% _Date Of Decision: 20.05.2025_ + W.p.(C) v. Income-Tax Officer Ward Int Tax 1(1)(1), Delhi & Ors

$~54 IN THE HIGH COURT OF DELHI AT NEW DELHI %Date of Decision: 20.05.2025+W.P.(C) 10850/2024 & CM APPL. 44661/2024AECOM TECHNICAL SERVICES INC. .....Petitioner Through:Mr. Manuj Sabharwal, Mr. DevvratTiwari & Mr. Drona Negi, Advocates.Tiwari & Mr. Drona Negi, Advocates.Versus INCOME-TAX OFFICER WARD INT TAX 1(1)(1),DELHI & ORS.DELHI & ORS. .....RespondentsThrough:Mr.SunilAgarwal,Sr.StandingCounsel with Mr. Viplav Acharya,Jr.SC,Mr.ShivanshB.Pandya,Jr.SC, Mr. Priya Sarkar, Jr.SC & Mr.Utkarsh Tiwari, Advocate.Counsel with Mr. Viplav Acharya,Jr.SC,Mr.ShivanshB.Pandya,Jr.SC, Mr. Priya Sarkar, Jr.SC & Mr.Utkarsh Tiwari, Advocate. CORAM:HON'BLE MR. JUSTICE VIBHU BAKHRUHON'BLE MR. JUSTICE TEJAS KARIA VIBHU BAKHRU, J. (ORAL) 1.The petitioner has filed the present petition, inter alia, impugning anorder dated 26.07.2024 [impugned order] passed by the Assessing Officer under Section 197 of the Income Tax Act, 1961 [Act], whereby thepetitioner’s application for ‘NIL’ withholding tax, was rejected. However,the AO had held that the deductors are authorised to withhold tax at the rateof 15% (including surcharge and cess) on the payment of ₹114,90,00,000/-. 2.The petitioner is a company incorporated in the United States ofAmerica and is also a tax resident of that country.The petitioner hadentered into an agreement dated 01.04.2021 with its Associate Enterprise - AECOM India Private Limited and the agreement dated 01.04.2023 with its AE – AECOM India Global Services Private Limited . 3.The petitioner states that it is engaged in the business of design andconsultancyservices,constructionmanagementandinfrastructuredevelopment.In terms of the agreements with the AEs, the petitionerprovided management and governance supports functions in the area oflegal, tax, treasury, finance, information technology, human resources,enterprise risk management, etc. 4.The description of the corporate services agreed to be rendered by thepetitioner in terms of the aforementioned agreements with AIPL andAIGSPL are set out in the Annexures to the respective agreements.Thesame indicate that the petitioner had agreed to provide overall managementservices in the field of finance, accounting and tax; human resources; legaland compliance; real estate; management and operations; marketing andcommunications; risk and safety management; information technology anddigital solutions; quality, and procurement. 5.The petitioner filed the application dated 08.05.2024 under Section197 of the Act seeking the ‘nil’ withholding tax certificate. The petitioner inits application, inter alia, explained the cost cross charges as under:- “1. Brief Facts 1.1 to 1.4********* 1.5. The costs cross-charged are purely on cost-to-cost basis and are broadly categorized in two typesi.e., Direct and Indirect costs, and Reimbursablecosts. 1.6.DirectandIndirectCostsmeanscostsattributabletotheservicesandassociatedgovernance support provided by the Applicant toAIPL and AIGSPL. It includes the direct laborcosts, applied fringe and applied overhead andgovernance costs etc.1.7.Reimbursable costs mean all fees and costsowing or paid by ATS Inc. or AE’s to unrelatedparties to the extent they are incurred for theperformance of services to AIPL and AIGSPL.1.8.In consideration for the direct and indirectcosts attributable to the services as mentioned inpara 1.6 above, ATS Inc, cross charges the amountto AIPL and AIGSPL on cost-to-cost basis as‘Services Fees’. The Services fees is based on thearm's length principles and transfer pricing policiesadopted by the AECOM Group which shall beconsistentwiththegoverninglawsofthejurisdiction of the parties and in the absence ofsuch law, the OECD transfer pricing guidelines. 1.9. In addition to the above, AIPL and AIGSPLshall reimburse ATS Inc. for all fees and costsowing / paid to affiliates and unrelated parties forthe performance of services. 1.9. In addition to the above, AIPL and AIGSPLshall reimburse ATS Inc. for all fees and costsowing / paid to affiliates and unrelated parties forthe performance of services. 1.10 The costs incurred by the Applicant forperforming these services are allocated to AIPLand AIGSPL on the basis of various allocationkeys such as actual usage, headcount or NetServiceRevenue(‘NSR’)ofdesignandconsultancyservicesrenderedbyAIPLandAIGSPL. 