IT Support Payments Not FTS under Article 12 of India-Netherlands DTAA

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

1. The present appeal is directed against the Final Assessment Order dated, 27/07/2023, pertaining to the Assessment Year 2020-2021 passed under Section 143(3) read with Section 144C(13) of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’], as per directions, dated 21/06/2023, issued by the CIT (Dispute Resolution Panel-2), Mumbai-1 (hereinafter referred to as ‘the DRP’) under Section 144C(5) of the Act.

2. The Assessee has raised the following grounds of appeal:

“1 General

Erred in assessing the total income at Rs. 3,09,31,07,476 as against Rs. 2,41,13,630 offered by the Appellant,

Final assessment order passed by the learned AO is bad in law

2 On the facts and circumstances of the case and in law, the learned AO erred in passing/issuing the final assessment order dated 27 July 2023 under section 143(3) read with section 144C(13) of the Act beyond the time limit as prescribed under section 153 of the Act. The Appellant submits that the final assessment order being barred by limitation is without jurisdiction and void ab initio and hence, the same is liable to be quashed.

Receipts towards IT support services does not constitute ‘income’

3. Erred in holding that the payments received by the Appellant constitutes ‘income” without appreciating that the appellant works on cost-only arrangement and the receipts were reimbursements being in the nature of cost allocation without markup and hence does not constitute ‘income’ under section 2(24) of the Act,

Receipts towards IT Support services held as ‘Fees for Technical Services'(‘FTS’) under the Act as well as India-Netherlands DTAA

4 Erred in holding that payments of Rs 3,06,89,93,843 received by the Appellant for IT Support Services constitutes ‘FTS’ under the provisions of the Act and under Article 12 of the India-Netherlands DTAA,

5. Failed to appreciate that IT support services do not ‘make available any technical knowledge, experience, skill, know-how or processes, etc to the service recipient under Article 12(5)(b) of the India-Netherlands DTAA and hence not subject to tax in India,

6. Failed to also appreciate that IT support services are not for providing specialized technical inputs or any technical services which are ancillary and subsidiary to the application/ enjoyment of the any right/property/information and hence cannot be termed as FTS under Article 12(5)(a) of the India-Netherlands DTAA and hence not subject to tax in India Incorrect tax rate on interest on income-tax refund

7. Erred in applying the tax rate of 40% plus applicable surcharge and cess on interest on income-tax refund, without appreciating the facts and circumstance of the case.

Short granting of credit for TDS

8. Erred in not granting the TDS credit of Rs. 1,21,98,857 without appreciating the facts and circumstance of the case.

Interest under section 234A of the Act

9. Erred in levying interest under section 234A of the Act without appreciating the facts and circumstance of the case.

Interest under section 234B of the Act

10. Erred in levying interest under section 234B of the Act without appreciating the facts and circumstance of the case

Incorrect amount of refund issued

11. Erred in considering a refund amount of Rs 8,49,588 issued to the Appellant wherein no refund was received by the Appellant without appreciating the facts and circumstance of the case.

Penalty under section 270A of the Act

12. Erred in levying penalty under section 270A of the Act for misreporting/underreporting particulars of income without appreciating the facts and circumstances of the case.”

3. The relevant facts in brief are that the Appellant is a company registered under the laws of Netherlands and is treated as non-resident under the provisions of the Act. The Appellant is engaged in providing IT Support Services to Shell Group Entities.

4. For the Assessment Year 2020-2021, the Appellant filed return of income on 10/02/2021 declaring income of INR 2,41,13,630/- and claimed a refund of INR 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 INR 2,41,13,630/- and claimed refund of INR 6,32,55,940/-. The case of the Appellant was selected for scrutiny. 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 INR 2,41,13,633/- being interest on income tax refund. The balance receipts of INR 314,62,92,409/- which were not offered to tax by the Appellant included INR 7,68,95,558/- being revenue from software access, INR 4,03,009/- being reimbursement of cost and INR 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 (hereinafter referred to as ‘the DTAA’). 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-2, Mumbai (for short ‘DRP’). Vide order, dated 21/06/2023, the DRP rejected the aforesaid objections raised by the Appellant. Therefore, the Assessing Officer passed the Final Assessment Order, dated 27/07/2023, under Section 143(3) read with Section 144C(13) of the Act making an addition of INR 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. Further, while computing the tax liability the Assessing Officer computed tax on interest on refund (offered to tax by the Appellant in the return of income) by adopting rate of 40% [plus applicable surcharge and cess] as against the rate of 10% adopted by the Appellant in terms of Article 11 of the DTAA. Further, while computing tax liability the Assessing Officer did not grant credit of tax deducted at source as claimed by the Appellant and took into account refund amount of INR 8,49,588/- (which is being disputed by the Appellant has not being received).

