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TMI Blog2025 (1) TMI 1469X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the above services did not qualify as FTS under the India-Netherlands Tax Treaty, since the "make available" clause has not been satisfied in the instant facts. Ground Nos. 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15 of the assessee's appeal are allowed, since the services do not qualify as "FTS" under the India-Netherlands Tax Treaty. Whether services are merely cost allocation / reimbursement are taxable? - We have decided this issue against the assessee for previous assessment years and therefore held 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. levy of surcharge, education cess and secondary and higher education cess on the tax levied - Rate of tax on total income @ 12% instead of 10% - We observe that this issue has been decided in favour of the assessee in the aforesaid order [2024 (3) TMI 1066 - ITAT AHMEDABAD], as held Article 12 read with Article 2 of the Tax Treaty makes it clear that the ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ming the action of the learned AO on the facts and in law in treating the aggregate cost recovery of INR 17,71,40,242 received from SIMPL, SEIPL, BGEIPL, SEMIIPL and Hazira Port Private Limited (HPPL) for Internal Communication Fees as FIS under Article 12 of India Netherlands DTAA. 5. The learned AO has erred on the facts and in law and learned DRP has further erred in confirming the action of the learned AO on the facts and in law in treating the aggregate cost recovery of INIR 7,36,06,027 received from SIMPL SLIPL, BGEIPL, SEMIPL and HPPL for Remuneration and Benefit fees as FTS under Article 12 of India Netherlands DTAA. 6. The learned AO has erred on the facts and in law and learned DRP has further erred in confirming the action of the learned AO on the facts and in law in treating the aggregate cost recovery of INR 14,36,18,345 received from SIMPL, SLIPL, BGEIPL, SEMTIPL and HPPL for Talent and Development Fees as FTS under Article 12 of India-Netherlands DTAA. 7. The learned AO has erred on the facts and in law and learned DRP has further erred in confirming the action of the learned AO on the facts and in law in treating the aggregate cost recoveries of INR 50,33,83,7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The learned AO has erred on the facts and in law and learned DRP has further erred in confirming the action of the learned AO on the facts and in law in treating the aggregate cost recoveries of INR 26,82,080 received SIMPL and BGEPIL for Manage and Lead ER Function services as FTS under Article 12 of India Netherlands DTAA. Without prejudice to the above, the learned AO has erred in erroneously considering the nature of UR Strategy and Planning services while evaluating the taxability of Manage and Lead E.R. 16.1 Without prejudice to the above-mentioned grounds, the learned AO has erred on the facts and in law, in disregarding the fact that, the amount received for the above mentioned cost recoveries, is a mere reimbursement/allocation of cost incurred by the Appellant without markup and hence the same is not chargeable to tax in India. 16.2 The learned DRP has erred in dismissing the objection No. 14, as not pressed, overlooking the fact that the Appellant had pressed the ground in its submission dated 14 June 2023. 16.3 The learned AO in his final assessment order dated 25 July 2023 has erred in following the aforesaid directions of the learned DRP. 17. The learned AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce the services do not "make available" technology to the recipient of services has been upheld in favour of the assessee in the order passed by ITAT for A.Y. 2009-10 to 2018- 19 and the assessee wishes to rely on the observations made by the ITAT qua the "make available" clause in the aforesaid order. 4. Regarding Ground No. 1 the Counsel for the assessee submitted that the assessee is not present for the same and the same is, therefore, being dismissed as not pressed. 5. Regarding Ground No. 2 we observe that this ground is a general ground and does not require any specific adjudication. 6. We observe that Ground No. 3 (Taxability of CHR Recruitment Fees), Ground No. 7 (Taxability of External Information Services), Ground No. 8 (Taxability of Real Estate Corporate Travel Services), Ground No. 9 (Taxability of Health Ecotox Services) and Ground No. 10 (Taxability of IT Services) have been specifically dealt with in the order passed by ITAT Ahmedabad for A.Y. 2009-10 to 2018-19. Accordingly, in light of the observations related to these services, the above grounds raised by the assessee are allowed in favour of the assessee on the ground that since under the Tax Treaty Law, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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. External information services (license fees patent and subscription) 22. 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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 26. 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 plac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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. 28. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t been able to establish that there is no profit element/income element during the course of rendering the services, even if 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. 30. We have heard the rival contentions and perused the material on record. 31. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ord, 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 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. 33. