treated as royalty.

The Counsel for the assessee submitted that the issue is now squarely covered in favour of the assessee in view of the decision of Engineering Analysis supra by the Hon’ble Supreme Court. In our considered view, in the instant facts, grant of right to access the online database would not amount to transfer of right to use the copyright, as alleged by the Assessing Officer. In this case, the Hon’ble Supreme Court made the following observations: by holding that payments do not qualify as royalty:

In the instant case, payments for grant of access to software database would not take the case of the assessee within the definition of royalty, as defined under the India-Netherlands tax Treaty. In the instant facts, access to the software has been granted to the Indian entities and there is no transfer of copyright, so as to fall within the definition of royalty under the India- Netherlands Tax Treaty.

In the result, ground number 2 of the assessee’s appeal is allowed Assessment Year 2013-14

Now we shall deal with the assessee’s appeal for Assessment Year 2013-14. The assessee has raised the following grounds of appeal:

We observe that all the issues covered in the grounds of appeal for Assessment Year 2013-14, barring one issue, have been dealt with by us while deciding the issues for Assessment Years 2011-12 and 2012-13. Accordingly, our observations for Assessment Year 2011-12 and 2012-13, would apply to Assessment Year 2013-14 as well in respect of Grounds 1-4 and Grounds 6-8.

The brief facts relating to these services are that Shell group has business facilities across various countries which is managed by a real estate team of the assessee. During the impugned year under consideration, payments have been made to the assessee for the work done by the real estate team of the assessee in managing the Group's property portfolio, corporate travel program, & 09 others Shell International BV vs. DCIT(International Taxation) & 09 others Asst. Years –2009-10 to 2018-19 - 32 - office facilities and business centers. During the year under consideration, the assessee was engaged in provision of general business support services and other services, with respect to real estate operations and inter-company services to SIMPL.

The AO was of the view that under the Real Estate and Corporate Travel Services, the assessee provides consultancy and assists the regional team of the affiliates in managing real estate transactions and leveraging of global relationships and contract management with key suppliers and real estate information technology tool. The critical decision-making function of real estate consultancy has been performed by the affiliates through the assistance/consultancy of the assessee. As per the Ld. Assessing Officer, identifiable and highly specialized services requiring expertise and industrial experience of the global support team of the assessee have been provided by the assessee and the nature of work performed by the Shell group companies is highly technical in nature The AO thus concluded that the assessee, through its personnel, provided 'technical services' to assessee, especially since the DTAA definition of FTS expressly includes the provision of the services of personnel. The AO further concluded that the services performed by the assessee would invariably lead to imparting of suitable skill sets / knowledge in the hands of the affiliates with consequent improvement in experience and skill set of the local employees of the affiliates. The Ld. Assessing Officer relied on various judicial precedents in support of the above contention.

The assessee is in appeal before us against the aforesaid order passed by Assessing Officer holding the services as fees for technical services under the Act read with the Tax Treaty. Before us, the arguments of the Counsel for the & 09 others Shell International BV vs. DCIT(International Taxation) & 09 others Asst. Years –2009-10 to 2018-19 - 33 - assessee remain the same as discussed in earlier paragraphs while dealing with other services which were held to be FTS for Assessment Year 2011-12.

In our considered view, in view of our observations made in the preceding paragraphs, we are of the considered view that in respect of the aforesaid services, the condition of “make available” is not satisfied and the Department has not brought anything on record to demonstrate that in the instant case, the technology was “made available” to the recipient of services, so as to fall within the ambit/definition of FTS under the India-Netherlands tax treaty. Accordingly, in our considered view, the aforesaid services do not qualify as FTS under the India-Netherlands tax treaty.

In the result, ground number 5 of the assessee’s appeal is allowed for Assessment Year 2013-14.

Now we shall deal with the assessee’s appeal for Assessment Year 2014-15. The assessee has raised the following grounds of appeal:

The learned AO has erred in levying interest under section 234A and 234B of the Act.

We observe that all the issues covered in the grounds of appeal for Assessment Year 2014-15, barring two issues, have been dealt with by us while deciding the issues for earlier Assessment Years. Accordingly, our & 09 others Shell International BV vs. DCIT(International Taxation) & 09 others Asst. Years –2009-10 to 2018-19 - 35 - observations for Assessment Years would apply to Assessment Year 2014-15 as well in respect of Grounds 1-4 and Grounds 7-10.

We shall first discuss the nature of services in respect of the aforesaid two services for which the payment has been received by the assessee and the Assessing Officer’s observations with regard to taxability of these services.

