Bombay High Court
Shell India Markets Private Limited vs The Union Of India, Through Ministry Of ... on 1 March, 2024
Author: Neela Gokhale
Bench: K. R. Shriram, Neela Gokhale
2024:BHC-AS:10000-DB
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signed by
SHAMBHAVI 1/23 901-aswp-10788-2012-J.doc
SHAMBHAVI NILESH
NILESH SHIVGAN
SHIVGAN Date:
2024.03.01
17:41:20
+0530
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
WRIT PETITION NO. 10788 OF 2012
Shell India Markets Private Limited,
a company incorporated under the
provisions of the Companies Act, 1956
and having its registered office at
2nd Floor, Campus 4A
RMZ Millenia Business Park, 143,
Dr. MGR Road,
Perungudi, Chennai-600 096
and its principal place of business at
Powai Plaza, 401-403, 4th Floor,
Hiranandani Business Park, Powai,
Mumbai-400 076 ...Petitioner
Versus
1. The Union of India,
Through Ministry of Finance
North Block, New Delhi - 110 001.
2. The Authority for Advance Ruling,
having its office at
5th Floor, NMDC Building
Yashwant Place,
Satya Marg, Chanakyapuri
New Delhi-110 021.
3. The Commissioner of Income Tax,
(Large Tax Payer Unit)
having his office at 29th Floor,
Centre 1, World Trade Centre,
Cuffe Parade, Mumbai - 400005.
4. The Assistant Director of Income Tax,
(International Taxation)-2(1)
having his office at
1st Floor, R No.120, Scindia House,
Ballard Estate, N.M.Road,
Mumbai-400 038
5. The Deputy Director of Income Tax,
(International Taxation)-2(1)
having his office at
1st Floor, R.No.120, Scindia House,
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Ballard Estate, N.M.Road,
Mumbai-400 038 ...Respondents
Mr. Jehangir D. Mistri, Senior Advocate, with Mr. Madhur Agrawal
with Ms. Sheeja John, Ms. Vaishnavi Malasure i/by M.P. Savla &
Co., for Petitioner.
Mr. Suresh Kumar, for Respondents.
CORAM : K. R. SHRIRAM &
DR. NEELA GOKHALE, JJ.
RESERVED ON : 16th February, 2024
PRONOUNCED ON : 1st March, 2024
JUDGMENT:
(Per Dr. Neela Gokhale, J.)
1. This Petition visits the question pertaining to determination of
tax liability of the payments made by Petitioner to its non resident
group company, Shell International Petroleum Company Limited
("SIPCL") for availing General Business Support Services ("BSS")
under a Cost Contribution Arrangement ("CCA") between Petitioner
and SIPCL.
2. On an application made by Petitioner seeking such
determination, the Authority for Advance Rulings (Income Tax), New
Delhi ("AAR"), by its Order dated 17th January 2012 held that
payments made by Petitioner to SIPCL towards BSS under the CCA
constitutes income in the hands of SIPCL being in the nature of fees
for technical services within the meaning of Article 13.4 (c) of the
Double Tax Avoidance Agreement ("DTAA") between India and UK
and is chargeable to tax in India. Consequently, AAR held that
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Petitioner is under obligation to withhold tax under section 195 of
the Income Tax Act, 1961 ("the Act").
3. Aggrieved by this Order, Petitioner, by way of the present
petition, challenges the validity and legality of the said Order passed
by the AAR.
4. Petitioner is a company registered in India under the
Companies Act, 1956 and engaged, inter alia, in the business of
operating chain of retail fuel stations in India. Respondent No.1 is the
Union of India, Respondent No. 2 is the AAR and the other
Respondents are the various officials concerned of the Income Tax
department.
5. By way of a CCA dated 1st April 2009 executed between
Petitioner and SIPCL, Petitioner avails of BSS provided by SIPCL to all
operating companies in its group across the world. The arrangement
is that SIPCL manages for consideration its group entities, either
directly or through own employees or through its third party
affiliates/vendors. The costs incurred are then allocated to Shell
entities including SIPCL on a cost to cost basis.
6. It is the case of Petitioner that services availed by it are
managerial services only and specifically exclude technical services.
Petitioner makes payment for the availed services on the basis of
share determined using cost allocation keys specified in the CCA.