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e medical colleges. The Supreme Court observed that "the dictionary meaning of the word "technical" is also "professional" and is used in contradistinction with pure sciences to prepare the professionals in applied sciences". However, we would like to observe that it is not any or every professional service that amounts to technical service. Professionalism and an element of expertise should be at the back of such services. There is a decision of Andhra Pradesh High Court in which the ambit of expression 'technical service' was considered. In G.V.K. Industries Ltd. v. ITO [1997] 228 ITR 564 (AP), SSM Quadri, J. speaking for the Division Bench rejected the argument of the assessee's Counsel 'that the NRC did not render any technical or consultancy service to the petitioner-company and that it merely rendered advice in connection with the procurement of loans by it, which does not amount to rendering technical or consultancy service within the contemplation of the said clause and that the technical or consultancy service should relate to the core of the business of the petitioner-company'. It was observed. In our view advice given t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to the stage subsequent to the 'making use of stage. The qualifying word is 'which'- the use of this relative pronoun as a conjunction is to denote some additional function the 'rendering of services' must fulfil. And that is that it should also 'make available' technical knowledge, experience, skill, etc. Thus, the normal, plain and grammatical meaning of the language employed, is that a mere rendering of services is not roped in unless the person utilising the services is able to make use of the technical knowledge, etc., by himself in his business or for his own benefit and without recourse to the performer of the services in future. The technical knowledge, experience, skill, etc., must remain with the person utilising the services even after the rendering of the services has come to an end. A transmission of the technical knowledge, experience, skills, etc., from the person rendering the services to the person utilising the same is contemplated by the article. Some sort of durability or permanency of the result of the 'rendering of services' is envisaged which will remain at the disposal of the person utilising the services. The fruits of the services should remain available ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chnical 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. 39. 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. 40. Now coming to the instant facts, looking into the nature of services, there is nothing on record to establis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. 61. 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. 62. In our considered view, in view of our observations made in the preceding paragraphs, we are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 87. 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. 88. Accordingly, in our considered view, the aforesaid services do not qualify as FTS under the India-Netherlands tax treaty. 89. In the result, Ground Nos. 5 and 7 of the assessee's appeal are allowed for Assessment Year 2015-16." 8. Now with respect to balance services which have been rendered for the first time during this year, we shall briefly reproduce the relevant extracts of the order of Ld. AO which would throw useful light on the nat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties. Thus, 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. I. Brand advertising:- (Ground No. 11 Rs. 25,072,914/-) At the outset it is stated 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 FTS clause. As per assessee the purpose of Brand Advertising is to ensure that the brand promotes the ongoing success of Shell businesses. External Relations use advertising as a means to maintain and improve the Shell reputation. This Brand Advertising moves from billboards to digital media such as YouTube, Snapchat and Facebook. The services provided are highly technical in nature. Thus, it is clear that this service is aimed at influencing the consumers and this 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 exper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce have been provided by the assessee. M. Manage and Lead ER function:- (Ground No. 15 Rs. 2,682,080/-) Under the Manage and Lead ER function, the expertise and experience of the global support team of the assessee is being offered to its affiliates. The nature of this work performed by the Shell group companies is highly technical in nature being how to manage and lead team. This team provides consultancy and assists the regional team of the affiliates in providing excellence supports critical scenarios in terms of reputation management and crisis management. The ER Strategy and Planning Center of Excellence is involved in corporate reputation, annual ER planning, measurement and insights, planning and operations, coordinating the shell policy forum and crisis management. Thus the critical decision making 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 industrial experience have been provided by the assessee. 4.5 Thus in all the above services it is clear that such services would invariably lead to imparting of suitable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... / reimbursement are taxable, we observe that we have decided this issue against the assessee for previous assessment years and therefore, Ground No. 16.1 of the assessee's appeal is dismissed. We would like to reproduce the relevant extracts of the ruling dated 20.03.2024 for ready reference: "32. 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 associat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure of tax. Therefore, we hold that levy of 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: • FCC Co. Ltd.145 taxmann.com 649 (Delhi - Trib.) • Dy. CIT, International Taxation v. Marubeni Corpn. [2022] 139 taxmann.com 458 (Mum. - Trib.); • Dy. DIT (International Taxation) v. BOC Group Ltd. [2015] 64 taxmann.com 386/[2016] 156 ITD 402 (Kol. - Trib.); • JCDecaux S.A. v. ACIT/DCIT, International Taxation [2021] 123 taxmann.com 221/[2020] 79 ITR (T) 222 (Delhi - Trib.); • DIC Asia Pacific Pte. Ltd. v. Asstt. DIT, International Taxation [2012] 22 taxmann.com 310/18 ITR (T) 358/52 SOT 447 (Kol.); • Sunil V. Motiani v. ITO (International Taxation) [2013] 33 taxmann.com 252/59 SOT 37 (Mum.); • Parke Davis & Company LLC v. Asstt. CIT [2014] 41 taxmann.com 193/62 SOT 282 (Mum.); • ITO (Intl Taxn) v. M. Far Hotels Ltd. [2013] 32 taxmann.com 100/58 SOT 261/156 TTJ 137 (Cochin - Trib.). 91. In the result, Ground No. 10 of the assessee's appeal is allowed. Since the issue regardin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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