Income Tax Appellate Tribunal – Mumbai
Shell Information Technology … vs Dcit (It) 4(2)(1), Mumbai on 10 January, 2020 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “I”, MUMBAI BEFORE SHRI C.N. PRASAD, HON’BLE JUDICIAL MEMBER AND SHRI MANOJ KUMAR AGGARWAL, HON’BLE ACCOUNTANT MEMBER ITA No. 7283/MUM/2018 (A.Y:2015-16) M/s. Shell Information Technology v. Dy. CIT (International Taxation) – 4(2)(1)
International BV Room No. 1708, 17th Floor
C/o B.S.R. & Co. LLP. Air India Building, Nariman Point
5th Floor, Lodha Excelus Mumbai – 400 021
Apollo Mills Compound, N.M. Joshi Marg
Mahalakshmi, Mumbai – 400 011 PAN: AAICS9091A (Appellant) (Respondent) Assessee by : Shri Madhur Agarwal Department by : Shri V. Sreekar Date of Hearing : 05.11.2019 Date of Pronouncement : 10.01.2020 ORDER

PER C.N. PRASAD (JM) 1. This appeal is filed by the assessee against the order of the Dispute Resolution Panel-2, Mumbai [hereinafter for short “DRP”] dated 10.09.2018 for the A.Y. 2015-16.
2. Assessee has raised the following grounds in its appeal: –

“1. Erred in assessing the total income at Rs. 1,85,95,06,633 as against Rs. NIL total income offered in return of income by the Appellant.
2
ITA No. 7283/MUM/2018 (A.Y:2015-16) M/s. Shell Information Technology International BV Receipts towards access to use software and IT support
services does not constitute ‘income’ 2. Erred in holding that the payments received by the Appellant
constitutes ‘income’ without appreciating that the appellant works
only 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 access to use software held as ‘royalty’ under
the India-Netherlands DTAA 3. Erred in construing the payments of Rs. 48,18,78,884
received by the Appellant from Key Application Service provider and
Shell group entities for access to use copyrighted software as royalty
taxable under Article 12 of India – Netherlands Double Taxation
Avoidance Agreement (‘India – Netherlands DTAA’);

4. Failed to appreciate that the payments received were only for
the ‘use of copyrighted article’ as compared to ‘use of copyright’, ‘use
of process’, ‘use of property similar to patents, design, trademark and
invention’, which does not constitute ‘royalty’ under the India-
Netherlands DTAA;

Receipts towards IT Support services held as ‘Fees for
Technical Services’ CFTS’) under the Act as well as India-
Netherlands DTAA 5. Erred in holding that payments of Rs. 1,37,76,27,749 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;

6. 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 of the India-
Netherlands DTAA and hence not subject to tax in India.

Interest under section 234B of the Act 7. Erred in levying interest under section 234B of the Act without
appreciating the facts and circumstances of the case.

Refund adjusted against demand for earlier years 8. Erred in adjusting the refund without appreciating the fact
there is no demand outstanding pertaining to earlier years as the
appellant has already received a favorable ITAT order for earlier
years.
3
ITA No. 7283/MUM/2018 (A.Y:2015-16) M/s. Shell Information Technology International BV Interest under Section 244A of the Act 9. Erred in recovering interest under Section 244A of the Act without appreciating the facts and circumstances of the case.

Interest under Section 234D of the Act 10. Erred in levying interest under Section 234D of the Act without appreciating the facts and circumstances of the case.”
3. At the outset Ld. Counsel for the assessee submitted that Ground Nos. 3 and 4 are in respect of receipts towards access to use software held as “royalty” under the India- Netherlands DTAA, is decided by the Tribunal in favour of the assessee for the A.Ys. 2012-13 and 2013-14 in ITA No. 2192 & 2193/Mum/2017 dated 24.10.2018 and also for the A.Y.