Under HRIT - System Administration Services, the assessee charges fee associated with Learning systems like Learning Management System, Learning projects like Competence Management, business process enhancements etc. The argument of the assessee is that this fee is charged to group companies using learning infrastructure via a learning infrastructure fee per head. This fee is in relation to recovery of cost in relation to maintaining learning systems/learning projects by the assessee. & 09 others Shell International BV vs. DCIT(International Taxation) & 09 others Asst. Years –2009-10 to 2018-19 - 36 - 69. The Ld. Assessing Officer in the assessment order observed that under HRIT - System Administration Services, as per the submission of the assessee company, the charges are recovered for using learning infrastructure. It includes learning management system, competence management business process enhancement. All these activities require expertise and skill. The expertise and experience of the assessee is being offered to its affiliates. The nature of work performed by the Shell group companies is highly technical in nature. This team provides learning. management competency, business process enhancement etc. The costs incurred by the business support team are shared across various Shell entities which have availed such administration services of the team possessing wide experience in the field. Thus, the critical decision-making function of administration has been performed by the affiliates through the assistance/consultancy of the assessee. Hence it is established that clearly identifiable and highly specialized services, requiring expertise and industrial experience have been provided by the assessee International Tax Administration

Under these services, the Shell group is availing services of a professional consultancy firm for preparation and filing of tax returns of expatriates. The said firm raises its consolidated invoice on the Assessee in relation to the preparation and filing of tax returns of all the expatriates in the Shell group. Thus, all the costs relating to the personal tax compliances of such expatriates are pooled in the assessee. These costs, along with certain administrative costs incurred by the Assessee are then allocated by the Assessee among various Shell group entities based on the number of expatriates working with each entity. Accordingly, the Assessee has raised certain invoices on SIMPL in respect of the expatriates working with SIMPL. & 09 others Shell International BV vs. DCIT(International Taxation) & 09 others Asst. Years –2009-10 to 2018-19 - 37 - 71. The Ld. Assessing Officer observed that under the international tax administration services, the expertise and experience of the global support team of the assessee is being offered to its affiliates. The nature of tax administration work performed by the Shell group companies is highly technical in nature. This team provides consultancy and assists the regional team of the affiliates in providing services in the nature of tax administration. The costs incurred by the assessee company are shared across various Shell entities which have availed such facilities. Thus, tax administration function has been performed by the affiliates through the assistance/consultancy of the assessee. Hence it is established that clearly identifiable and highly specialized services, requiring expertise and experience have been provided by the assessee.

For both the above services, the Ld. Assessing Officer was of the view that in both the above services “make available” clause under Article 12 of the Tax Treaty is satisfied since it is clear that such services would invariably lead to imparting of suitable skill sets / knowledge in the hands of the affiliates in the area in which the services are rendered with consequent improvement in experience and skill set of local employees of the affiliates. In this case, the assessee have, through its personnel, undoubtedly provided 'technical' services to assessee, especially since the DTAA definition of FTS expressly includes the provision of the services of personnel. Further as per the definition of FTS in the DTAA, when imparting of suitable experience or skill possessed by the assessee to the affiliates takes place it amounts to making available the FIS/FTS and therefore the amounts received are taxable as per the DTAA. The services are enduring and they help in promoting the business of the affiliate. The employees of the affiliates are in a position to, and actually they are & 09 others Shell International BV vs. DCIT(International Taxation) & 09 others Asst. Years –2009-10 to 2018-19 - 38 - expected to use the knowledge gained, in the business of the affiliates. Thus, knowledge and know-how are made available to the affiliates. Hence, on an understanding of the overall effect of the services, it has to be held that the technical knowledge, experience, and skill are made available to the affiliates.

The assessee is in appeal before us against the aforesaid order passed by Assessing Officer holding the services as fees for technical services under the Act read with the Tax Treaty.

Before us, the arguments of the Counsel for the assessee remain the same as discussed in earlier paragraphs while dealing with other services which were held to be FTS for Assessment Year 2011-12.

In view of our observations made in the preceding paragraphs, we are of the considered view that in respect of the aforesaid services, the condition of “make available” is not satisfied and the Department has not brought anything on record to demonstrate that in the instant case, the technology was “made available” to the recipient of services, so as to fall within the ambit/definition of FTS under the India-Netherlands tax treaty.

Accordingly, in our considered view, the aforesaid services do not qualify as FTS under the India-Netherlands tax treaty.

In the result, ground numbers 5 and 6 of the assessee’s appeal are allowed for Assessment Year 2014-15.

