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TMI Blog2025 (3) TMI 705X X X X Extracts X X X X X X X X Extracts X X X X ..... Issue AY 2012-13 AY 2013-14 AY 2014-15 AY 2015-16 General Ground No.1 Ground No.1 Ground No.1 Ground No.1 Receipts from General Business Support Services ('BSS') does not constitute 'income' Ground No.2 Ground No.2 Ground No.2 Ground No.2 Receipts from General BSS does not qualify as Fees for Technical Services ('FTS') Ground No.3 & 4 Ground No. 3 & 4 Ground No. 3 & 4 Ground No. 3 & 4 Receipts towards access to SUN (software) application does not constitute income Ground No.5 -- Ground No. 9 Ground No. 9 Receipts towards access to SUN (software) application does not qualify as Royalty Ground No.6 & 7 -- Ground No. 10 to 12 Ground No. 10 to 12 Receipts towards Global Standard Accounting Package (GSAP) maintenance charges does not constitute income Ground No.8 -- Ground No. 13 Ground No. 13 Receipts towards GSAP maintenance charges does not qualify as Royalty Ground No.9 -- Ground No. 14 Ground No. 14 Receipts towards GSAP Go Live charges/ Go- Live true up does not constitute income Ground No.10 Ground No.5 -- Ground No. 15 Receipts towards GSAP Go Live charges does not qualify as Royalty Ground No.11 & 12 Groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Software and treatment of cost allocation for GSAP license and Go-Live application as royalty. The assessee is in appeal before the Tribunal against the final order of assessment passed by the AO as per the directions of the DRP. Treatment of BSS as FTS 4. We heard the parties and perused the material on record. With regard to treatment of BSS as FTS in the hands of the assessee the ld. AR submitted that the issue is squarely covered by the decision of the Co-ordinate Bench in assessee's own case for AY 2009-10 in ITA No. 1253/Mum/2014 dated 10.09.2024 since the facts for the year under consideration are identical. Accordingly, the ld. AR submitted that the decision of the Co-ordinate Bench is application for the year under consideration also. The ld. DR did not controvert the submissions of the ld. AR. We notice that the Co-ordinate Bench while considering the identical issues for AY 2009-10 has held that "10. We have heard the rival submissions and perused the materials available on record. It is observed that the assessee has entered into a Cost Contribution Agreement dated 01.04.2008 with SIMPL for general BSS which are in the nature of management support, development a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icle 13.4 (c) of the DTAC between India and UK; and not in the nature of royalty within the meaning of the term in Explanation 2 to Clause (vi) of Section 9(1) of the Act and under Article 13 of DTAC, while we rule on Que. No. (iii) & (iv). Based on answer to Que. No. (i) & (ii) that the payment received by SIPCL is chargeable to tax in India and the declaration provided by SIPCL that it does not have a Permanent Establishment (PE) in India in terms of Article 5 of DTAC, we rule that the applicant is under obligation to withhold tax under section 195 of the Act. " 11. Pursuant to the said ruling SIMPL had filed a Writ Petition before the Hon'ble Jurisdictional High Court challenging the validity and legality of the order passed by the Hon'ble AAR and the Hon'ble High Court (in Writ Petition No. 10788 of 2012 vide order dated 01.03.2024), quashed the order of the Hon'ble AAR as being not sustainable by law and by holding that the payment received by the assessee from SIMPL is not in the nature of 'fee for technical service' and further held that the services are in the nature of managerial service and not technical service which are made available. The relevant extract of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d (b) payments of any kind received as consideration for the use of, or the right to use, any industrial, commercial or scientific equipment, other than income derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic 4. For the purposes of paragraph (2) of this Article, and subject to paragraph (5), of this Article, the term "fees for technical services" means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including the provisions of services of technical or other personnel) which: (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph (3)(a) of this Article is received; or (b) are ancillary and subsidiary to the enjoyment of the property for which a payment described in paragraph (3)(b) of this Article is received; or (c) make available technical knowledge, experience, skill, know-how or processes, or consist of the development and transfer of a technical plan or technical design." 