As a fee for technical services (FTS) business support services are not liable for tax, and no TDS is accountable to be deducted, The Bombay High Court ruled.
The bench of Justice K. R. Shriram and Justice Neela Gokhale noted that even if it is fees for technical or consultancy services, it can be just where fees are filed in consideration for making available technical knowledge, experience, and others. AAR’s opinion that the applicant, Shell International Petroleum Company Limited (SIPCL), functions and advises the employees of the petitioner closely and consequently makes available the services is incorrect.
The opinion of the AAR suffers from fallacy as the agreement carries on to function to date. If AAR is right, the contract should be concluded since the services and the know-how, skills, etc are transferred to the petitioner, and the requirement to continue to generate services should finish.
The problem seeks is for the determination of tax obligation for the payments incurred via the applicant to its non-resident group company, Shell International Petroleum Company Limited (SIPCL), for availing of General Business Support Services (BSS) beneath the Cost Contribution Arrangement (CCA) between Petitioner and SIPCL.
The applicant’s application asking for such determination, the Authority for Advance Rulings (Income Tax), New Delhi (AAR), by its Order, ruled that payments incurred through the applicant to SIPCL for BSS under the CCA include income in the hands of SIPCL like fees for technical services under the norms of Article 13.4(c) of the Double Tax Avoidance Agreement (DTAA) between India and UK and are levied to tax in India.
The applicant is beneath an obligation to withhold tax under Section 195 of the Income Tax Act, 1961, AAR ruled.
The petitioner argued that AAR has made a mistake in figuring that transactions considered beneath the CCA engaged in generating technical and consultancy services and counted beneath the ambit of Article 13 of the India-UK DTAA. The AAR fails to admire that the CCA is just an approach adopted via the group entities as a portion of their group business approach for regularizing and bringing global quality business at a lower cost.
The petitioner claimed services are neither planned nor consequence in placing the applicant in a position in which it can independently continue the services without SIPCL. Services that provide technical knowledge, skills, know-how, etc. are different from services shared beneath the CCA that may engage technology or industry expertise, though cannot be understood as technical services and not as fulfilling the need of making available technical knowledge as commonly comprehended.
The respondent argued that the AAR has been concerned with in detail the submissions of the applicant for the definition of the term ‘Fees for Technical Services’ and has rightly concluded that the transactions contemplated under the CCA involve rendering services of a technical nature that counted under the scope of Article 13 of the India-UK DTAA. The applicant can utilize the know-how and intellectual property rendered via the General BSS independently of the service provider, and therefore, the services have been ‘made available’ to the petitioner.
The CCA does not have any thorough description of services obscured under the General BSS which the applicant availed, and Appendix 2 of the CCA provides broad headings, not establishing any details concerning the sort of service being furnished to the applicant. AAR in the absence of this information, has rightly concluded the sort of services to be ‘consultancy services or ‘technical services’.
As per the court, the AAR analyzed the needs to be fulfilled to make available established on its general concept of the said term without admiring the pertinent law on the subject and also reached the incorrect judgment that the claimed services are technical.
The court articulated that the AAR has not negotiated with the problem of the ‘Permanent Establishment’ of SIPCL and there is no conclusion on that. That was not as per the reference before AAR.
| Case Title | Shell India Markets Private Limited Versus Union of India |
| Case No. | Writ Petition No. 10788 Of 2012 |
| Date | 01.03.2024 |
| For the Petitioner | Jehangir D. Mistri |
| For the Respondents | Suresh Kumar Case |
| Bombay High Court | Read Order |