Now we shall deal with the assessee’s appeal for Assessment Year 2015-16. The assessee has raised the following grounds of appeal: & 09 others Shell International BV vs. DCIT(International Taxation) & 09 others Asst. Years –2009-10 to 2018-19 - 39 - “1. The learned AO has erred on the facts and in law and learned DRP has further erred in confirming the action of the AO on the facts and in law in treating the aggregate cost recovery of INR 11,60,44,189 received from Hazira LNG Private Limited ('HLPL') and Shell India Markets Private Limited ('SIMPL') for HR Shell People Support as royalty under Article 12 of India - Netherlands tax treaty ('Tax Treaty').

We observe that all the issues covered in the grounds of appeal for Assessment Year 2013-14, barring few issues, have been dealt with by us while deciding the issues for earlier Assessment Years. Accordingly, our observations for Assessment Years would apply to Assessment Year 2015-16 as well in respect of Grounds 1-4, 6, 8, 9 and Grounds 12-15.

During the year under consideration, the assessee has rendered certain IT services to SIMPL, which includes certain services in relation to the Physical Access Control System ('PACS) being implemented at each location. In relation to these PACS related services, the fee comprises of the following components: a) Prowatch (Physical Access Control System) - a software which is being implemented at each location to read the EVI cards when any person swipe in and out of the building: b) Prowatch configuration - updating the card readers to Prowatch: c) Recovery of project management and other overhead costs – recovery of Manpower costs for the resources working on these projects.

In respect of these services, the Ld. Assessing Officer was of the view that the assessee accepts that the services are technical in nature and the only objection is that the same are not taxable as such services do not fall in the scope of make available clause. The assessee has rendered certain IT services to Shell India Markets Pvt. Ltd. (‘SIMPL’), a group entity, which inter alia, includes certain services in relation to the Physical Access Control System (‘PACS’) being implemented at each location. This requires experience and expertise of highly technical and trained staff. Thus, in such a scenario it cannot be said that technical knowledge, experience, skill etc has not been made available to the Indian entity. It is seen that the advice and assistance rendered by the assessee to the Indian entity are not transient in nature and are capable of being used by the Indian entity on its own. & 09 others Shell International BV vs. DCIT(International Taxation) & 09 others Asst. Years –2009-10 to 2018-19 - 42 - Health Ecotox services:

During the year under consideration, the assessee rendered Health Ecotox services to SIMPL which pertains to "One Health IT System". The One Health IT system is for keeping and maintaining confidential medical information of Shell employees. The system is managed by Shell Health. The cost incurred for these services has been allocated between group companies using these services based on the actual number of full time employee per entity. As per the assessee, the fee is in relation to keeping and maintaining confidential medical information of Shell employees and therefore represents commercial / management / advisory services which are not technical in nature and therefore, the same is not taxable as FTS under Article 12 of India- Netherlands Tax Treaty. Without prejudice to the above and even for sake of argument it is assumed that the above services are technical in nature, the same does not make available any technical knowledge, experience, skills, know how, etc. and also do not consist of the development and transfer of technical plan or technical design and therefore, the revenue received by the Assessee for these services do not qualify as FTS under Article 12 of the India- Netherland tax treaty and as such not taxable in India. Without prejudice to the above, the assessee submitted that the amounts received for Health Ecotox Services represents the cost allocations and no mark-up has been charged on the said cost by the Assessee. It is to be noted that allocation of costs is based on 'actual number of full time employee'. Accordingly, the assessee submitted that receipts for Health Ecotox Services are only reimbursement of expenses and as such not chargeable to tax.

The Ld. Assessing Officer observed that under the Health Ecotox services, the assessee has rendered these services to SIMPL which pertains to & 09 others Shell International BV vs. DCIT(International Taxation) & 09 others Asst. Years –2009-10 to 2018-19 - 43 - "One Health IT system". The One Health IT System is an add on to the Shell People system for keeping and maintaining confidential medical information of Shell employees. Here, it is seen that clearly identifiable and highly specialized services, requiring expertise and industrial experience have been provided by the assessee.

Further, in respect of both the above services, the Ld. Assessing Officer was of the view that it is clear that such services would invariably lead to imparting of suitable skill sets / knowledge in the hands of the affiliates in the area in which the services are rendered with consequent improvement in experience and skill set of local employees of the affiliates. In this case, the assessee have, through its personnel, undoubtedly provided 'technical' services to assessee, especially since the DTAA definition of FTS expressly includes the provision of the services of personnel. Further as per the definition of FTS in the DTAA, when imparting of suitable experience or skill possessed by the assessee to the affiliates takes place it amounts to making available the FIS/FTS and therefore the amounts received are taxable as per the DTAA. The services are enduring and they help in promoting the business of the affiliates. The employees of the affiliates are in a position to, actually they are expected to use the knowledge gained, in the business of the affiliates. Thus, knowledge and know-how are made available to the affiliates. Hence, on an understanding of the overall effect of the services, it has to be held that the technical knowledge, experience, and skill are made available to the affiliates.

