The Mumbai bench of the Income Tax Appellate Tribunal ( ITAT ) has granted relief to Shell Information Technology, ruling that payments for IT support services were not considered fees for technical services under the provisions of Article 12 of the India-Netherlands Double Taxation Avoidance Agreement ( DTAA ).
The Appellant, Shell Information Technology International BV is a company registered under the laws of the Netherlands and was treated as non-resident under the provisions of the Income Tax Act, 1961. The appellant is engaged in providing IT Support Services to Shell Group Entities.
For the Assessment Year 2020-2021, the Appellant filed a return of income on 10/02/2021 declaring income of INR 2,41,13,630/- and claimed a refund of Rs. 6,24,52,024/-. The aforesaid return was revised on 29/05/2021. As per the revised return, the Appellant had offered to tax income of Rs. 2,41,13,630/- and claimed a refund of Rs. 6,32,55,940/-.
During the assessment proceedings, the Assessing Officer noted that out of total revenue of INR 317,04,06,042/-, the Appellant has offered to tax only income of Rs. 2,41,13,633/- being interest on income tax refund. The balance receipts of Rs.314,62,92,409/- which were not offered to tax by the Appellant included Rs.7,68,95,558/- being revenue from software access, INR 4,03,009/- being reimbursement of cost and Rs. 306,89,93,842/- being revenue from IT Support Services
According to the Assessing Officer, the IT Support Services were liable to tax in the hands of the Appellant as Fee for Technical Services in terms of Section 9(1)(vii) of the Act as well as in terms of Article 12(5)(a) & 12(5)(b) of the Double Taxation Avoidance Agreement between India and Netherlands. Therefore, the Assessing Officer issued Draft Assessment Order, dated 15/09/2022, under Section 143(3) read with Section 144C of the Act proposing addition of IT Support Service Fee of INR 306,89,93,843/- in the hands of the Appellant.
The Appellant filed objections on 11/10/2022 before the Dispute Resolution Panel (DRP). The DRP rejected the aforesaid objections raised by the Appellant. Therefore, the Assessing Officer passed the Final Assessment Order, under Section 143(3) read with Section 144C (13) of the Income Tax Act making an addition of Rs.306,89,93,843/- in the hands of the Appellant holding the same to be Fee for Technical Services liable to tax at the rate of 10% in terms of Article 12 of the DTAA.
Mr. Madhur Agarwal representing the Appellant submitted that the agreements in terms of which IT Support Service Fee was received by the Appellant, and the nature of the IT Support Service continues to be the same. Therefore, the addition of Rs. 306, 89, 93,843/- made by the Assessing Officer (holding the same to be Fee for Technical Services liable to tax at the rate of 10% in terms of Article 12 of the DTAA) cannot be sustained and be deleted
Per contra, Mr. Ajay Kumar Sharma representing the revenue submitted that the nature of the services rendered by the Appellant as well as the purpose/use of the same by the recipient of such services required investigation. The recipients of IT Support Services provided by the Appellant include IT Company such as IBM India Private Limited, Accenture Solutions Private Limited and WIPRO Limited.
The bench found that the tribunal had held that payment for IT Support Services were not in the nature of ‘Fee for Technical Services’ under the provisions of Act read with Article 12 of the DTAA in view of decisions of the coordinate Bench of the Tribunal in the case of the Appellant for preceding assessment years.
The two member bench of the tribunal comprising S. Rifaur Rahman (Accountant member) and (Rahul Chaudhary) Judicial member noted that for the Assessment Year 2019-2020, the DRP had, following the judgment of the Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt. Ltd. Vs. CIT: 2021 directed the Assessing Officer not to treat Software Access Fee as ‘royalties’. Since according to the Assessing Officer the IT Support Services were intricately connected with the provision of Software Access Service, the IT Support Services would also not qualify as ‘royalties’ in terms of Article 12(4) of the DTAA or as ‘Fee for Technical Services’ in terms of Article 12(5)(a) of the DTAA.
Therefore, the addition of Rs. 306, 89, 93,843/- on account of IT Support Service Fee made by the Assessing Officer as per the directions of the DRP was deleted, accordingly, appeal of the assessee was allowed.
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