2014-15 in ITA No. 7428/MUM/2017 dated 05.03.2019. It was also submitted that the very same issue was also decided in its favour by the Tribunal for the A.Y. 2006-07 to 2010-11 and the orders were placed in the paper book.
4. Ld. DR vehemently supported the orders of the authorities below.
5. We have heard the rival submissions and perused the orders of the authorities below and the orders of the Tribunal for various assessment years. The Tribunal decided this issue in favour of assessee initially for the A.Y. 2006-07 to 2008-09 in ITA.No. 5051/MUM/2009, 3818/Mum/2011 and ITA.No. 728/Mum/2012 dated 15.03.2017 wherein the Tribunal held that the payments received by the assessee from Wipro/IBM in pursuance
4 ITA No. 7283/MUM/2018 (A.Y:2015-16) M/s. Shell Information Technology International BV to the MSA cannot be treated as “royalty” under Article 12(4) of the India-

Netherlands DTAA observing as under: –

“12. After considering the aforesaid submissions and the relevant terms of ‘Master Service Agreement’ (as reproduced above) between the assessee and the IT Services providers, i.e., WIPRO/IBM, it is quite ostensible that:-

 Firstly, any kind of right granted to WIPRO/IBM cannot be passed on or transferred to any other person and only WIPRO/IBM is legally permissible to exercise this right.

 Secondly, the right to access/use of software is again subject to various terms and conditions, which has been highlighted under Article 4  The right which has been given to WIPRO/IBM is not unfettered but has a very limited use for the own business purpose and not otherwise.

 Thus, only limited right to access/use the software has been provided to the UT service provider for its own business purpose and they do not get any right in the said software. The access to software is not for use of any copyright albeit for a copyrighted articles during the course of providing service.

The agreement clearly envisages that WIPRO/IBM shall use the software only for providing services to Shell entities and cannot alter or modify the software. Since the assessee is a resident of Netherland therefore, such a payment has to be seen in terms of Article 12(4) of DTAA, which reads as under:-

“The term “royalties” as used in this Article means payments of any kind received as a consideration for the use of, or the 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.” From the plain reading of the article it can be inferred that, it refers to payments of any kind received as a consideration for the use of, or the 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. Thus, in order to tax the payment in question as “royalty”, it is sine qua non that the said
5 ITA No. 7283/MUM/2018 (A.Y:2015-16) M/s. Shell Information Technology International BV payment must fall within the ambit and scope of Para4 of Article 12.
The main emphasis on the payment constituting ‘royalty’ in Para4 is
for a consideration for the ‘use of’ or the ‘right to use’ any
copyright………. The key phrases are “for the use” or “the right to use
any copyright of”; “any patent……., “or process”, “or for
information………,”; “or scientific experience”, etc., are important
parameter for treating a transaction in the nature of “royalty”. If the
payment doesn’t fit within these parameters then it doesn’t fall within
terms of “royalty” under Article 12(4).The computer software does
not fall under most of the term used in the Article barring “use of
process” or “use of or right to use of copyrights” Here first of all, the
limited use of software cannot be held to be covered under the word “use of process”, because the assessee has not allowed the end user
to use the process by using the software, as the customer does not
have any access to the source code. What is available for their use
is software product as such and not the process embedded in it.
Several processes may be involved in making computer software but
what the customer uses is the software product as such and not the
process, which are involved into it. What is required to be examined
in the impugned case as to whether there is any use or right to use
of copyright? The definition of copyright, though has not been
explained or defined in the treaty, however, the various Courts have
consistently opined that the definition of “copyright “as given in the ‘Copyright Act, 1957’ has to be taken into account for understanding
the concept. Section 14of the said Act defines the ‘copyrights’ to
mean as under:

“14. Meaning of copyright – For the purposes of this Act, “copyright” means the exclusive right subject to the provisions of this Act, to do or authorise the doing of any of the following acts in respect of a work or any substantial part thereof, namely:

(a) in the case of a literary, dramatic or musical work, not being a computer programme,
(i) to reproduce the work in any material form including the storing of it in any medium by electronic means;
(ii) to issue copies of the work to the public not being copies already in circulation;
(iii) to perform the work in public, or communicate it to the public;
(iv) to make any cinematograph film or sound recording in respect of the work;
(v) to make any translation of the work;
(vi) to make any adaptation of the work;
(vii) to do, in relation to a translation or an adaptation of the work, any of the acts specified in relation to the work in sub-clauses (i) to (vi);

(b) in the case of a computer programme,-
6
ITA No. 7283/MUM/2018 (A.Y:2015-16) M/s. Shell Information Technology International BV (ii) to sell or give on commercial rental or offer for sale or for commercial rental any copy of the computer programme: Provided that, such commercial rental does not apply in respect of computer programmes where the programme itself is not the essential object of the rental.”

