Solvay S. A. Vs DCIT (ITAT Mumbai)
Routine Intra-Group Support Not FTS or Royalty – ITAT Mumbai Allows ₹109.7 Cr Relief
Key Issue
Whether ₹109.73 crore received by Solvay S.A., a Belgium-based multinational chemical company, from its Indian group entities for “functional support services” constituted Fees for Technical Services (FTS) or Royalty under s.9(1)(vii) & Article 12(3) of the India-Belgium DTAA.
Facts
Solvay S.A. rendered centralized & standardized services – such as IT infrastructure, procurement assistance, shared finance & HR support, communication, & legal compliance — to its Indian subsidiaries Solvay Specialties India Pvt. Ltd. & Sunshine Chemicals under a “Functional Service Agreement”.
The company contended that:
- Services were routine & non-exclusive, intended only to bring uniformity across the group.
- No technical knowledge or know-how was “made available” to Indian entities.
- Hence, receipts were not taxable as FTS or royalty under the DTAA.
AO held otherwise, treating the income as royalty for imparting commercial or technical information, while the DRP reclassified it as FTS, alternatively as royalty.
Assessee’s Arguments
- Services were standard facilities, not managerial, technical or consultancy in nature.
- Neither management control nor specialized human intervention existed.
- The MFN clause under the Belgium DTAA should apply, aligning with “make-available” standard from the India-UK/USA treaties.
- Past assessments accepted the same treatment – rule of consistency should apply.
- Relied on precedents: UPS SCS Asia Ltd., Springer Verlag GmbH, Adidas Sourcing Ltd., Kotak Securities Ltd., Avenet International Hong Kong Ltd., etc.
Tribunal’s Observations
- The Tribunal examined the nature of each service (IT, procurement, shared services, industrial, HR, communication, finance, legal, etc.) & found them to be routine, centralized corporate support without transfer of technical or managerial expertise.
- Referring to OECD e-commerce report (2001), Panalfa Autoelektrik Ltd., & GVK Industries (SC), it reiterated that:
Managerial services require control over business operations.