5. Being aggrieved, the Appellant has preferred the present appeal before the Tribunal on the grounds reproduced in paragraph 2 above.

Ground No. 4, 5 & 6

6. When the appeal was taken up for hearing, the Ld. Authorised Representative for the Appellant pressed into service Ground No. 4, 5 and 6 raised in the present appeal and submitted that the same stands decided in favour of the Appellant and against the Revenue in Appellant’s own cases for preceding assessment years. In this regard, reliance was placed on decision of the Tribunal pertaining to Assessment Years 2009­2010 to Assessment Year 2019-2020 placed before us as part of the paper-book. In the aforesaid decisions it has been held by the Tribunal that IT Support Services Fee is neither in the nature of Royalties in terms of Article 12(4) of the DTAA, nor in the nature of Fee for Technical Services in terms of Article 12(5) of the DTAA. The Ld. Authorised Representative for 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 INR 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.

7. Per contra, the Ld. Departmental Representative, while accepting the fact that identical issues raised in the preceding assessment years stood decided in favour of the Appellant, submitted that the position taken by the Appellant in the present case as well as the Group Companies was required to be examined from a broader perspective. The Ld. Departmental Representative submitted that the Appellant had received IT Support Services Fee from the following companies:

Inviting our attention to the break-up of the above IT Support Services Fee received by the Appellant, the Ld. Departmental Representative 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 recipient of IT Support Services provided by the Appellant include IT Company such as IBM India Private Limited, Accenture Solutions Private Limited and WIPRO Limited.

8. We have heard the rival submission and perused the material on record. We find that the issue under consideration relating to taxability of IT Support Services Fee in the hands of the Appellant as Fee for Technical Services or as royalties in terms of provisions of the Act read with Article 12 of the DTAA is recurring in nature. While disposing of appeal preferred by the Appellant for the Assessment Year 2017-2018 [ITA No. 1245/Mum/2021, dated 11/05/2022] the Mumbai Bench of the Tribunal had concluded as under:

“9. We have considered the rival submissions and perused the material available on record. We find that the Co–ordinate Bench of the Tribunal in assessee‟s own case in Shell Information Technology International, B.V. v/s DCIT, in ITA no.6638/Mum./2019, vide order dated 06.03.2020, for assessment year 2016-17, inter–alia, while holding that the payment received by the assessee towards IT support services does not constitute Fee for Technical Services under the provisions of the Act as well as under Article–12 of the DTAA, observed as under:

“9. We have perused the material on record including the decisions of the coordinate Benches of the Tribunal relied upon by the Ld. counsel. As pointed out by the Ld. counsel, the coordinate Benches have decided the identical issue in favour of the assessee in the assessee‟s appeals pertaining to the AYs 2011-12 to 2014-15. We further notice that Ground No. 5 and 6 of the present appeal are identical to the assessee‟s appeal for the AY 2015-16 and the coordinate Bench has decided the said issue in favour of the assessee by following the decision of the Tribunal in assessee‟s own appeals pertaining to the earlier assessment years. The findings of the coordinate Bench are as under:-

7. Coming to Ground Nos. 5 and 6 of Grounds of appeal, Ld. Counsel for the assessee submitted that these grounds relates to receipts towards IT support services held as FTS under the Act as well as the India Netherlands DTAA, and it was decided in favour of the assessee for the A.Y.2011-12 to 2014-15 by the Tribunal. Copy of the order is placed on record.