(c) in the case of an artistic work,-

(i) to reproduce the work in any material form including depiction in three dimensions of a two dimensional work or in two dimensions of a three dimensional work;
(ii) to communicate the work to the public;
(iii) to issue copies of the work to the public not being copies already in circulation;
(iv) to include the work in any cinematograph film;
(v) to make any adaptation of the work;
(vi) to do in relation to an adaptation of the work any of the acts specified in relation to the work in sub-clauses
(i) to (iv);

(d) In the case of cinematograph film, –

(i) to make a copy of the film, including a photograph of any image forming part thereof;
(ii) to sell or give on hire, or offer for sale or hire, any copy of the film, regardless of whether such copy has been sold or given on hire on earlier occasions;
(iii) to communicate the film to the public;

(e) In the case of sound recording, –

(i) to make any other sound recording embodying it;
(ii) to sell or give on hire, or offer for sale or hire, any copy of the sound recording regardless of whether such copy has been sold or given on hire on earlier occasions;
(iii) to communicate the sound recording to the public. Explanation: For the purposes of this section, a copy which has been sold once shall be deemed to be a copy already in circulation”.

13. Thus, the definition of ‘copyright ‘in section 14 is an exhaustive
definition and it refers to bundle of rights. In respect of computer
programming, which is relevant for the issue under consideration
before us, the copyright mainly consists of rights as given in clause
(b), that is, to do any of the act specified in clause (a) from (i) to (vii)
as reproduced above. Thus, to fall within the realm and ambit of right
to use copyright in the computer software programme, the aforesaid
rights must be given and if the said rights are not given then, there is
7 ITA No. 7283/MUM/2018 (A.Y:2015-16) M/s. Shell Information Technology International BV no copyright in the computer programme or software. Here in this
case, none of the conditions mentioned in section 14 of the ‘Copyright Act’ is applicable as held by the learned CIT(A); and is
also is evident from the terms of MSA, because no such rights has
been given by the assessee to the IT Service providers.

14. Further by making use or having access to the computer
programs embedded in the software, it cannot be held that either
WIPRO/IBM are using the process that has gone into the software or
that they have acquired any rights in relation to the process as such.
The software continues to be owned by the assessee and what
WIPRO/IBM is getting mere access to the software. The source code
embedded in the software has not been imparted to them. Hence,
there is no use or right to use of any process as held by the learned
AO. Hence, the finding of the learned CIT(A) that the payment in
question cannot be reckoned as “royalty” is factually and legally
correct and the same is upheld.

15. Apart from that now there are various decisions of Hon’ble
High Court including that of Hon’ble Delhi High Court in case of DIT
vs. Infrasoft Ltd., reported in [2013] 39 Taxmann.com 88, wherein
host of other decisions have been referred and relied upon. In the
A.Y. 2008-09, the learned CIT (A) has relied upon the decision of
Hon’ble Karnataka High Court in the case CIT vs. Samsung
Electronics Co. Ltd. [2013]345 ITR 494 and some other decisions of
the Tribunal. We find that the Hon’ble Delhi High Court has taken
note of this fact and also analysed the payment of software within the
ambit of royalty as defined under Article 12 of the India US Treaty.
The relevant observation and finding of the Hon’ble High Court is as
under:

“87. In order to qualify as royalty payment, it is necessary to establish that there is transfer of all or any rights (including the granting of any licence) in respect of copyright of a literary, artistic or scientific work. In order to treat the consideration paid by the Licensee as royalty, it is to be established that the licensee, by making such payment, obtains all or any of the copyright rights of such literary work. Distinction has to be made between the acquisition of a “copyright right” and a “copyrighted article”. Copyright is distinct from the material object, copyrighted. Copyright is an intangible incorporeal right in the nature of a privilege, quite independent of any material substance, such as a manuscript. Just because one has the copyrighted article, it does not follow that one has also the copyright in it. It does not amount to transfer of all or any right including licence in respect of copyright. Copyright or even right to use copyright is distinguishable from sale consideration paid for “copyrighted” article. This sale consideration is for purchase of goods and is not royalty.
8
ITA No. 7283/MUM/2018 (A.Y:2015-16) M/s. Shell Information Technology International BV 88. The license granted by the Assessee is limited to those
necessary to enable the licensee to operate the program. The
rights transferred are specific to the nature of computer
programs. Copying the program onto the computer’s hard
drive or random access memory or making an archival copy
is an essential step in utilizing the program. Therefore, rights
in relation to these acts of copying, where they do no more
than enable the effective operation of the program by the user,
should be disregarded in analyzing the character of the
transaction for tax purposes. Payments in these types of
transactions would be dealt with as business income in
accordance with Article 7.