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With a view to attain clarity in respect of its obligation to deduct tax
at source, in case the payments made by it to SIPCL represents
income taxable in India, Petitioner made an application under Section
245R of the Income Tax Act, 1961 ("the Act") to the AAR raising
various related questions. The questions were:
"i. Whether the payments made by the Applicant to Shell
International Petroleum Company Limited ("SIPCL") for
availing General Business Support Services ("General
BSS") under the terms of the Cost Contribution Agreement
("CCA"), would constitute "income" in the hands of SIPCL
within the meaning of the term in Section 2(24) of the
Act?
ii. If the answer to Question 1 is in the affirmative,
whether ther payments made by the Applicant to SIPCL for
availing General BSS under the terms of the CCA would be
in the nature of Fees for Technical Services ("FTS") within
the meaning of the term in Article 13 of 'Convention
between the Government of the Republic of India and the
Government of the Republic of India and the Government
of United Kingdom of Great Britain and Northern Ireland
for the avoidance of double taxation and the prevention of
fiscal evasion with respect to taxes on income and capital
gains' ("the India-UK Tax Treaty")?
iii. Whether the payments made by the Applicant to SIPCL
for availing General BSS under the terms of the CCA
would be in the nature of "royalty" within the meaning of
the term in Explanation 2 to clause (vi) of Section 9(1) of
the Act?
iv. Whether the payments made by the Applicant to SIPCL
for availing General BSS under the terms of the CCA
would be in the nature of "royalty" within the meaning of
the terms in Article 13 of the India-UK Tax Treaty?
v. Based on the answers to Questions (1) to (4) above,
and in view of the facts as stated in Attachment III, and
also in light of the declaration provided by SIPCL that it
does not have a permanent establishment in India in terms
of Article 5 of the India-UK Tax Treaty, whether the
payments received by SIPCL would be chargeable to tax in
India? If the answer is in the affirmative, would the
payments made by the Applicant to SIPCL suffer
withholding tax under section 195 of the Act and at what
rate?"
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7. Although none representing the Revenue Department appeared
before the AAR, a notice dated 2nd December 2009 was received by
Petitioner from the Assistant Director of Income Tax, (International
Taxation)-2(1) Mumbai seeking certain clarification including details
of the nature of services availed by it. Petitioner provided the
required details vide its reply dated 23rd December 2009. Further
details were sought by another notice dated 21st January 2010 issued
by the Deputy Director of Income Tax, (International Taxation)-2(1),
Mumbai. Petitioner provided additional details as well by letter dated
27th January 2010, which included following information:
i. Details regarding nature of services covered by CCA.
ii. The costs of certain services availed by SIPLC from its
third party vendors in relation to corporate activities/costs
were not directly attributable to Petitioner.
iii. Petitioner had not deducted tax at source since SIPCL has
not made available any technical services to petitioner.
iv. Petitioner had not availed any BSS from SIPCL prior to
1st April 2008 and hence no amount was payable prior to
that date.
v. Documents including audited financial statements of
Petitioner from FYs 2005-06 to 2008-09, copy of Form 3CEB
for financial year 2006-07 etc., were provided. Petitioner
also filed additional submissions before the AAR which were
not rebutted by the Department.
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8. AAR, by the impugned order dated 17 th January 2012 held as
under:
" We therefore rule on Que.No.(i) & (ii) that the payment
made by the applicant to SIPCL for availing the General
BSS under the CCA would constitute income in the hands
of SIPCL and is in the nature of fees for technical services
within the meaning of Article 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. "
9. Petitioner assailed this order in the Supreme Court of India by
filing a Special leave Petition No. 31543/2012. The Supreme Court
after observing that the AAR being a quasi judicial authority at par as
a 'tribunal', a challenge to its order is assailable not only in the
Supreme Court but also in the High Court, permitted Petitioner to
withdraw the SLP with liberty to move the High Court invoking its
writ jurisdiction of Article 226 of the Constitution of India. Petitioner
is thus before us seeking relief as prayed.
10. By an order dated 30th June 2014, Rule was issued and the
petition was admitted.
