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2023 (10) TMI 771 - AT - Income TaxTP Adjustment - variance between the price charged by the assessee to its Associated Enterprises and the rates which were charged by the assessee for the same services to third parties - assessee took the argument that the assessee had charged a higher price for the aforesaid services from it s AE, it would have let to tax base erosion in India - HELD THAT - We observe that at any stage of the proceedings, the assessee has given no justification for charging the rates at which the services were rendered to the AEs as compared to similar services provided to third parties. Assessee has only emphasized on the argument of based erosion before the Transfer Pricing Officer and DRP, which argument was not pressed before us in view of the decision of Instrumentarium Corporation Ltd. 2016 (7) TMI 760 - ITAT KOLKATA We observe that for two years, no transfer pricing adjustment was made in the case of AEs for the simple reason that no transfer pricing reference was made by the AO in the first instance. We observe that the argument of likes have not been compared with like and the argument of similarity of agreement with BLNG were never taken before the Tax Authorities at any stage of the hearing. Accordingly, looking into the facts of the instant case, and respectfully following the decision in the case of Filtrex Technologies Pvt. Ltd 2018 (4) TMI 1957 - ITAT BANGALORE the matter is being restored to the file of Ld. AO for determination of ALP in respect of the aforesaid transactions. The assessee is also directed to file the relevant supporting documents to substantiate that the price paid by the AEs to the assessee is at arm s length within the methods laid down in the Act and the judicial precedents rendered on this issue. TPO is directed to consider the same in accordance with the law, after affording an opportunity of being heard to the assessee. Revenue for grant of software license as royalty - addition u/s 9(1)(vi) and under Article 12 of India Netherlands tax treaty (Tax Treaty') - HELD THAT - Hon ble Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt. Ltd 2021 (3) TMI 138 - SUPREME COURT and also in Infosys Technologies Ltd. 2022 (10) TMI 665 - SC ORDER held that amount payments by resident Indian and user / distributors to non-resident computer software manufacturers / suppliers as consideration for resale / use of computer software through distribution agreement is not payment for use of copy right in computer software and thus, same does not amount to income taxable in India. Accordingly, payments made the assessee to non-resident related to use of computer software was not royalty, this issue is decided in favour of the assessee. Fees for technical services - make available clause - assessee provided Computational Fluid Dynamics ( CFD ) modelling of the temperature effects on the Hazira Sea Water outflow into the port and also provided marine biological advice on its implications to HLPL - assessee provided desktop quality review of Shell Reliability Centre Maintenance done by HLPL s site team - HELD THAT - Looking into the nature of services, wherein the analysis done by the assessee is submitted in a form of report to the recipient of services, there seems to be nothing to suggest that the technology for providing the aforesaid services have been imparted to the recipient of services in a way that the recipient of services would not be required the services of the assessee further in the future and has been enabled by the assessee to perform such services on its own without any recourse or assistance of the assessee in the future. More specifically, with respect to Work Order No. 131965, we observe that the work performance on the analysis was done only with a view to advice HPCL to decide whether switchgear was obsolete and hence, required to be refurbished or replaced. Therefore, looking into the instant facts we are of the considered view that the condition of make available has not been satisfied in the instant set of facts and hence, the services do not qualify as FTS. Department has not been able to demonstrate that in the instant facts, any technology was made available to the recipient of services in a manner that the recipients had been imparted with the requisite knowledge in such a manner that they were enabled to perform the aforesaid services in the future, without any recourse to the services of the assessee - there is nothing in the hand of the Tax Treaty or the judicial precedents on the subject to come to any such conclusion - thus such services do not qualify as fee for technical services under Section 9(1)(vii) of the Act read with Article 12 of the India-Netherlands Tax Treaty. Taxability of revenues received from Larsen Toubro (L T) - services broadly included engineering services related to manufacturing of coal gasification equipment by L T as provided in countries outside of India viz. Vietnam and China etc. and were in relation to overseas EPC projects undertaken by L T. - HELD THAT - As decided in Motif India Infotech Pvt. Ltd. 2018 (12) TMI 1146 - GUJARAT HIGH COURT which held that as per clause (b) of Section 9(1)(vii) the income by way of fees for technical services payable by a person who is a resident of India would be deemed to accrue or arise in India. This clause contains two exceptions namely where the fees are payable in respect of services utilized in a business or profession carried on by such person outside India, or it is for the purpose of making or earning any income from any source outside India. If the assessment of an assessee falls in either of these two clauses, the income by way of fees or technical services paid by the assessee would still not be covered within the deeming clause of Section 9(1)(vii) of the Act. In the present case, as accepted assessee s factual assertion that the payments were for technical services provided by a non-resident, for providing services to be utilized for serving the assessee s foreign clients. Thus, the