8. DR vehemently supported the orders of the authorities below.

9. We have heard the rival submissions and perused the orders of the authorities below. We have perused the order of the Tribunal for the A.Y.2010-11 to 2011-12 in ITA No. 2058/MUM/2016 dated 28.05.2018 wherein the Tribunal following the order for the A.Y. 2009-10 to 2010-11 in ITA.No. 2204/MUM/2014 and 1203/Mum/ 2015, held as under: –

“16. We have heard the rival submissions and also perused 7 the material on record. The co-ordinate Bench has decided the identical issue in favour of the assessee in the assessee‟s own case ITA No. 2204/Mum/2014 for the A.Y. 2009-10 and ITA No. 1203/Mum/2015, for the A.Y. 2010-11 holding as under:- “7. The next issue common issue in both the appeals of assessee is as regards to taxability of payment received by assessee from IT support services which constitutes Fees for Technical Services (‘FTS’) and royalty under the India Netherlands Treaty DTAA. For this Assessee has raised following ground:-

“Payments towards IT Support fees held in be Fees for Technical Services ‘FTS’) and royalty.

4. Erred in holding that payments received by the Appellant for IT support DTAA.

5. Failed to appreciate that IT support services do not ‘make available any technical knowledge, skill, experience to the services recipient under Article 12 of the India-Netherlands DTAA and hence not subject to tax in India.

6. Erred in alternatively holding that the receipt from IT – support services qualify as Royalty’ under the IndiaNetherlands DTAA.”

8. The facts and circumstances are exactly identical in both the AYrs i.e. 2009-10 and 2010-11 and also the grounds raised are identically worded hence, we will take- the facts from 2009-10.

9. The learned Counsel for the assessee, first of all, took us through the findings of the DRP on the issue which is recorded in Para 53 as under:

“5.3 Discussions and directions of DRP

5.3.1 We have considered the draft assessment order, submissions of assessee and material. We have seen that under the Master Services Agreement, the assessee SITI BV has furnished technical and advisory services to various clients based in India. The delineated services are significantly technical in nature and the resultant fees are liable to be treated as Fees for Technical Services. We are also in agreement with the AO that the Ruling of Hon’ble Authority for Advance Rulings in the case of ARE VA T&D India Limited (A TD/L) is applicable in the case of assessee.

In this case, the Aar held as below:

“We have noted that under- the IT Agreement, the French company is to provide support services through a central team in the area of Information Technology to the Applicant and to its other subsidiaries in the world. The provision of support services by the French company would ‘itself make available, the technical knowledge/ experience to the Applicant.

In Porfetti Van Melle Holdings B.V1 this Authority held the view that the expression ‘in available only means that the recipient of the service should be in a position to derive an enduring benefit and be in a position to utilize the knowledge or knowhow in future on his own”. Here, information technology relating to design, engineering, manufacturing and supply of electric equipment that help in transmission and distribution of power, commissioning and servicing of tr’1nernv ion and distribution system is provided to the Indian entity Which is applied in running the business of the Applicant and the employees of the Applicant would got equipped to carry on the systems on their own without reference to the French Company, when the IT Agreement comes to an end. It is not as if for making available, the recipient must also be conveyed specifically the right to continue the practice put into effect and adopted under the agreement on its expiry. We are of the view that the services provided under the IT agreement are in the nature of Fees for Technical Services and taxable under’ the DTAA as well as under the Act.

Though the ruling is technically not binding in the present case, the 7 ratio and logic followed by the Hon’ble Authority have very high degree of persuasive value. in any case, this technical know-how is of an enduring nature and has a direct nexus with the assessees business.

5.3.2 considering the above factual and leg& matrix we are of the opinion that the action of the AO in treating the above receipt is fee for technical services does not require any interference The alternate arguments on taxability of the receipt as royalty do not require any direction from the penal as we have already upheld the taxability of the services as “fees for included service”.

