Absence of ‘make available’ clause, services rendered not FTS under India-Netherland DTAA: ITAT grants Relief to Shell Global Solutions Intl [Read Order]

The Ahmedabad Bench of Income Tax Appellate Tribunal (ITAT) held that the condition of “make available” has not been satisfied in the instant set of facts and hence, the services do not qualify as Fees for Technical Services(FTS).

The assessee, M/s. Shell Global Solutions International B.V. is a company incorporated in Netherlands and is engaged in the business of providing research and technical services to array of petroleum related segments. It’s services include chemical analysis, crude oil evolution, engineering, energy optimisation, gas to liquids conversion, re-gasification, hybrid cracking, inspection, thermo-analysis and water treatment.

The Assessing Officer taxed the aforesaid amounts as software royalty in the hands of the assessee under Section 9(1)(vi) of the Income Tax Act,1961 read with the applicable Treaty law.

While holding receipts as royalty payment, the Dispute Resolution Panel (DRP) primarily relied upon the decision of Karnataka High Court in the case of CIT vs. Samsung Electronics Co. Ltd. and held that the payments received by the assessee company from Indian customers give rise to royalty income in terms of Article 12 of India-Netherlands DTAA (Double Taxation Avoidance Agreements) read with Section 9(1)(vi) of the Income Tax Act.

Aggrieved by the order of the DRP the assessee filed an appeal before the Tribunal.

The Authorised Representative of the assessee (AR) submitted that under the applicable India-Netherlands treaty, the taxability of aforesaid services are governed by the “make available” clause in respect of payment for FTS, in terms of which payments for services qualify as FTS under the Income Tax Act read with the India-Netherlands Treaty only if the assessee “makes available” technology to the recipient of services.

It was submitted that in the instant facts while holding that aforesaid payments as FTS, nothing has been brought on record by the Department to demonstrate that the condition of “make available” as provided under the Treaty has been satisfied in the instant set of facts, so as to make the payment taxable in India as FTS.

The Departmental Representative (DR) placed reliance on the observations made by DRP in its order. The Bench comprising of Waseem Ahmed, Accountant Member and Siddhartha Nautiyal, Judicial Member noted that the nature of services there is nothing to suggest that the condition of “make available” as provided in the India-Netherlands Tax Treaty have been satisfied.

It was observed that the 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. In the result it was held that the services do not qualify as “fee for technical services” under Section 9(1)(vii) of the Income Tax Act read with Article 12 of the India-Netherlands Tax Treaty.

Hence the assessee’s appeal was allowed.

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