89. There is a clear distinction between royalty paid on
transfer of copyright rights and consideration for transfer of
copyrighted articles. Right to use a copyrighted article or
product with the owner retaining his copyright is not the same
thing as transferring or assigning rights in relation to the
copyright. The enjoyment of some or all the rights which the
copyright owner has is necessary to invoke the royalty
definition. Viewed from this angle, a nonexclusive and non-
transferable licence enabling the use of a copyrighted product
cannot be construed as an authority to enjoy any or all of the
enumerated rights ingrained in Article 12 of DTAA. Where the
purpose of the licence or the transaction is only to restrict use
of the copyrighted product for internal business purpose, it
would not be legally correct to state that the copyright itself or
right to use copyright has been transferred to any extent. The
parting of intellectual property rights inherent in and attached
to the software product in favour of the licensee/customer is
what is contemplated by the Treaty. Merely authorizing or
enabling a customer to have the benefit of data or instructions
contained therein without any further right to deal with them
independently does not, amount to transfer of rights in relation
to copyright or conferment of the right of using the copyright.
The transfer of rights in or over copyright or the conferment of
the right of use of copyright implies that the
transferee/licensee should acquire rights either in entirety or
partially co-extensive with the owner/ transferor who divests
himself of the rights he possesses pro-tanto.

90. The license granted to the licensee permitting him to
download the computer programme and storing it in the
computer for his own use is only incidental to the facility
extended to the licensee to make use of the copyrighted product for his
internal business purpose. The said process is necessary to
make the programme functional and to have access to it and
is qualitatively different from the right contemplated by the
9 ITA No. 7283/MUM/2018 (A.Y:2015-16) M/s. Shell Information Technology International BV said paragraph because it is only integral to the use of
copyrighted product. Apart from such incidental facility, the
licensee has no right to deal with the product just as the owner
would be in a position to do.

91. There is no transfer of any right in respect of copyright by
the Assessee and it is a case of mere transfer of a copyrighted
article. The payment is for a copyrighted article and
represents the purchase price of an article and cannot be
considered as royalty either under the Income Tax Act or
under the DTAA.

92. The licensees are not allowed to exploit the computer
software commercially, they have acquired under licence
agreement, only the copy righted software which by itself is
an article and they have not acquired any copyright in the
software. In the case of the Assessee company, the licensee
to whom the Assessee company has sold/licensed the
software were allowed to make only one copy of the software
and associated support information for backup purposes with
a condition that such copyright shall include Infrasoft copyright
and all copies of the software shall be exclusive properties of
Infrasoft. Licensee was allowed to use the software only for
its own business as specifically identified and was not
permitted to loan/rent/sale/sub-licence or transfer the copy of
software to any third party without the consent of Infrasoft.

93. The licensee has been prohibited from copying,
decompiling, deassembling, or reverse engineering the
software without the written consent of Infrasoft. The licence
agreement between the Assessee Company and its
customers stipulates that all copyrights and intellectual
property rights in the software and copies made by the
licensee were owned by Infrasoft and only Infrasoft has the
power to grant licence rights for use of the software. The
licence agreement stipulates that upon termination of the
agreement for any reason, the licensee shall return the
software including supporting information and licence
authorization device to Infrasoft.

Xxx xxxx xxxxx xxxxx xxxxxx xxxxx xxx xxxxxx 94. The incorporeal right to the software i.e. copyright remains
with the owner and the same was not transferred by the
Assessee. The right to use a copyright in a programme is
totally different from the right to use a programme embedded
in a cassette or a CD which may be a software and the
payment made for the same cannot be said to be received as
consideration for the use of or right to use of any copyright to
bring it within the definition of royalty as given in the DTAA.
10
ITA No. 7283/MUM/2018 (A.Y:2015-16) M/s. Shell Information Technology International BV What the licensee has acquired is only a copy of the copyright
article whereas the copyright remains with the owner and the
Licensees have acquired a computer programme for being
used in their business and no right is granted to them to utilize
the copyright of a computer programme and thus the payment
for the same is not in the nature of royalty.