11. Submissions of Mr. Mistry are as follows:
i. AAR has erred in concluding that transactions
contemplated under the CCA involve rendering technical
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and consultancy services and thus fall within the scope and
ambit of Article 13 of the India-UK DTAA. The AAR has
failed to appreciate that the CCA is only an approach
adopted by the group entities as part of their group
business strategy at standardizing and carrying out global
quality business in a cost effective manner.
ii. Services availed by Petitioner are neither intended nor
result in placing Petitioner in a position where it could
independently carry on services without SIPCL.
iii. Services that make available technical knowledge, skill,
know how etc., are distinct from services shared under the
CCA which may involve technology/industry expertise but
neither can be construed as technical services nor satisfy
the requirement of making available technical knowledge
as commonly understood.
iv. The CCA represents sharing of cost amongst the cost
sharers pursuant to which Petitioner becomes co-owner of
any expertise arising out of the arrangement.
v. The AAR has totally disregarded the authentic technical
commentary-protocol in India-USA DTAA which is similarly
worded and involves determination of similar technical
aspects relating to the 'make available' condition.
vi. The AAR has interpreted the requirements to be satisfied
for 'make available' requirement based on its own general
notion of the said term and thereby reached an erroneous
conclusion that the services availed are technical services.
Thus the impugned order is inconsistent, arbitrary, and
unlawful which deserves to be set aside.
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vii. The AAR has failed to appreciate that the services
under the CCA do not necessarily make available technical
knowledge, skill, experience etc merely because the service
is technical and involves industry expertise.
viii. AAR further erred in ignoring its own observation
that provision of services did not involve element of profit
and therefore, in holding that the payments received by
SIPCL would be in the nature of income chargeable to tax
in India in the hands of SIPCL.
(ix) What will be covered in Article 13 is only fees for
technical services arising in a contracting state in India and
paid to a resident of the other contracting state. Such fees
may be taxed in the other contracting state, i.e., UK.
However, fees for technical services may also be taxed in
India according to the law of India but if the beneficial
owner of the fees for technical services is a resident of UK
the tax so charged shall not exceed the rate prescribed in
clause 2.
(x) Under paragraph 4 of Article 13 for the purposes of
para 2, fees for technical services means payments of any
kind to any person in consideration for the rendering of any
technical or consultancy services which (under sub-clause
(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.
Therefore, it only covers fees for any technical or
consultancy services which make available technical
knowledge etc. Even if it is fees for consultancy services, it
can be only where technical knowledge, experience is made
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available. If either of these ingredients are missing, it
cannot come under Article 13(4).
12. Mr. Mistry stated that since passing of the impugned order,
Petitioner is deducting tax at source in respect of SIPCL. However,
he urges the court to allow the Petition as that was/is done only
by way of abundant caution.
Mr. Mistry relied on the following decisions of various High
Courts to buttress his arguments relating to the interpretation of
the term 'technical' and 'consultancy' services as well as the
meaning of the term 'make available' as they appear in the DTAA.
a. Commissioner of Income Tax, Central Circle v. De Beers
India Minerals (P) Ltd 1
b. Director of Income Tax v. Guy Carpenter & Co. Ltd2
c. US Technology Resources (P) Ltd. v. Commissioner of
Income Tax Thiruvanthapuram3
d. Commissioner of Income Tax (International Taxation
and Transfer Pricing v. Timken Company.4
e. Commissioner of Income Tax (International Taxation)-1
Delhi v. M/s Bio-rad Laboratories (Singapore) Pte. Ltd.5
f. Director of Income Tax (IT)-1 v. A.P. Moller Maersk-AS 6
g. Director of Income Tax, (IT)-1 v. WNS Global Services
(UK) Ltd7
1 (2012) 21 taxmann.com 214 (Karnataka)
2 (2012) 20 taxman.com 807 (Delhi)
3 (2018) 97 taxmann.com 642 (Kerala)
4 (2023) 149 taxman.com 251 (Calcutta)
5 ITA 564 of 2023 (Delhi High Court) decided on 3.10.2023
6 Supreme Court Civil Appeal No.8040 of 2015 decided on 17.2.2017
7 (2013) 32 taxmann.com 54 (Bombay)
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13. Mr. Suresh Kumar submitted as follows:
(I) The AAR has dealt with in detail the submissions of
Petitioner regarding the definition of the term 'Fees for
Technical Services' and has rightly concluded that the
transactions contemplated under CCA involve rendering
services of technical nature which fall within the scope of
Article 13 of the India-UK DTAA.
(II) Petitioner is able to use the know-how/intellectual
property generated from the General BSS independent of the
service provider and hence, the services have been 'made
available' to Petitioner.
(III) The CCA does not contain any exhaustive description of
services covered under the General BSS to be availed by
Petitioner and the Appendix 2 of CCA only gives broad
headings not specifying any information regarding the type of
service being provided to Petitioner. In the absence of this
information, AAR has rightly inferred the nature of services to
be 'consultancy services'/ 'technical services'.