1.11. For the purpose of cross charging costs, theApplicant has also entered into corporate servicesagreementwithIndianassociatedenterprises(Copy of agreement with AIPL is enclosed asAnnexure-2).” Signature Not Verified 6.The petitioner states that costs cross charges are reimbursement ofcosts on cost-to-cost basis and contends the same are not chargeable to taxunder the Act. The petitioner also set out in detail its explanation as to whycost cross charged in terms of the aforesaid agreements are not fees fortechnical services within the meaning of Section 9(1)(vii) of the Actor ‘fees for included services’ under Article 12(4) of the India USADouble Taxation Avoidance Agreement [India-US DTAA]. 7.The petitioner has annexed sample invoices for the cross charges,which are receivables during the year. According to the petitioner, theprojected receipts from AIPL are ₹41,00,00,000/-, and from AIGSPL are ₹73,90,00,000/- [aggregate amount of ₹1,14,90,00,000/-]. 8.The AO rejected the aforesaid application by the impugned order.The AO noted the services rendered by the petitioner as well as thesubmissions made by the petitioner and observed “services are highlytechnical, managerial as well as consultancy in nature which require specialskills and technical qualifications”. The AO also concluded that “theservices rendered by the assessee do make available knowledge, experience,know-how to the recipient and this is clearly visible when one examines thenature of the services rendered and the consequential benefits obtained bythe recipient”. 9.On the aforesaid basis, the AO concluded that the charges paid to thepetitioner by its AEs are taxable as FTS and FIS. W.P. (C) 10850/2024 10.We note that the AO had called upon the petitioner to explain theservices as mentioned in the agreement with AIPL. The petitioner respondedto the said query by a letter dated 10.06.2024. The relevant extract of thesaid letter is set out below: - “The Applicant submits the process of certain servicesrendered to AIPI. and AIGSPL as under: 1. Human Resources (“HR”) ATS Inc, has a IIR team at the corporate level thatperforms administrative functions, such as processingnewemployees,preparingofferletters,onboardtraining and reference requests. The HR team alsoprovide support functions to manage the personnel ofAECOM affiliates on a day-to-day basis. This includes theutilization of AECOM benefit programs, compensationplanning, training methods, global mobility, recruitingteams, and the development and implementation of HRInformation Systems (“HRIS”). Specifically, ATS Inc,provides the following support at the corporate level to theAIPL and AIGSPL: (a) HRIS ATSInc.'scorporateHRISdepartmentdeliversenterprise wide human capital management systemsand support services. This includes designing, developing,deploying and sustaining integrated HR applications whichsupport learning, succession, performance management,talent acquisition, compensation, data analytics, employeeprofile, and social collaboration. The HRIS department'srole is to provide new capabilities and daily support forall HR and HR-related applications, including but notlimited to Workday Human Capital Management system,IBM Cognos BL, SAP Successfactors, IBM KenexaBrassring, Skillsoft Sum Total, etc. (b) Benefits and Shared Services ATS Inc. develops and maintains a database whichaggregates HR information relating to global markets. Theinformation managed in the database allows employees of (b) Benefits and Shared Services ATS Inc. develops and maintains a database whichaggregates HR information relating to global markets. Theinformation managed in the database allows employees of the AIPL and AIGSPL to obtain information about theirheadcount, turnover rates and other statistics that can beused to identify areas for improvement within them and forcompensation planning purposes. ATS Inc. develops and maintains a compensation andperformance management system that includes variouslocal language versions for use by AIPL and AIGSPL. Thesystem is used for recording and reviewing performance ofemployees and determining their compensation levels. ATS Inc. manages the global programs for employeebenefits such as life insurance, retirement plans and otherbenefit plans. These benefit plans are offered to employeesof the AIPL and AIGSPL as part of their compensationpackage. ATS Inc. also assist to develop, set up andmanage the plans for employees of the AIPL and AIGSPL,including answering questions and supporting use of theplans (c) Talent Acquisition ATS Inc. licenses and maintains the talent acquisitionsystem, BrassRing Software, for which recruiting reportsand data are generated and utilized by AIPL and AIGSPLreflecting the gender, turnover, assessment of personneland other data that is utilized in the recruiting process (d) Problem Resolution