95. We have not examined the effect of the subsequent
amendment to section 9 (1)(vi) of the Act and also whether
the amount received for use of software would be royalty in
terms thereof for the reason that the Assessee is covered by
the DTAA, the provisions of which are more beneficial.

96. The amount received by the Assessee under the licence
agreement for allowing the use of the software is not royalty
under the DTAA.

97. What is transferred is neither the copyright in the software
nor the use of the copyright in the software, but what is
transferred is the right to use the copyrighted material or
article which is clearly distinct from the rights in a copyright.
The right that is transferred is not a right to use the copyright
but is only limited to the right to use the copyrighted material
and the same does not give rise to any royalty income and
would be business income.

98. We are not in agreement with the decision of the Andhra
Pradesh High Court in the case of SAMSUNG
ELECTRONICS CO. LTD (SUPRA) that right to make a copy
of the software and storing the same in the hard disk of the
designated computer and taking backup copy would amount
to copyright work under section 14(1) of the Copyright Act and
the payment made for the grant of the licence for the said
purpose would constitute royalty. The license granted to the
licensee permitting him to download the computer programme
and storing it in the computer for his own use was only
incidental to the facility extended to the licensee to make use
of the copyrighted product for his internal business purpose.
The said process was necessary to make the programme
functional and to have access to it and is qualitatively different
from the right contemplated by the said provision because it
is only integral to the use of copyrighted product. The right to
make a backup copy purely as a temporary protection against
loss, destruction or damage has been held by the Delhi High
Court in DIT v. M/s Nokia Networks OY (Supra) as not
amounting to acquiring a copyright in the software”.

The ratio of the above decision clearly clinches the issue
which is applicable in the case of the assessee also. This ratio
and principle has been followed and reiterated again in the
11 ITA No. 7283/MUM/2018 (A.Y:2015-16) M/s. Shell Information Technology International BV case of Principal CIT vs M.Tech India Pvt Ltd (supra) and
again in the decisions of Alacatel Lucent, Canada, reported
[2015] 372 ITR 476 , wherein Hon’ble Delhi High Court relying
upon its earlier two decisions in the case of DIT vs Ericson ,
[2012] 343 ITR 470 and DIT vs M/s Nokia Networks, reported
in 358 ITR 259 (Del) concluded that, when assessee supplies
the software which is incorporated on CD, it has applied only
a tangible property and payment made for acquiring such a
property cannot be regarded as payment by way of royalty.
The relevant observation of the High Court in Alcatel Lucent
(supra) in this regard reads as under:

“We have noticed, at the outset, that the ITAT had relied upon the ruling of this Court in Director of Income Tax V. Ericsson A.B. (2012) 343 ITR 470 wherein identical argument with respect to whether consideration paid towards supply of software along with hardware – rather software embedded in the hardware amounted to royalty. After noticing several contentions of the revenue, this Court held in Ericsson A.B. (supra) as follows:

“54. It is difficult to accept the aforesaid submissions in the facts of the present case We have already held above that the assessee did not have any business connection in India. We have also held that the supply of equipment in question was in the nature of supply of goods. Therefore, this issue is to be examined keeping in view these findings. Moreover, another finding of fact is recorded by the Tribunal that the Cellular Operator did not acquire any of the copyrights referred to in Section 14 (b) of the Copyright Act, 1957.