10. The learned Counsel for the assessee explained the facts that the SITI BV is a company registered in the Netherlands. SIT! BV is in the business of providing information technology (IT’) support services. During the financial year ended 31.03.2006 SIT! BV provided IT (mobile office) support services, IT helpdesk and network infrastructure related services to: Indian customers. SITI BV is a tax resident of the Netherland and is eligible to claim benefits under the Double Taxation Avoidance Agreement entered into between India and The Netherlands. He explained that SITI BV is in the business of providing information technology support services SITI BV typically, provides helpdesk services-and network infrastructure services to Shell group companies comprising. Information Technology (II) support for solving any IT related problems faced by users i e any problem faced by users for accessing any application software c-mails, Computer repairs and maintenance etc. desktop laptop and workstation support, Services related to Wide area network (‘WAN’) arid Local area network (‘LAN’) for connection to the global servers’, and Facilitating teleconferencing and video conferencing services Further, in the event Shell requires IT services from external service providers like WIPRO and IBM SITI BV is engaged in providing the necessary network access and related services as well. For this purpose, reference can be made to the scope of services to be rendered by SITI BV to WIPRO under the Services Agreement (copy of which is enclosed in the paper book of the assessee) and from the same Article 3 is reproduced below:

Article 3 – Provision of Services

SITI BV shall provide the IT Service Provider with the service.”

Further, ‘Service’ has been defined in Article I – Definitions as ‘the combined Sub-services provided by S/TI BV to she IT Services Provider wider this Agreement, which Sub-services include the (if Services, the STO Services and she provision by S/TI BV to the IT Service Provider and Service Personnel of access to and/or use -of GI software and/or Optional Software….

11. Further, SIT! BV is company incorporated in The Netherlands. SITI BV is a tax resident of The Netherlands eligible to claim the benefits, conferred by the Double Taxation Avoidance Agreement entered into between India and The Netherlands (Treaty’). Section 90 of the Act read with the Circulars and several judicial precedents issued thereunder provide that a non-resident taxpayer is eligible to be assessed as per the provisions of the Act or as per the provisions of the relevant double taxation avoidance agreement, whichever is more beneficial. SIT! BV is a nonresident for Indian tax purposes. Accordingly, SITI BV could be assessed as per the provisions of the Actor as per the Treaty, whichever is more beneficial to SIT! By. IN view of the same, the non-taxability of the services rendered by SITI BV has been examined under the provisions of the Treaty. Article 12(4) of the Treaty defines the term.

“Payments of any kind received as a consideration for the use, or the right to use, any copyright of literacy, artistic or scientific work including cinematograph films, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience.’

12. From the above, it is clear that SITI BV is engaged in providing IT services to Indian entities but does not provide any right to use any copyright of literary, artistic or scientific work including cinematograph films, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience. Even under the agreements entered into with WIPRO and IBM, SITI BV only provides them access to the software i.e. computer Programme. SITI BV does not provide them the right to use the copyright embedded in the software. In other words, WIPRO, IBM are not permitted to make copies and sell the software. Under the Services Agreements, WIPRO and IBM-have been granted the mere under the right in the copyrighted software and not the right of, use of copyright’. Whereas use of copyright’ encompasses exploitation of the rights embedded in a copyright but a mere user right is a limited right and consideration paid for Such user right cannot be regarded as consideration for use of or right to use a copyright. In view of the above, the learned Counsel for the assessee stated that the issue is fully covered by the decision of Hon’ble Delhi High Court in the case of DIT Vs Guy Carpenter & Co Ltd (2012) 20 taxmann.com 807 (DelHC), wherein India-UK DTAA was under consideration of Hon„ble Delhi High Court and Hon’ble High Court after considering the Article 13 of the DTAA of India-UK and also the facts of the assessee finally held the concept of ‘make available’ of technical services that such receipts would not amount to fee for technical services so as to the “concept of make available clause’ contained in Article l3(4)() of the treaty has not been satisfied In the given facts and circumstances of the case Hon„ble Delhi High Court vide Para 8 to 13 held as under: –

“8. Before we go on to examine the findings of the Tribunal it would be pertinent to refer to article 13 of the DTAA to the extent it is relevant :- “ARTICLE 13-Royalties and fees for technical services

1. Royalties and fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

2. However, such royalties and fees for technical services may also be taxed in the Contracting State in which they arise and according to the law of that Stale; but if the beneficial owner of the royalties or fees for technical services is a resident of the other Contracting State, the tax so charged shall not exceed:

(a) In the case of royalties within paragraph 3 (a) of this Articles, and fees for technical services within paragraphs 4 (a) and (c) of this Article,-

(i) during the first five years for which this Convention has effect;

(aa) 15% of the gross amount of such 12 royalties or fees for technical services when the payer of the royalties or fees for technical services is the Govern rent of the first mentioned Contracting State or a political sub­division of that State and

(bb) 20% of the gross amount of such royalties or fees for technical services in all other cases; and

(ii) during subsequent years 15% of the gross amount of such royalties or fees for technical services; and

(b) in the case of royalties within paragraph 3(b) of this Article and fees for technical services defined in paragraph 4(b) of this Article, 10% of the gross amount of such royalties and fees for technical services.

