IMPORTANT POINT
The main legal point established in the judgment is the interpretation of Article 13 of the DTAA, specifically defining royalties and fees for technical services. The court emphasized the distinction between managerial services and technical/consultancy services and the applicability of tax liability based on the nature of the services availed.

JUDGMENT :

(Neela Gokhale, J.)

1. 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.

2. 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 13.4 (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 ("the Act").

3. Aggrieved by this Order, Petitioner, by way of the present petition, challenges the validity and legality of the said Order passed by the AAR.

4. Petitioner is a company registered in India under the Companies Act, 1956 and engaged, inter alia, in the business of operating chain of retail fuel stations in India. Respondent No.1 is the Union of India, Respondent No. 2 is the AAR and the other Respondents are the various officials concerned of the Income Tax department.

5. By way of a CCA dated 1st April 2009 executed between Petitioner and SIPCL, Petitioner avails of BSS provided by SIPCL to all operating companies in its group across the world. The arrangement is that SIPCL manages for consideration its group entities, either directly or through own employees or through its third party affiliates/vendors. The costs incurred are then allocated to Shell entities including SIPCL on a cost to cost basis.

6. It is the case of Petitioner that services availed by it are managerial services only and specifically exclude technical services. Petitioner makes payment for the availed services on the basis of share determined using cost allocation keys specified in the CCA. With a view to attain clarity in respect of its obligation to deduct tax at source, in case the payments made by it to SIPCL represents income taxable in India, Petitioner made an application under Section 245R of the Income Tax Act, 1961 (“the Act”) to the AAR raising various related questions. The questions were:

“i. Whether the payments made by the Applicant to Shell International Petroleum Company Limited (“SIPCL”) for availing General Business Support Services (“General BSS”) under the terms of the Cost Contribution Agreement (“CCA”), would constitute “income” in the hands of SIPCL within the meaning of the term in Section 2(24) of the Act?

ii. If the answer to Question 1 is in the affirmative, whether ther payments made by the Applicant to SIPCL for availing General BSS under the terms of the CCA would be in the nature of Fees for Technical Services (“FTS”) within the meaning of the term in Article 13 of ‘Convention between the Government of the Republic of India and the Government of the Republic of India and the Government of United Kingdom of Great Britain and Northern Ireland for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital gains’ (“the India-UK Tax Treaty”)?

iii. Whether the payments made by the Applicant to SIPCL for availing General BSS under the terms of the CCA would be in the nature of “royalty” within the meaning of the term in Explanation 2 to clause (vi) of Section 9(1) of the Act?

iv. Whether the payments made by the Applicant to SIPCL for availing General BSS under the terms of the CCA would be in the nature of “royalty” within the meaning of the terms in Article 13 of the India-UK Tax Treaty?

v. Based on the answers to Questions (1) to (4) above, and in view of the facts as stated in Attachment III, and also in ligh