The Ahmedabad Bench of Income Tax Appellate Tribunal ( ITAT ) rejected the taxability of services under the India-Netherlands Tax Treaty, ruling that the services provided did not involve the transfer of technology, and therefore, did not qualify as Fees for Technical Services ( FTS ) under the treaty.
Shell International B.V.,appellant-assessee,managed the global recruitment team for the Shell Group under CHR recruitment services, supporting regional hiring and broader talent strategies. Costs were allocated to Shell entities based on the number of recruitments. The Assessing Officer ( AO ) classified these as fees for technical services, citing the specialized expertise and consultancy provided.
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For External Information Services ( EIS ), the assessee subscribed to databases offering industry research and shared the costs with Shell entities based on usage. The AO determined these services were technical, involving expert guidance for affiliates in accessing and using the data.
Under IT migration services, the assessee set up a shared services center, provided IT infrastructure support, and facilitated operations migration. Costs were recharged based on personnel time, and these activities were also deemed technical services, requiring expertise and consultancy.
The AO determined that the services provided by the appellant imparted skills and knowledge to affiliates, enhancing their employees’ expertise and making the services taxable as FTS under the Double Taxation Avoidance Agreement ( DTAA ). Relying on the GVK Industries Ltd. v. ITO ruling, the AO classified the services as technical and consultancy in nature, involving the transfer of technical knowledge and resources.
The assessee argued that the services did not “make available” technology as required under the India-Netherlands tax treaty to qualify as FTS. It was further contended that the GVK Industries case was irrelevant as it dealt with domestic law and the India-Switzerland treaty. The assessee also claimed the services were provided on a cost-to-cost basis with no profit element and were managerial, not technical, falling outside the treaty’s FTS definition.
The Departmental Representative ( DR ) countered that the services involved knowledge transfer, making them technical under both domestic and treaty provisions. The DR argued that the appellant failed to prove the absence of a profit element and highlighted the lack of supporting agreements, maintaining the services qualified as FTS under the India-Netherlands treaty.
The tribunal examined the rival contentions and reviewed the material on record. It noted that the appellant argued the services were “managerial” and fell outside the definition of FTS under the India-Netherlands tax treaty, as the term “managerial” was not included in the treaty.
However, the appellate tribunal determined that the services did not qualify as managerial. Instead, they were technical or consultancy in nature, aligning with general definitions of these terms in the absence of specific definitions in the Act.
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Regarding the claim that the services were provided on a cost-to-cost basis with no income element, the tribunal found that the assessee failed to demonstrate that only the precise costs incurred for rendering the services were recovered. It observed that the facts on record did not support the argument of cost reimbursement without a profit element.
The assessee also contended that the services were “non-technical” and thus outside the scope of FTS. However, the bench held that the services were clearly technical in nature, involving the use of technology, citing relevant judicial precedents that interpreted the term “technical” broadly.
The two member bench comprising Siddhartha Nautiyal ( Judicial Member ) and Annapurna Gupta ( Accountant Member ) further analyzed whether the services “made available” technology to the recipients as required by the India-Netherlands tax treaty. It concluded that the services did not impart technology or enable the recipients to perform the services independently in the future. Consequently, the services did not fall within the definition of FTS under the treaty.
In short,the appeal filed by the assessee was allowed.
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