(3) xx xx

(4) For the purpose of paragraph 2 of this Article, and subject to paragraph 5, of this Article, the term “fees for technical services” means payments of any kind of any person in consideration for the rendering of any technical or consultancy services (including the provision of services of a technical or other personnel) which:

(a) are ancillary and subsidiary to the application of enjoyment of the right, property or information for which a payment described in paragraph 3(a) of this article is received; or

b) are ancillary and subsidiary to the enjoyment of the property for which a payment described in paragraph 3(b) of this Article is received, or

Make available technical knowledge, experience, skill, knowhow or processes, or consist of the development and transfer of a technical plan or technical design.

5. The definition of fees for technical services in paragraph 4 of this Article shall not include amounts paid:

(a) for services that are ancillary and subsidiary, as well as inextricable and essentially linked, to the sale of property, other than property described in paragraph 3 (a) of this Article;

(b) For services that are ancillary and subsidiary to the rental of ships, aircraft, containers or other equipment used in connection with the operation of ships, or aircraft in international traffic;

(c) For teaching in or by educational institutions;

(d) For services for the private use of the individual or individuals making the payment, or

(e) TO an employee of the person making the payments –Or to any individual or partnership for professional services as defined in Article 15 (Independent personal services) of this Convention (3), (7), (8) xx xx

9. A plain reading of Article 13(4)(c) of the DTAA indicates that ‘fees for technical services’ would mean payments of any kind to any person in consideration for the rendering of any technical or consultancy services which, inter alia, “makes available” technical knowledge, experience, skill, know-how or processes, or consist of the development and transfer of a technical plan or technical design. According to the Tribunal this make available condition has not been satisfied inasmuch as no technical knowledge, experience, skill, knowhow, processes, have been made dye/lab/c by the assessee to the insurance companies operating in India. It also does not consist of the development and transfer of any technical plan or technical design. –

10. The Tribunal examined the evidence available on record in order to return a finding on the issue as to whether the payments received by the assessee from the insurance companies operating in India would fall within the expression ‘fees for technical services’ as appearing in article,. 13(4)'(c) of the DTAA read with section 9(1)(vii) of the said Act. While doing so the Tribunal, inter alia, found that the assessee company was an international reinsurance intermediary (broker) and was a tax resident of United Kingdom. Further, that it was a recognized broker by the financial services authority of United Kingdom, it was also an admitted position that the assessee did not maintain any office in India and mat it had a referral relationship with J B Boda reinsurance (Broker) Pvt. Ltd of Mumbai and that J. B. Boda was duly licenced by the Insurance Regulatory & Development Authority to transact reinsurance business in India

11 The Tribunal also observed as under. –

“27. In the illustrative transaction, New India Insurance Co. Ltd in India has entered into an agreement to reinsure on an Excess Loss basis the catastrophe risk arising from its primary insurance cover in conjunction with J.B. Boda and Alsford Page and gems Ltd. (the reinsurance brokers). The terms of the agreement specifies that the assessee in conjunction with J.B. Bode are recognized as intermediary, through whom all communications relating to this agreement shall pass. The terms of the agreement further provides that the assessee will provide all the details of agreed endorsements to the reinsurers by e-mail or facsimile and shall submit the slip policy to XIS (Lloyd’s processing market) for signing. The assessee will act as a claim administrator and Will submit claims advices to relevant market systems. For the services rendered, the assessee along with the other reinsurance brokers acting as an intermediary in the reinsurance process for New India Assurance Co. will be entitled to 10% brokerage. From the role played by the assessee in the reinsurance process as discussed above, it is evident-to us that the assessee was rendering only intermediary services while acting as an intermediary/facilitator in getting the reinsurance cover for New India Insurance Co. There exists no material or basis on the basis of which, it Would be said that the assessee was rendering any kind of technical/consultancy service within the meaning of Article 13 of Indo-UK treaty. The consideration received by the assessee acting as an intermediary in the reinsurance process cannot, by any stretch of imagination, be qualified as a consideration received for rendering any financial analysis related consultancy services rating agency advisory services, risk based capital analysis etc. as alleged by the A.O.”