55. Once we proceed on the basis of aforesaid factual findings, it is difficult to hold that payment made to the assessee was in the nature of royalty either under the Income -Tax Act or under the DTAA. We have to keep in mind what was sold by the assessee to the Indian customers was a GSM which consisted both of the hardware as well as the software, therefore, the Tribunal is right in holding that it was not permissible for the Revenue to assess the same under two different articles. The software that was loaded on the hardware did not have any independent existence. The software supply is an integral part of the GSM mobile telephone system and is used by the cellular operator for providing the cellular services to its customers. There could not be any independent use of such software. The software is embodied in the system and the revenue accepts that it could not be used independently. This software merely facilitates the functioning of the equipment and is an
12 ITA No. 7283/MUM/2018 (A.Y:2015-16) M/s. Shell Information Technology International BV integral part thereof. On these facts, it would be useful to refer to the judgment of the Supreme Court in TATA Consultancy Services Vs. State of Andhra Pradesh (2004) 271 ITR 401 (SC), wherein the Apex Court held that software which is incorporated on a media would be goods and, therefore, liable to sales tax. Following discussion in this behalf is required to be noted: – “In our view, the term “goods” as used in Article 366(12) of the Constitution of India and as defined under the said Act are very wide and include all types of movable properties, whether those properties be tangible or intangible. We are in complete agreement with the observations made by this Court in Associated Cement Companies Ltd. (supra). A software programme may consist of various commands which enable the computer to perform a designated task. The copyright in that programme may remain with the originator of the programme. But the moment copies are made and marketed, it becomes goods, which are susceptible to sales tax. Even intellectual property, once it is put on to a media, whether it be in the form of books or canvas (In case of painting) or computer discs or cassettes, and marketed would become “goods”. We see no difference between a sale of a software programme on a CD/floppy disc from a sale of music on a cassette/CD or a sale of a film on a video cassette/CD. In all such cases, the intellectual property has been incorporated on a media for purposes of transfer. TAXPUNDIT.ORG Sale is not just of the media which by itself has very little value. The software and the media and case laws in favour of the assessee including that of the Delhi High Court on several occasions, we are inclined to follow the decision and proposition laid down by the Hon’ble Delhi High Court. Thus, in view of the finding given above, we uphold the order of the CIT(A) that the payment received by the assessee for sums amounting to Rs. 3,75,25,291/- does not amount to “royalty” within the meaning of Article 12(4) of Indo-Netherland DTAA and accordingly, the same is not taxable in India. Since, admittedly, the assessee has no PE in India; therefore, same cannot be taxed as business income under Article 7. Accordingly, ground raised by the revenue stands dismissed.”

The aforesaid decision clearly clinches the issues in favour of the
assessee.

16. So far as the reading of amended definition of ‘royalty’ as given
in section 9(1)(vi) into treaty as contended and argued by ld. CIT DR,
we find that, Hon’ble Delhi High Court in its latest judgment in the
case of DIT vs. New Skies Satellite, reported in [2016] 95 CCH 0032,
13 ITA No. 7283/MUM/2018 (A.Y:2015-16) M/s. Shell Information Technology International BV wherein their Lordships shave discussed the issue threadbare and
came to the conclusion in the following manner:-

“60. Consequently, since we have held that the Finance Act, 2012 will not affect Article 12 of the DTAAs, it would follow that the first determinative interpretation given to the word “royalty” in Asia Satellite, supra note 1, when the definitions were in fact pari material (in the absence of any contouring explanations), will continue to hold the filed for the purpose of assessment years preceding the Finance Act, 2012 and in all cases which involve a Double Tax Avoidance Agreement, unless the said DTAAs are amended jointly by both partners to incorporate income from data transmission services as partaking of the nature of royalty, or amend the definition in a manner so that such income automatically becomes royalty. It is reiterated that the Court has not returned a finding on whether the amendment is in fact retrospective and applicable to cases preceding the Finance Act of 2012 where there exists no Double Tax Avoidance Agreement”.

The aforesaid decision also takes care of all the arguments relied
upon by the ld. CIT DR including that of the Verizon Communications
Singapore Pte. Ltd. The Hon’ble High Court has specifically clarified
as to why the said judgment of Madras High Court cannot be applied
in such cases after observing as under:-

“31. In a judgment by the Madras High Court in Verizon Communications Singapore Pte Ltd. V. The Income Tax Officer, International Taxation I, [2014] 361 ITR 575 (Mad), the Court held the Explanations to be applicable to not only the domestic definition but also carried them to influence the meaning of royalty under Article 12. Notably, in both cases, the clarificatory nature of the amendment was not questioned, but was instead applied squarely to assessment years predating the amendment. The crucial difference between the judgments however lies in the application of the amendments to the DTAA. While TV Today, supra note 22 recognizes that the question will have to be decided and the submission argued, Verizon, supra note 23 cites no reason for the extension of the amendments to the DTAA.

