ITAT Upholds Precedent, Rules Shell's IT Service Receipts Not Taxable as Royalty or FTS

Mumbai: The Income Tax Appellate Tribunal (ITAT), Mumbai Bench, has once again ruled in favor of Shell Information Technology International BV, holding that payments received for providing IT support and software access to its group entities in India do not constitute 'Royalty' or 'Fees for Technical Services' (FTS) under the India-Netherlands Double Taxation Avoidance Agreement (DTAA).

In a significant order for the Assessment Year 2022-23, the bench of Shri Rahul Chaudhary (Judicial Member) and Shri Prabhash Shankar (Accountant Member) deleted an addition of over ₹569 crore made by the Assessing Officer (AO), reinforcing a long line of precedents on the issue.

Case Background

The case, Shell Information Technology International BV vs. DCIT (International Taxation) , concerned the taxability of receipts amounting to ₹5,69,21,97,905. Shell, a tax resident of the Netherlands, had offered only ₹2.62 crore (interest on tax refund) to tax, arguing that the remaining receipts were not taxable in India.

The revenue authorities, however, contended that:

- ₹83.74 crore received for software access was taxable as 'Royalty' under Section 9(1)(vi) of the Income Tax Act and Article 12 of the India-Netherlands DTAA.

- ₹485.28 crore received for IT Support Services was taxable as 'Fees for Technical Services' (FTS) and, alternatively, as 'Royalty' under the same provisions.

The Assessing Officer, supported by the Dispute Resolution Panel (DRP), assessed Shell’s total income at ₹571.65 crore, leading to the present appeal before the ITAT.

Key Arguments and Tribunal's Analysis

Shell's primary argument rested on consistency, highlighting that the ITAT had decided the identical issue in its favor for twelve consecutive assessment years, from 2006-07 to 2021-22. The company maintained that the services provided did not "make available" any technical knowledge, skill, or process to the Indian entities, a crucial condition under Article 12(5)(b) of the DTAA for a service to be classified as FTS.

Furthermore, it was argued that payments for software access were for the "use of a copyrighted article" (the software program) and not for the "use of a copyright" itself. This distinction, established by the Supreme Court in Engineering Analysis Centre of Excellence Pvt. Ltd. vs. CIT , is critical in determining whether such payments constitute royalty.

The Departmental Representative, while acknowledging the prior rulings in Shell's favor, relied on the findings of the AO and the DRP.

Precedent and the 'Make Available' Clause

The Tribunal meticulously analyzed its own past decisions in Shell's case. It noted that the core issue has been consistently adjudicated based on the interpretation of the 'make available' clause in the DTAA. The Tribunal's order extensively quoted from its ruling for AY 2017-18, which itself relied on a chain of earlier decisions.

A key excerpt from the precedent-setting orders cited by the bench states:

"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..."

The Tribunal observed that the Revenue failed to demonstrate any change in facts or law that would warrant a deviation from the established position.

The Final Verdict

Reaffirming its consistent stance, the ITAT held that the receipts from IT support services and software access could not be taxed as FTS or Royalty in India. The bench stated:

"Since the Revenue has failed to point out any change in law or facts, respectfully following the above said decisions of the Tribunal in the case of the Assessee, the addition of INR. 4,85,28,53,200/- made by the Assessing Officer... is deleted."

The Tribunal allowed Shell's appeal on the substantive grounds, deleting the major additions. It also directed the Assessing Officer to grant the correct credit for Tax Deducted at Source (TDS) and re-compute the tax liability after verifying the facts. The ground related to the initiation of penalty proceedings was dismissed as premature.

This ruling reinforces the importance of the 'make available' test in international tax law and provides continued certainty for multinational companies providing centralized IT services to their Indian counterparts.