(IV) Petitioner cannot rely on the Protocol annexed to the
India-USA DTAA specifying the meaning of the phrases/words
'make available' because the contents of a DTAA with one
country cannot be imported in the DTAA of another country
unless the DTAA itself is modified or amended to that extent.
Since the India-UK DTAA is not amended to include any
content or explanation regarding interpretation of the words
'make available' to read in consonance with the India-USA
DTAA, the same has to be read independently and a parallel
cannot be drawn in that regard.
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(V) The AAR has correctly interpreted the phrase 'make
available' as the ownership of Petitioner to the expertise shared
by SPCIL arises from sharing of costs and Petitioner owns the
results of the expertise only when such expertise is transferred
to it. Thus, the view of the AAR that General BSS is made
available to Petitioner is correct.
(VI) The AAR has taken a view in respect of the interpretation
of the words and phrases of the DTAA and since there is no
perversity in the said view, this Court may not substitute that
view with its own view under its Article 226 writ jurisdiction.
(VII) It is true that the AAR has not dealt with the aspect as to
whether the transaction falls within the scope and ambit of
Article 7 of the DTAA and the question pertaining to
'permanent establishment' of SIPCL remains unanswered. In
this context, the proceedings be remanded to the AAR to give a
ruling on this aspect also. In the event the Court opines in
favour of Petitioner and holds the services not to be
'technical/consultation', the Department may be permitted to
take necessary steps against Petitioner as permitted in law and
the time spent during the pendency of this Petition be excluded
for the purpose of limitation.
ANALYSIS AND FINDINGS:
14. By the impugned order, the AAR has determined that the
payment made by Petitioner to SIPCL for availing the General BSS
under the CCA is in the nature of fees for 'technical services' within
the meaning of Article 13.4(c) of the DTAA and hence, constitutes
income in the hands of SIPCL. It has thus ruled that Petitioner is
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under obligation to deduct tax at source under Section 195 of the
Act. The AAR has not gone into but prima facie has accepted the
declaration provided by SIPCL that it does not have permanent
establishment in India and in any case that was not the issue before
AAR. There is no discussion or finding pertaining to the status of
SIPCL as having permanent establishment in India in terms of Article
5 of the DTAA. Hence, determination by the AAR on this issue
remains inconclusive.
15. Be that as it may, the crux of the matter lies in ascertaining
whether the finding of the AAR that services availed by Petitioner
from SIPCL or payments made by Petitioner to SIPCL are of/for
'technical/'consultation' services and secondly, whether such services
are 'made available' to Petitioner. Article 13 of DTAA reads as under:
"ARTICLE 13
ROYALTIES AND FEES FOR TECHNICAL SERVICES
1. Royalties and fees for technical services arising in a
Contracting State and paid to a resident of the other
Contracting State may be taxed in that other State.
2. However, such royalties and fees for technical services may
also be taxed in the Contracting State in which they arise and
according to the law of that State; but if the beneficial owner
of the royalties or fees for technical services is a resident of the
other Contracting State, the tax so charged shall not exceed:
(a) in the case of royalties within paragraph (3)(a) of
this Article, and fees for technical services within
paragraph (4)(a) and (c) of this Article;
(i) during the first five years for which this
Convention has effect;
(aa) 15 per cent of the gross amount of such royalties
or fees for technical services when the payer of the
royalties or fees for technical services is the
Government of the first-mentioned Contracting State or
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a political subdivision of that State, and
(bb) 20 per cent of the gross amount of such royalties
or fees for technical services in all other cases; and
(ii) during subsequent years, 15 per cent of the
gross amount of such royalties or fees for
technical services; and
(b) in the case of royalties within paragraph (3)(b) of
this Article and fees for technical services defined in
paragraph (4)(b) of this Article, 10 per cent of the gross
amount of such royalties and fees for technical services.
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
cinematograph films or work on films, tape or other
means of reproduction for use in connection with radio
or television broadcasting, any patent, trademark,
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
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
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SIPCL will be chargeable to tax in India only if the payment by
Petitioner is towards fees for 'technical services'. Under Article
13(4), the term 'fees for technical services' means payments of any
kind in consideration for the rendering of any technical or
consultancy services. Sub-para (c) to Article 13(4) further restricts
the meaning of the term to only that which makes available
technical knowledge, experience, skill, know-how or processes, or
consists of the development or transfer of a technical plan or
technical design.