As regards the decision of Hon’ble Bombay High Court in the
case of CIT vs. Siemens Aktiongesellschaft (supra), referred to by d.
CIT DR, the Hon’ble Delhi High Court has also dealt with this point
and made distinction that the issue and situation before the Hon’ble
Bombay High Court was materially different and also the term ‘royalty’ was not defined in the German DTAA. 17. Thus, we hold that
for all the years the payments received by the assessee from
WIPRO/IBM in pursuance to the MSA cannot be treated as “royalty”
under Article 12(4) of the India-Netherland DTAA.
14
ITA No. 7283/MUM/2018 (A.Y:2015-16) M/s. Shell Information Technology International BV 17. Thus, the matter is decided in favour of the assessee and against the revenue.

18. For the A.Y. 2007-08 also, the Revenue has raised exactly similar grounds, therefore, our finding given in the aforesaid appeal will apply mutatis mutandis and, hence, the appeal of the Revenue for A.Y. 2007-08 is dismissed. 19. In 2008-09, the same issue of royalty on similar payment to the same parties, governed by same MSA has been decided against the assessee by the Ld. CIT (A) following the decision of Hon’ble Karnataka High Court in the case of Samsung Electronics (supra). Since we have already discussed this issue while dealing with the appeal for A.Y. 2006-07 and the decision of the Hon’ble Delhi High Court wherein this issue has been discussed in detail, therefore, the appeal for A.Y. 2008-09 of the assessee is allowed.”
6. Similarly, the Tribunal decided this issue in favour of the assessee for the A.Y. 2009-10 to 2014-15 by various orders and for the A.Y.2012-13 in ITA.No. 2192/Mum/2017 dated 24.10.2018. No distinguishing facts have been brought to our notice. Therefore, facts being identical respectfully following the said decisions, we allow Ground Nos. 3 and 4 of the grounds of appeal of the assessee.
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. Ld. DR vehemently supported the orders of the authorities below.
15
ITA No. 7283/MUM/2018 (A.Y:2015-16) M/s. Shell Information Technology International BV 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 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 etc.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:
16
ITA No. 7283/MUM/2018 (A.Y:2015-16) M/s. Shell Information Technology International BV “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 worId. 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
17 ITA No. 7283/MUM/2018 (A.Y:2015-16) M/s. Shell Information Technology International BV 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
NetherIand 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
18 ITA No. 7283/MUM/2018 (A.Y:2015-16) M/s. Shell Information Technology International BV 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 non-
resident 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 (Del-
HC), 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
19 ITA No. 7283/MUM/2018 (A.Y:2015-16) M/s. Shell Information Technology International BV 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 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 sub-division of that State and
(bb) 2Q% of the gross amount of such royalties or fees for
technial 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** ** ** (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
20 ITA No. 7283/MUM/2018 (A.Y:2015-16) M/s. Shell Information Technology International BV 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 (6), (7), 8 and (9)** ** ** 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, k7jcv-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, know-how,
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)
21 ITA No. 7283/MUM/2018 (A.Y:2015-16) M/s. Shell Information Technology International BV 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.
22
ITA No. 7283/MUM/2018 (A.Y:2015-16) M/s. Shell Information Technology International BV 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: –
23
ITA No. 7283/MUM/2018 (A.Y:2015-16) M/s. Shell Information Technology International BV “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 Indo- Netherlands 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 Indo- Portugese 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 Indo-Netherlands 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 Indo-Netherlands 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.”
24
ITA No. 7283/MUM/2018 (A.Y:2015-16) M/s. Shell Information Technology International BV 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.
13. In the result, appeal of the assessee is partly allowed as indicated above.
Order pronounced in the open court on the 10th January, 2020 Sd/- Sd/-
(MANOJ KUMAR AGGARWAL) (C.N. PRASAD)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai / Dated 10/01/2020
Giridhar, Sr.PS
25 ITA No. 7283/MUM/2018 (A.Y:2015-16)
M/s. Shell Information Technology International BV Copy of the Order forwarded to:
1. The Appellant
2. The Respondent.
3. The CIT(A), Mumbai.
4. CIT
5. DR, ITAT, Mumbai
6. Guard file.
//True Copy// BY ORDER (Asstt. Registrar) ITAT, Mum

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