The Tribunal also noted the process by which the transactions takes place It has been pointed out that the originating insurer in India would contact J. B. Boda/ M, B. Boda for placing identified risks/ class of risks with international reinsurers. J.B. Boda, in turn, would contact one or more international firm(s) of reinsurance broker(s) like the assessee for competitive proposals from the international reinsurer. Then, the international reinsurance brokers like the assessee would contact other primary brokers and various syndicates in the Lloyds market for competitive proposals. Based on the various offers or proposals given by the- international reinsurance brokers, like the assessee, to J.B. Boda, the latter would present various options to the originating insurer in India, which would take a final-decision in the matter. Based on the decision of the originating insurer in India, the policy terms would then be agreed upon and the risk would be placed with the international reinsurer it was also pointed out that as per the normal industry practice, tea reinsurance premium net of brokerage al 10% as per the policy contract is remitted to the assessee, i.e., reinsurance brokers, for onward transmission to international reinsurers. The intermediation fee which is another word for brokerage is paid separately by the originating insurance in India to J.B. Bodo, the international reinsurance brokers like the assessee and other intermediaries, based on a mutually agreed ratio which accounts for their relative contribution in the reinsurance process.

12. Based on this manner of transacting, the Tribunal came to a conclusion that the payment received by the assessee could not be regarded as ‘fees for technical services’. Further, more, the Tribunal also held that such receipts would not amount to fees for technical services as the “make available” clause contained in article 13(4)(c) had not been satisfied in the facts and circumstances of the present case.

13. In our view, the Tribunal has arrived at these conclusions purely on assessing the factual matrix of the case at hand. The findings are in, the nature of factual findings and, therefore, according to us, no substantial question of law arises for our consideration, particularly, because the learned counsel for the Revenue was unable to point out any perversity in the recording of such findings. As such No substantial question of law arises for our consideration. The appeal is dismissed. There shall be. no order as to costs.” 13. Further, the learned Counsel for the asséssee stated that the reliance placed by DRP in Arevay T and D India Limited of Perfeti Van Melle Holdings B.V. In re [2011] 16 taxmann.com 207 (AAR – New Delhi) was reversed by Hon’ble Delhi High Court and reported in 2014 52 taxmann.com 161 (Delhi), wherein Hon’ble Delhi High Court has considered as under: –

“1. This writ petition is directed against the ruling dated 09.12.2011 in AAR NO.86912010 given by the Authority for Advance Rulings. One of the pleas raised by the petitioner was that the said authority had not considered the Double Taxation Avoidance Agreement between India and Portugal which is an OECD country. The learned counsel for the petitioner submitted that any agreement between India and an OECD country could be looked into while construing the IndoNetherlands Double Taxation Avoidance Convention. The learned counsel for the petitioner had also raised the plea that the memorandum of understanding concerning fees for included services referred in Article 12(4) of the Indo USA DTAA concerning the expression? Available? was also not considered by the Authority for Advance Rulings; It-was submitted that the said Authority refused to look into the IndoPortugese DTAA or the lndo USA DTAA and memorandum of understanding between India and USA on the ground that only the Indo Netherlands DTAC needed to be looked into.

2. The learned counsel for the respondent states that the Authority for Advance Rulings was correct in not looking, into the lndo – Portugese DTAA, but insofar as the Indo-USA DTAA is concerned a provision similar to that DTAA has been incorporated in the IndoNetherlands DTAC by virtue of paragraph 5 of Article 12 of the same, whereby the very same make available clause, which is to be found in the DTAA between India and USA read with the memorandum of understanding connected therewith, has been incorporated into IndoNetherlands convention by way of amendment on 30.08.1999, notification No. S.O. 693 (E) [reported in (1999) 239 ITR (Stat) 56]. It is evident that the Authority for Advance Rulings had not considered the said amendment.”