16. From the bare words of the Article, it is clear that income of Shivgan SIPCL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Oxford English dictionary and has observed that a consultant is a person who gives professional advice or services in a specialized field. However, the AAR failed to appreciate that the word 'Consultancy' appearing in the Article is to be interpreted in the context of consultancy which makes available technical knowledge, etc. and not of managerial nature. The reading of the Article clearly indicates that the consultancy service must be which makes available technical knowledge, etc. Sub-para (c) to Article 13(4) restricts such services to those which make available technical knowledge or consist of development and transfer of a technical plan or technical design. Thus, a harmonious reading of the provision of Article 13 in its entirety, clearly establishes the intent of the DTAA in making income chargeable to tax only if the services availed pertain to technical services or consultancy services. Technical services in this context mean services requiring expertise in a technology. By Consultancy Services, in this context, would mean advisory services. The categories of technical and consultancy services are to some extent, overlapping. Under paragraph 4, technical and consulta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gy inasmuch as numerous things used or relied upon in every day life is the result of scientific and technological development. Every instrument or gadget that is used to make life easier is the result of scientific invention or development and involves the use of technology. On that score, every provider of every instrument or facility used by a person cannot be regarded as providing technical service. 11. When a person hires a taxi to move from one place to another, he uses a product of science and technology, viz., an automobile. It cannot on that ground be said that the taxi driver who controls the vehicle, and monitors its movement is rendering a technical service to the person who uses the automobile. Similarly, when a person travels by train or in an aeroplane, it cannot be said that the railways or airlines is rendering a technical service to the passenger and, therefore, the passenger is under an obligation to deduct tax at source on the payments made to the railway or the airline for having used it for travelling from one destination to another. When a person travels by bus, it cannot be said that the undertaking which owns the bus service is rendering technical service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the agreement are clearly made available to Petitioner. In order to understand the import of the words 'made available' as used in the context of Article 13(4)(c), it will be useful to refer to a decision of the Karnataka High Court in CIT, Central Circle v. De Beers (Supra). Paragraph 22 reads as follows: "22. What is the meaning of "make available". The technical or consultancy service rendered should be of such a nature that it "makes available" to the recipient technical knowledge, knowhow and the like. The service should be aimed at and result in transmitting technical knowledge, etc., so that the payer of the service could derive an enduring benefit and utilize the knowledge or know-how on his own in future without the aid of the service provider. In other words, to fit into the terminology "make available", the technical knowledge, skill?, etc., must remain with the person receiving the services even after the particular contract comes to an end. It is not enough that the services offered are the product of intense technological effort and a lot of technical knowledge and experience of the service provider have gone into it. The technical knowledge or skills of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0? 19. This undisputed fact in itself demolishes the action of the Assessing Officer/DRP. Facts on record show that the recipient of the services is not enabled to provide the same service without recourse to the service provider, i.e, the assessee. 20. In our humble opinion, mere incidental advantage to the recipient of services is not enough. The real test is the transfer of technology and on the given facts of the case, there is no transfer of technology and what has been appreciated by the Assessing Officer/ld. CIT(A) is the incidental benefit to the assessee which has been considered to be of enduring advantage. 21. In our understanding, in order to invoke make available clauses, technical knowledge and skill must remain with the person receiving the services even after the particular contract comes to an end and the technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider. " [Emphasis is ours] 15. We tend to agree with the analysis and conclusion arrived at by the Tribunal." (emphasis supplied) 23. Therefore, even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment is at liberty to take necessary steps as available to it in law including as to whether the subject will be covered under Article 7 of the DTAA. We express no opinion. In such proceedings, if taken, the time taken in the present proceedings will stand excluded for the purpose of limitation. 