Where there is a human resources issue arising in the day-to-day operations of AIPL. and AIGSPL, such as anunderperformingemployeethatrequiresactionortermination, ATS Inc. provides support to manage andresolve the issue, including assessment of appropriateactions based on AECOM policies and liaise with theemployees to resolve the issue. The above services of the HR department provide thefollowing deliverables and benefits to AIPL and AIGSPL Deliverables - System applications, such as Workday, Cognos BI, SAPLearning Management System and Successfactors, IBMKenexaBrassring,SkillsoftSumTotal,onboarding solutions,andintegrationofSalesforceHRcasemanagement system. - Advisory on developing life insurance, retirement plans,and other benefit plans - Data and reports on headcount, turnover, and otherstatistics on a global and country specific basis - Recruitment data on gender and diversity - Local vendor information -Advisoryonemployees’compensationandbonusplanning - Global benefits initiatives Benefits -Improvepersonnelmanagementandconsequently,improve quality of services and financial efficiency of thebusiness operations - Analysis and review of performance of employees andadvisory on the results to ensure high quality pool of talentis retained at AIPL/AIGSPL - Integrated systems and applications for the enterprise - Reduced agency costs 2. Information Technology & Digital Solutions ATS Inc. implements and supports information technologythat is used by AIPL and AIGSPL. This includes severalglobal initiatives that are set up at the various AECOMaffiliates including the Oracle enterprise system. Theinformation technology function also includes the coststelecommunications line access fees and equipment licensefees to support the WAN (wide area network) throughwhich AECOM and its affiliates communicate and conductbusiness. The software has been centrally procured by the applicantfor joint use by it and its group entities and cross-charges toAIPL and AIGSPL as reimbursements of actual costs on the basis of actual usage. Specifically, ATS Inc., providesthe following services to AIPL, and AIGSPL: (a) Field Service Support ATS Inc. implements and supports information technologythat is used by AIPL and AIGSPL. This includes severalglobal initiatives that are set up at the various AECOMaffiliates including the Oracle enterprise system. Theinformation technology function also includes the coststelecommunications line access fees and equipment licensefees to support the WAN (wide area network) throughwhich AECOM and its affiliates communicate and conductbusiness. The software has been centrally procured by the applicantfor joint use by it and its group entities and cross-charges toAIPL and AIGSPL as reimbursements of actual costs on the basis of actual usage. Specifically, ATS Inc., providesthe following services to AIPL, and AIGSPL: (a) Field Service Support ATS Inc. provides support for ad hoc IT issues that arisefrom employees of AIPL. and AIGSPL. Where there is anissue, employees of AIPL and AIGSPL call the IT helpdesk to request assistance. The first line of support isprovided by ATS Inc. for immediate resolution or referral.In many cases, initial trouble shooting of an incident can beresolved during the call or first contact with helpdesk, suchas password reset, patch updates, etc. To the extentimmediate resolution is not available, the ticket may getescalatedEscalationcouldbetoeitherATSInc.'sspecialists, third party vendors, or to local support based inoverseas countries. As the AECOM Group has limited ITresources, it does not have the capacity to deal with alltickets raised by the AECOM Group. Instead, IT staff focusonly on the resolution of the limited cases referred to by theAECOM helpdesk that require in person support. Examples of Field Service Support are enclosed asAnnexure 4 for your reference. (b) Oracle AIPL and AIGSPL. utilizes Oracle to maintain and prepareitsfinancialstatements.Oracleismaintainedbyemployees of ATS Inc. and is hosted out of its datacenter. In addition, ATS Inc. provides user support withquestions and issues arising from the use of Oracle, aswell as incurring the costs of implementing, upgrading andproviding patches to update the Oracle system. (c) IT Infrastructure ATS Inc. maintains network connectivity that ensures theAECOM Group network is being maintained and runningat optimal effectiveness and maximum security. Thisincludes applications and software that are used by theprofessionals of AIPL and AIGSPL. All of the mailboxes for the AIPL and AIGSPL personnel,including those used in Outlook or via hand held