The assessee is in appeal before us against the aforesaid order passed by Assessing Officer holding the services as fees for technical services under the Act read with the Tax Treaty. Before us, the arguments of the Counsel for the & 09 others Shell International BV vs. DCIT(International Taxation) & 09 others Asst. Years –2009-10 to 2018-19 - 44 - assessee remain the same as discussed in earlier paragraphs while dealing with other services which were held to be FTS for Assessment Year 2011-12.

In our considered view, in view of our observations made in the preceding paragraphs, we are of the considered view that in respect of the aforesaid services, the condition of “make available” is not satisfied and the Department has not brought anything on record to demonstrate that in the instant case, the technology was “made available” to the recipient of services, so as to fall within the ambit/definition of FTS under the India-Netherlands tax treaty.

Accordingly, in our considered view, the aforesaid services do not qualify as FTS under the India-Netherlands tax treaty.

In the result, Ground Nos. 5 and 7 of the assessee’s appeal are allowed for Assessment Year 2015-16.

We are of the considered view that that levy of surcharge and cess cannot exceed the tax rate of 10% as per Article 12 of India –Netherlands tax treaty, since the Treaty provides that the tax is to be charged on royalty and FTS shall not exceed 10% of the gross amount of royalty or FTS. Further, Article 2 of the Tax Treaty defines tax in India as “income tax including any surcharge thereon”. Therefore, Article 12 read with Article 2 of the Tax Treaty makes it clear that the rate of tax at 10% would encompass surcharge and education cess as it is also in the nature of tax. Therefore, we hold that levy of & 09 others Shell International BV vs. DCIT(International Taxation) & 09 others Asst. Years –2009-10 to 2018-19 - 45 - surcharge and cess over and above the taxable rate of 10% on royalty and FTS is not permissible as per the Treaty provisions. While coming to such conclusion, we are well supported by the following decisions:

In the result, Ground No. 10 of the assessee’s appeal is allowed. Since the issue regarding levy of surcharge and the tax treaty has been decided in favour of the assessee in Ground No. 10, Ground No. 11 of the assessee’s appeal does not require any separate adjudication.

Further, vide Ground No. 12, the assessee has raised the contention of grant of short credit of TDS, wherein the allegation of Department is that tax & 09 others Shell International BV vs. DCIT(International Taxation) & 09 others Asst. Years –2009-10 to 2018-19 - 46 - deduction has taken place in year 2, however, the Department has also not given any credit for the tax deducted in the subsequent year as well.

Accordingly, the matter is being restored to the file of Assessing Officer to carry out the necessary verification, and to grant credit of TDS deducted, in accordance with law.

In the result, Ground No. 12 of the assessee’s appeal is allowed for statistical purposes.

For Assessment Years 2016-17, 2017-18 and 2017-18, we observe that the grounds raised by the assessee have already been covered as part of our order while dealing with various issues raised by the assessee for earlier Assessment Years, before us. Accordingly, our observations for earlier Assessment Years, would also apply to similar issues for Assessment Years 2016-17, 2017-18 and 2017-18. We further observe that no new/additional services have been rendered for Assessment Years 2016-17, 2017-18 and 2017-18, accordingly, since all issues pertaining to grounds of appeal raised for these years have been covered in earlier part of our order, and the grounds of appeal raised by the assessee are disposed of in light of our observations for earlier Assessment Years.

For the above Assessment Years, the assessee has raised additional grounds challenging the validity of proceedings under Section 144C of the Act. Further, the Counsel for the assessee submitted that taxability with respect to all the services, which have been rendered for Assessment Years 2009-10 and & 09 others Shell International BV vs. DCIT(International Taxation) & 09 others Asst. Years –2009-10 to 2018-19 - 47 - 2010-11, are already covered while discussing the taxability for subsequent Assessment Years.

We observe that since we have already decided the issues relating to taxability of incomes received by the assessee as royalty/FTS under the Act/Tax Treaty in favour of the assessee, by holding that the receipts do not qualify as Royalty/FTS under the Act read with the Treaty, we are of the considered view that it would only on academic exercise to dwell upon the additional ground raised by the assessee, since the issue of taxability has already been decided in favour of the assessee in the foregoing paragraphs.

In the combined result, appeals of the assessee for the impugned years under consideration before us, are partly allowed for statistical purposes. This Order pronounced in Open Court on 20/03/2024