12. From the above it is observed that the Hon'ble High Court has categorically held that the services rendered by the assessee are not in the nature of technical service and are merely managerial in nature, though in the case of SIMPL, the same has a binding effect on the assessee for the reason that it arises out of the same CCA for availing General BSS. As the ruling of Hon'ble AAR holding that the same is liable to be taxed in India as 'fee for technical service' has been reversed by the Hon'ble High Court, we find no reason to uphold the order of the ld. A.O. who in fact has relied on the Hon'be AAR's ruling to decide the issue in hand. We, therefore, deem it fit to allow the grounds of appeal raised by the assessee. As the issue relating to permanent establishment of the assessee is not specifically raised before us by both the sides in the grounds of appeal, except for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2024) 164 taxmann.com 10 (Bom.) by placing reliance on the decision of the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt. Ltd.(supra). The relevant observations of the Hon'ble High Court is extracted below - "6. We have heard the Learned Counsel for the parties. We have been taken through the impugned orders passed by the Tribunal. 7. The Tribunal considering the provisions of the IT Act, as also the position in law as laid down in various decisions has observed that the assessee had made purchases of computer software from the residents of Denmark and Finland. It was observed that such purchases would fall within the provisions of the Double Taxation Avoidance Agreement ("DTAA") entered between India and these countries. The Tribunal also observed that a co-ordinate Bench of the Tribunal in the assessee's own case in ITAS No.2529/Mum/2008 and ITAS No.4587/Mum/ 2010 had held that in such cases similar remittances made to the residents of Germany and France, were held to be not liable for deduction of tax at source. The Tribunal, following the decision of its co-ordinate Bench, in assessee's own case, dismissed the appeal fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Delhi High Court in interpreting such transactions in the context of Section 9(1)(vi) of the Act. The Supreme Court held that considering the provisions of DTAA, there was no obligation on the persons mentioned in Section 195(1) of the Act to deduct tax at source as the distribution agreements, in the facts of the case did not create any interest or right in such distributors/end users, which amounted to the use or right to use any copyright. It was held that the provisions of Section 9(1)(vi) of the Act along with Explanation 2 and 4 thereof which dealt with royalty, not being more beneficial to the assessee, had no application in the facts of the case. It would be appropriate to extract the conclusion as rendered by the Supreme Court in which reads thus:- "168. Given the definition of royalties contained in Article 12 of the DTAAs mentioned in paragraph 41 of this judgment, it is clear that there is no obligation on the persons mentioned in section 195 of the Income-tax Act to deduct tax at source, as the distribution agreements/EULAs in the facts of these cases do not create any interest or right in such distributors/end-users, which would amount to the use of or right to us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hold that the amount received towards cost allocation of SUN Maintenance Software and GSAP maintenance charges cannot be treated as royalty and the addition made in this regard is not sustainable. Ground No.6,7 & 9 raised by the assessee in this regard are allowed. Ground No.5 & 8 on the same issue has become academic and left open. Treatment of cost allocation pertaining to GSAP Go-Live and access of GSAP application as Royalty 9. During the year under consideration the assessee received payments towards cost allocation for GSAP Go-Live application. The AO held that the receipt is a Royalty both under the DTAA and under section 9(1) of the Act. The ld. AR submitted that the assessee has entered into an agreement with IBM for procurement of licence of GSAP Software and the same is customized the requirements of the assessee. The ld. AR further submitted that the cost incurred towards the licence and for Go-Live are allocated to the Shell group companies on a cost to cost basis based on the number of users. The ld. AR drew our attention to the findings given by the DRP in para-12.3.1 of the directions wherein the DRP has held that GSAP maintenance charges are similar to SUN Mainte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a and UK reads as under - 3. For the purposes of this Article, the term "royalties" means : (a) payments of any kind received as a consideration for the use of, or the right to use, any copyright of a literary, artistic or scientific work, including cinematography films or work on films, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience; and (b) payments of any kind received as consideration for the use of, or the right to use, any industrial, commercial or scientific equipment, other than income derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic. 12. A plain reading of the above article makes it clear that only when the payment is made towards the right to use the copy right the same would fall within the definition of Royalty under the DTAA. In assessee's case the amount received towards cost allocation of expenses incurred towards acquiring the licence to access GSAP Software and the cost incurred towards modifi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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