14. In view of the above, we are of the that the concept of make available of technical services that such receipts would not amount to fee for technical services so as to the “concept of make available clause contained in Article 13(4)(c) of the treaty has not been satisfied. Accordingly, we delete the addition and allow this issue of assessee‟s appeal.”

17. Since, the co-ordinate Bench has decided the identical issue in favour of the assessee in assessee‟s own appeals for the A.Y. 2009-10 and 2010-11 referred above, we respectfully following the order of the co-ordinate Bench allow Ground No. 5, 6 and 7 of this appeal.

10. Facts being identical, respectfully following the said decision of the Tribunal we allow Ground Nos. 5 and 6 of the assessee.

11. In so far as Ground No.2 is concerned the Ld. Counsel for the assessee submitted that since it was held in favour of the assessee on Royalty and FTS ground, the ground raised by the assessee in respect of receipts towards access to use software and IT support services does not constitute “income” may be kept open. Accordingly, this ground is kept open which may be contested as and when the situation arises.

12. The rest of the grounds are only consequential in nature and the same are restored to the file of the Assessing Officer for adjudication in accordance with law.”

10. The coordinate Bench has decided the identical issue in favour of the assessee in assessee‟s own appeal ITA No. 7283/Mum/2018 AY 2015-16 by following the decisions of the coordinate Benches rendered in assessee‟s own appeals pertaining to the AY 2011-12 to 2014-15 and AY 2015-16. Since there is no change in the facts of the present case and since the findings of the AO are not in accordance with the decision of coordinate Benches discussed above, we respectfully following the decision of the coordinate Bench, set aside the impugned order and allow ground No. 5 and 6 of the assessee‟s appeal.”

10. The learned Departmental Representative could not show us any reason to deviate from the aforesaid order and no change in facts and in law was alleged in the relevant assessment year. The issue arising in present appeal is recurring in nature and has been decided in favour of the assessee by decisions of Co-ordinate Bench of the Tribunal for preceding assessment years. Thus, respectfully following the order passed by Co– ordinate Bench of the Tribunal in assessee‟s own case cited supra, which has also followed the judicial precedents in assessee‟s own case, the impugned addition made by treating payment received for IT support services as Fee for Technical Services under the provisions of the Act and under Article–12 of the DTAA, is deleted. As a result, ground nos.3, 4 and 5 raised in assessee‟s appeal are allowed.

11. Insofar as grounds nos.6 and 7, raised in assessee‟s appeal are concerned, the learned DRP has already held that the payment towards IT support services could not fall under „royalty‟ in the instant case. Thus, the Assessing Officer is directed to follow the directions issued by the learned DRP under section 144C(5) of the Act. As a result, grounds nos.6 and 7, raised in assessee‟s appeal are allowed.”

9. The above decision was followed by the Mumbai Bench of the Tribunal while disposing appeal preferred by the Appellant for the Assessment Year 2018-2019 [ITA No. 996/Mum/2022, dated 28/11/2022] which in turn was followed by the Tribunal while disposing appeal preferred by the Appellant for the Assessment Year 2019-2020 [ITA No. 2308/Mum/2022, dated 30/11/2022].

10. It is admitted position that there is no change in facts and circumstances during the Assessment Year 2020-2021. The contracts in terms of which IT Support Service Fee was received by the Appellant as well as the nature of IT Support Service Fee continue to be the same.

11. On perusal of record for the Assessment Year 2020-2021 placed before us, we find that the authorities below had relied upon their respective orders passed for the Assessment Year 2017-2018 and 2019-2020 while making/confirming the addition on account for IT Support Services in the hands of the Appellant. However, the aforesaid decisions have since been overturned by the Tribunal in appeal preferred by the Appellant/Assessee.

12. On perusal of above decision of the Tribunal in appeal for the Assessment Year 2017-18 to 2019-2020, we find 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.

13. Further, we note that for the Assessment Year 2019-2020, the DRP had, following the judgment of the Hon’ble Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt. Ltd. Vs. CIT: 2021] 432 ITR 471 (SC), 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.

14. Thus, the Tribunal has, in appeals preferred by the Appellant for the Assessment Years 2017-2018 to 2019-2020, deleted the addition made in the hands of the Appellant in respect of IT Support Services Fee and therefore, the basis of making addition in the hands of the Appellant does not survive. Therefore, the addition of INR 306,89,93,843/- on account of IT Support Service Fee made by the Assessing Officer as per the directions of the DRP is deleted and Ground No. 4 to 6 raised by the Appellant are allowed.

