In a major relief to Shell India Markets Private Limited, the Bombay High Court ruled that no TDS deductible on Business Support Services and it is not taxable as fees for technical services ( FTS ).
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.
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.
The counsel for the petitioner contended that AAR has erred in concluding that transactions contemplated under the CCA involve rendering technical and consultancy services and thus fall within the scope and ambit of Article 13 of the India-UK DTAA. The Advance Ruling Authority ( 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.
The counsel for the revenue contended that 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.
A Division Bench of Justices Dr Neela Gokhale and KR Shriram observed that “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.”
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