17. The principle of noscitur a sociis mandates that the meaning of
a word is to be judged by the company of other words which it
keeps. The word 'consultancy' services follows 'technical' which is
further followed by the phrase "which make available technical
knowledge, experience, skill, know-how or processes, or consist of
development and transfer of a technical plan or technical design." A
clear reading indicates that even if consultancy services is 'stand
alone', the bunch of words indicate that the said 'consultancy'
necessarily relates to consultancy which makes available technical or
any other knowledge, experience, skill, know-how or processes and
does not relate to consultancy on managerial issues.
18. The Appendix 2 of CCA contains the General BSS. The list of
services availed are as follows:
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EXAMPLES OF GENERAL BUSINESS SUPPORT SERVICES:
Management Support
Development and Provisions of Support and Business Tools
Provision of Marketing Support.
Development, Communication and Audit of Standards of
Performance
Promotion of Professional Competence
Information Technology Advice and Services
General Financial Advice and Services
Taxation Advice and Services
Legal Services
Employee Relations and Public Affairs/Media Advice and Services
HR Advice and Services
Contracting and Procurement Services
Other Business Support Services
A perusal of the list of services relate to managerial services not
involving anything of a technical nature. The AAR has discussed the
services appearing in the CCA and has concluded that these
activities in a retail business are at the core of retail marketing and
hence advice tendered in taking a decision of commercial nature is a
consultancy service. The AAR has further considered the definition
of the word 'Consultancy' as defined in 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
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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 consultancy services
are considered included services only to the following extent: (1) as
described in paragraph 4(a), if they are ancillary and subsidiary to
the application or enjoyment of a right, property or information for
which a payment described in paragraph (3)(a) of Article 13 is
received; (2) are ancillary and subsidiary to the enjoyment of the
property for which a payment described in paragraph (3)(b) of
Article 13 is received; or (3) as described in paragraph 4(c), if they
make available technical knowledge, experience, skill, know-how, or
processes, or consist of the development and transfer of a technical
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plan or technical design. Thus, under paragraph 4(c), consultancy
services which are not of a technical nature cannot be included
services.
Thus, the services availed by Petitioner cannot be said to be
technical services and Article 13 is wholly inapplicable in the facts
and circumstances of the present case.
19. It will be useful to refer to a decision of the Madras High Court
in the case of Skycell Communications Ltd and Anr. v. Deputy
Commissioner of Income-Tax and Ors.8 which held as follows:
"8. Thus while stating that "technical service" would include
managerial and consultancy service, the Legislature has not set
out with precision as to what would constitute "technical"
service to render it "technical service". The meaning of the word
"technical" as given in the New Oxford Dictionary is adjective 1.
of or relating to a particular subject, art or craft or its techniques
: technical terms (especially of a book or article) requiring
special knowledge to be understood : a technical report. 2. of
involving, or concerned with applied and industrial sciences : an
important technical achievement. 3. resulting from mechanical
failure : a technical fault. 4. according to a strict application or
interpretation of the law or the rules : the arrest was a technical
violation of the treaty.
9. Having regard to the fact that the term is required to be
understood in the context in which it is used, "fee for technical
services" could only be meant to cover such things technical as
are capable of being provided by way of service for a fee. The
popular meaning associated with "technical" is "involving or
concerning applied and industrial science".
10. In the modern day world, almost every facet of one's life is
linked to science and technology 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
8 (2001) 251 ITR 53
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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 to the
passenger and, therefore, the passenger must deduct tax at
source on the payment made to the bus service provider, for
having used the bus. The electricity supplied to a consumer
cannot, on the ground that generators are used to generate
electricity, transmission lines to carry the power, transformers to
regulate the flow of current, meters to measure the
consumption, be regarded as amounting to provision of
technical services to the consumer resulting in the consumer
having to deduct tax at source on the payment made for the
power consumed and remit the same to the Revenue.
15.The use of the internet and the world wide web is increasing
by leaps and bounds, and there are hundreds of thousands, if
not millions, of subscribers to that facility. The internet is very
much a product of technology, and without the sophisticated
equipment installed by the internet service providers and the use
of the telephone fixed or mobile through which the connection is
established, the service cannot be provided. However, on that
score, every subscriber of the internet service provider cannot be
regarded as having entered into a contract for availing of
technical services from the provider of the internet service, and
such subscriber regarded as being obliged to deduct tax at
source on the payment made to the internet service provider.
20. Thus, it is clear from the said decision that any service is
construable as technical but one has to see the true import of the
service actually rendered and the determination must be made in
this context. There is no such discussion in the Impugned order and
the finding is based on a generic reference to the meaning of the
word 'consultancy' as given in the Oxford English Dictionary. The
AAR further holds that the list of services mentioned in the CCA is
not an exhaustive list and may include other technical services. Thus
Petitioner is correct in contending that the AAR has proceeded on
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conjectures and surmises to render the finding in the impugned
order.
