Case Law Details
Shell India Markets Private Limited Vs Union of India (Bombay High Court)
Bombay High Court held that payments made to non-resident for availing General Business Support Service under Cost Contribution Arrangement is not in the nature of fees for ‘technical services’ and accordingly tax is not deductible on the same.
Facts- 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.
On an application made by Petitioner seeking such determination, the Authority for Advance Rulings (Income Tax), New Delhi (AAR), by its Order dated 17th January 2012 held that payments made by Petitioner to SIPCL towards BSS under the CCA constitutes income in the hands of SIPCL being in the nature of fees for technical services within the meaning of Article 4 (c) of the Double Tax Avoidance Agreement (DTAA) between India and UK and is chargeable to tax in India. Consequently, AAR held that Petitioner is under obligation to withhold tax under section 195 of the Income Tax Act, 1961.
Conclusion- 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 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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