Ground No. 7

15. By way of Ground No. 7 the Appellant has challenged the rate of 40% plus applicable surcharge and cess adopted by the Assessing Officer while computing the tax liability on interest receipt on income tax refund. We have heard both the sides on this issue. During the course of hearing, the Ld. Authorised Representative for the Appellant had relied upon the decision of Special Bench of the Tribunal has, in the case of Assistant Commissioner of Income Tax- Range-1, Dehradun Vs. Clough Engineering Ltd. : [2011] 9 ITR (T) 618 (Delhi) to support the contention that the benefit of Article 11 of the DTAA should be granted to the Appellant and interest on income tax refund should be brought to tax at the rate of 10% specified therein. On perusal of the aforesaid decision of the Special Bench of the Tribunal, we find that the Special Bench of the Tribunal has held that interest on refund received by tax resident of Australia from Indian Tax Authorities shall be liable to tax at the rate specified in Article 11 of Double Taxation Avoidance Agreement between India and Australia. The relevant extract of the aforesaid decision of the Tribunal read as under:

“11.4 Thus, we are again left with the fundamental question as to whether ……….  The bank interest in this case is an example of effective connection between the PE and the income as the indebtedness is closely connected with the funds of the PE. However, the same cannot be said in respect of interest on income-tax refund. Such interest is not effectively connected with PE either on the basis of asset-test or activity-test. Accordingly, it is  held that this part of interest is taxable under paragraph No. 2 of Article  XI. Thus, the ground referred to the Special Bench is partly allowed. The  Division Bench shall dispose off the appeal in conformity with this  order.”(Emphasis Supplied)

16. In view of the above decision of the Special Bench of the Tribunal, we find merit in the submissions of the Appellant that the interest on income tax refund would be characterized as interest income liable to tax at the rate specified in Article 11 of the DTAA. Accordingly, we direct the Assessing Officer to compute the tax liability in respect of interest on income tax refund by adopting the rate as specified in Article 11 of DTAA. Accordingly, Ground No. 7 raised by the Appellant is allowed.

Ground No. 8

17. Ground No. 8 raised by the Appellant is directed against short grant of credit for tax deducted at source amounting to INR 1,21,98,857/-. The Appellant has claimed that the Assessing Officer has failed to grant credit of tax deducted at source as claimed by the Appellant in the return of income. In order to redress the grievance of the Appellant, we direct the Assessing Officer to verify the records and grant credit of tax deducted at source to the Appellant as per law. In terms of the aforesaid Ground No. 8 raised by the Appellant is disposed off as allowed for statistical purposes.

Ground No. 9, & 10

18. Ground Nos. 9 & 10 raised by the Appellant pertain to levy of interest under Section 234B & 234D of the Act, respectively. Both the grounds are disposed off as being consequential in nature.

Ground No. 11

19. Ground No. 11 pertains to computation of tax liability by taking into consideration refund amount of INR 8,49,588/-. According to the Appellant no such refund was issued to the Appellant. We direct the Assessing Officer to verify the records and re-compute the tax liability as per law. Ground No. 11 is disposed off as allowed for statistical purposes.

Ground No. 12

20. Ground No. 12 raised by the Appellant pertains to initiation of penalty proceedings under Section 270A of the Act. Since the penalty proceedings are separate and distinct from the assessment proceedings, Ground No. 12 directed against the initiation of penalty proceedings is dismissed as being premature.

Ground No. 1, 2 & 3

21. In view of our findings/adjudication pertaining to Ground No. 4 to 12 above, Ground No. 1 raised by the Appellant is disposed off as being general in nature. In so far as Ground No. 2 raised in Appellant’s appeal is concerned, as agreed by both the sides, the same is kept open by respectfully following the order passed by the Co-ordinate Bench of the Tribunal in Appellant’s own case cited supra. Similarly, Ground No. 3 is also left open and disposed off as being infructuous at this stage.

22. In result, the present appeal preferred by the Assessee is partly allowed. Order pronounced on 04.04.2024.