Case Law Details
Shell Information Technology International BV Vs DCIT (ITAT Mumbai)
Amount paid for IT Support Services should not be considered as FTS under Article 12 of India – Netherlands DTAA
Conclusion: 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 ) as 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.
Held: During the assessment proceedings, AO noted that out of total revenue of INR 317,04,06,042/-, assessee-company had 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 company 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 AO, the IT Support Services were liable to tax in the hands of assessee as Fee for Technical Services in terms of Section 9(1)(vii) as well as in terms of Article 12(5)(a) & 12(5)(b) of the Double Taxation Avoidance Agreement between India and Netherlands. Therefore, AO issued Draft Assessment Order, dated 15/09/2022, under Section 143(3) read with Section 144C proposing addition of IT Support Service Fee of INR 306,89,93,843/- in the hands of assessee-company. Assessee filed objections before the Dispute Resolution Panel (DRP). DRP rejected the aforesaid objections raised by assessee. Therefore, AO passed the Final Assessment Order, under Section 143(3) read with Section 144C (13) making an addition of Rs.306,89,93,843/- in the hands of assessee 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. It was 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 assessee for preceding assessment years. DRP following the judgment of the Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt. Ltd. Vs. CIT: 2021 directed AO not to treat Software Access Fee as ‘royalties’. Since according to AO 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 AO as per the directions of the DRP was deleted.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
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