fees for technical services was paid by the assessee for the purpose of making or earning any income from any source outside India. Clearly, the source of income namely the assessee s customers were the foreign based clients of L T and the services were also to be performed in locations outside of India. In this case, from the facts placed on record in our view, L T has made payment for utilization of the services provided by the assessee in business carried out by L T outside of India. The services which were provided by the assessee were utilized by L T in respect of its plant set up in Vietnam and China for its foreign clients. Levy of interest u/s 234B - We observe that the Hon ble Supreme Court in the case of Mitsubishi Corporation 2021 (9) TMI 875 - SUPREME COURT has held that Proviso to Section 209(1) issued by Finance Act, 2012 providing that if a non-resident assessee received any amount including tax deductible at source, assessee could not reduce such tax while computing its advance tax liability was applicable prospectively after Assessment Year 2012-13. Thus assessee is not liable to pay interest u/s 234B. Income from rendering of Global P T Functional Services treated as fees for technical services - On perusal of the nature of services no such technology has been made available to Shell India during the course of rendering of such services. As evident that the Department has not been able to substantiate that the services were rendered in a manner so as to make the technology available to the recipient of services in a manner that in the future the recipient is able to perform the aforesaid services, without further recourse to the services of the assessee. In the recent case of Star Rays 2023 (8) TMI 296 - GUJARAT HIGH COURT held that where assessee company availed diamond testing services for certification of diamond from U.S. company and claimed that payment was not tax deductible at source, assessee s case was protected under India-USA DTAA as mere rendering of services could not be roped into FTS since assessee company utilising services was unable to make use of technical knowledge etc. of AE. Unless the services are rendered in the manner such that the technology is made available transferred to the assessee in such a manner that he is enabled to perform such services by itself in the future and does not require further services from the service provided, it is only then that such services would qualify as fee for technical services under the applicable Tax Treaty which specifically contains the make available clause. Thus we observe that nature of services are not which make available the technology to the recipient of services i.e. Shell India and further, the Department has also not placed on record any evidence to support that such services have made available the technology to the recipient of such services.
Issues Involved:
1. Transfer Pricing Adjustment 2. Software Royalty 3. Fees for Technical Services (FTS) from HLPL, HPPL, and HPCL 4. Taxability of Revenues from Larsen & Toubro (L&T) 5. Levy of Interest under Sections 234A, 234B, 234C, and 234D Summary of Judgment: 1. Transfer Pricing Adjustment: The Tribunal noted that the assessee, M/s. Shell Global Solutions International B.V., had provided services to its Associated Enterprises (AEs) at rates significantly lower than those charged to third parties. The Transfer Pricing Officer (TPO) made upward adjustments for the discrepancies. The assessee argued that no adjustments should be made as the transactions were at Arm's Length Price (ALP) in the hands of the Indian AEs. The Tribunal referred to the case of Filtrex Technologies Pvt. Ltd. and concluded that ALP has to be determined in the hands of the assessee irrespective of acceptance in the hands of AEs. The matter was remanded to the TPO for fresh consideration. 2. Software Royalty: The assessee received revenues from Indian entities for software licenses. The Assessing Officer (AO) treated these revenues as royalty under Section 9(1)(vi) of the Act and Article 12 of the India-Netherlands DTAA. The Tribunal referred to the Supreme Court decision in Engineering Analysis Centre of Excellence Pvt. Ltd., which held that payments for software do not constitute royalty. The Tribunal ruled in favor of the assessee and allowed the appeal. 3. Fees for Technical Services (FTS) from HLPL, HPPL, and HPCL: The AO treated revenues from services provided to HLPL, HPPL, and HPCL as FTS under Section 9(1)(vii) of the Act and Article 12 of the India-Netherlands Tax Treaty. The Tribunal noted that the services did not "make available" technology to the recipients, a requirement under the DTAA for classification as FTS. Citing the Karnataka High Court's decision in CIT vs. De Beers Indian Minerals Pvt. Ltd., the Tribunal ruled that the services did not qualify as FTS and allowed the appeal. 4. Taxability of Revenues from Larsen & Toubro (L&T): The AO taxed revenues from L&T for services related to overseas projects under Section 9(1)(vii) of the Act. The Tribunal observed that the services were rendered outside India and payments were received outside India. Referring to the Gujarat High Court's decision in Motif India Infotech Pvt. Ltd., the Tribunal concluded that the source of income was outside India and allowed the appeal. 5. Levy of Interest under Sections 234A, 234B, 234C, and 234D: The assessee contested the levy of interest, arguing that for years prior to FY 2012-13, Section 209(1)(d) allowed reduction of tax deductible at source while computing advance tax. The Tribunal referred to the Supreme Court decision in Mitsubishi Corporation, which held that the proviso to Section 209(1) applies prospectively from AY 2012-13. The Tribunal ruled in favor of the assessee and allowed the appeal. Conclusion: The Tribunal allowed the appeals of the assessee for statistical purposes, remanding the transfer pricing issue to the TPO for fresh consideration and ruling in favor of the assessee on other issues.
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