21. The AAR has further held that the services are made available
to Petitioner since while providing General BSS, SIPCL works closely
with the employees of the applicant and supports/advises them. It is
held that Petitioner is able to use the know how/intellectual
property generated from the General BSS independent of the service
provider and hence the services under 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, know-
how 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
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. Technology
will be considered "made available" when the person acquiring
the service is enabled to apply the technology. The fact that the
provision of the service that may require technical knowledge,
skills, etc., does not mean that technology is made available to
the person purchasing the service, within the meaning of
paragraph (4)(b). Similarly, the use of a product which
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embodies technology shall not per se be considered to make the
technology available. In other words, payment of consideration
would be regarded as "fee for technical/included services" only if
the twin test of rendering services and making technical
knowledge available at the same time is satisfied."
(emphasis supplied)
22. Similarly, the Delhi High Court in the CIT (International
Taxation)-1, Delhi v. M/s Bio-rad (Supra) has discussed the said
concept accordingly. Paragraphs 14 and 15 read as under:
14. According to the Tribunal, the agreement between the
respondent/assessee and its Indian affiliate had been effective
from 01.01.2010, and if, as contended by the appellant/revenue,
technical knowledge, experience, skill, and other processes had
been made available to the Indian affiliate, the agreement would
not have run its course for such a long period.
14.1 Notably, this aspect is adverted to in paragraphs 17 to 23 of
the impugned order. For convenience, the relevant paragraphs
are extracted hereafter:
"17. A perusal of the aforementioned provision shows that in
order to qualify as FTS, the services rendered ought to satisfy
the 'make available' test. Therefore, in our considered
opinion, in order to bring the alleged managerial services
within the ambit of FTS under the India-Singapore DTAA, the
services would have to satisfy the 'make available' test and
such services should enable the person acquiring the services
to apply the technology contained therein.
"18. As mentioned elsewhere, the agreement is effective from
01.01.2010 and we are in Assessment Years 2018-19 and
2019-120.[sic.....20]. In our considered opinion, if the
assessee had enabled the service recipient to apply the
technology on its own, then why would the service recipient
require such service year after year every year since 2010?
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
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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 if it is fees for technical or consultancy
services, it can be only where fees are paid in consideration for
making available technical knowledge, experience etc. Thus the
view of the AAR that SIPCL works closely and advises the
employees of Petitioner and hence makes available the services is
not correct. This view in fact suffers from fallacy since the
agreement continues to operate till date. If the view of AAR is to
be held as correct then the contract must stand concluded as
once the services and the know how, skill etc is transferred to
Petitioner, the need of continuing to render said services must
end. This is factually not so as the CCA is in effect till date.
24. Considering the above discussion it is clear that the AAR
has interpreted the requirements to be satisfied for 'make
available' based on its own general notion of the said term
without appreciating the applicable law on the subject and also
reached an erroneous conclusion that the services availed are
technical services.
25. Moreover, the AAR has not dealt with the issue relating to
the 'Permanent Establishment' of SIPCL and there is no
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determination on the same. Of course, that was not a subject of
reference before AAR.
26. Thus, we have no hesitation in holding that the impugned
order dated 17th January 2012 of AAR suffers from legal infirmity
and is quashed and set aside.
27. During the course of the arguments, Mr. Mistry stated that
Petitioner only seeks relief prayed in clauses (a) and (b) of the
petition and does not press the other prayers. Rule is thus made
absolute in terms of prayer clauses (a) and (b) which read as
follows -
"a) That this Hon'ble Court be pleased to declare that
the transactions under CCA do not amount to being
technical in nature per Article 13 of DTAA between India
and UK and therefore, would not be taxable in India;
b) That this Hon'ble Court may be pleased to issue a
Writ of Certiorari or a Writ in the nature of Certiorari
and/or any other appropriate writ, order or direction
under Article 226 of the Constitution of India calling for
the records and papers of the Petitioner's case and after
examining the legality and validity thereof quash and set
aside the impugned order dated 17.01.2012 passed by the
Authority in AAR No. 833/2009, in the case of the
Petitioner and further."
28. It is made clear that that the Department 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.
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29. There will be no orders as to costs.
(DR. NEELA GOKHALE, J.) (K. R. SHRIRAM, J.)
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