devices,are maintained by ATS Inc. who will back them up and archive them on servers maintained by it, with all the AIPLand AIGSPL’s emails being routed via the data centerbeing maintained by ATS Inc. Specific examples of support provided by ATS Inc. isenclosed as Annexure 5 of this section. (d) Software Development ATS Inc. provides software development services withrespect to various software applications used in the AIPLand AIGSPL's business, including the Oracle system notedabove. These services include research and development ofbespokeITsystems,maintenanceofweb-basedapplicationsandincurringlicensefeesforvariousenterprise software that is used. The above services in relation to IT function provides thefollowing deliverables and benefits to AIPL and AIGSPL Deliverables - Global operations and support for global network,database, Internet email, hosting services, directories, etc. - Telecommunications line access and equipment to supportthe WAN (wide area network) through which the AECOMgroup communicates and conducts business - Email correspondence supporting local IT team - Tickets issued to the AECOM Groupemployees,including a summary of the issue, actions taken andresolution - Local language websites and computer systems - Software systems used in the business Benefits - Access to latest technology tools in its business - Access to highly qualified personnel to resolve issues anddevelop software - Create cost efficiencies by utilizing global terms on IT spend negotiated by AECOM Deliverables - Global operations and support for global network,database, Internet email, hosting services, directories, etc. - Telecommunications line access and equipment to supportthe WAN (wide area network) through which the AECOMgroup communicates and conducts business - Email correspondence supporting local IT team - Tickets issued to the AECOM Groupemployees,including a summary of the issue, actions taken andresolution - Local language websites and computer systems - Software systems used in the business Benefits - Access to latest technology tools in its business - Access to highly qualified personnel to resolve issues anddevelop software - Create cost efficiencies by utilizing global terms on IT spend negotiated by AECOM - Increased efficiency through increased IT performanceand faster issue resolution - Greater security through security systems and data backup and storage 3. Management and Operations The International Chief Operating Officer ('COO') andteam works on the payroll of ATS Ins. It assists AIPL andAIGSPL with management and oversight of key functionalareas for international operations including IT, real estate,procurement and in developing AECOM’s global strategy.Specifically, the following services are provided: - The International COO and team work in conjunctionwith Regional Chief Operating Officers on operational andstrategic initiatives and has oversight of operational andfinancial performance of the international geography. - The International COO is a member of the InternationalRisk Committee to review requests for approval (RF A's)and review opportunities with a specific risk profile to bereviewed to obtain a go/no go decision to proceed with thebid. - The International COO and team lead on project reviewsto assess the historic and future financial performance andhelp identify any risks or opportunities which need to bemanaged. Also, help advise on any change in strategy todeliver the project successfully. 4. Finance and Accounting: Tax & Treasury This function of ATS Inc. assists AIPL and AIGSPL in theoverall management oversight of Finance, Accounting andTax services coordinating key tasks and activities as well asprovidingstrategic advice.A descriptionfor certainservices provided by this function are explained as under: (a) Tax ATS Inc. provides support with respect to the identificationand resolution of tax issues that impact the AIPL and AIGSPL.Thisinvolvesliaisingwithlocaladvisorssupportingcompletionoftaxreturnsandfinancialstatement support, resolving any issues identified byadvisors, assisting with liaisons with the Internal RevenueService (“IRS”) and collecting data to provide to the IRS,and other tax advice that may arise as a result of businessoperations in the local countries. The tax function review and oversee the tax operations ofthe ATS Inc. and AIPL/AIGSPL. The tax function teamof AIS Inc. coordinates the AIPL and AIGSPL totroubleshoot any tax issues that may arise and monitorsall major issues relating to tax including foreign taxaudits,mergersandacquisitions,andinternalrestructuring. For example, when AIPL is engaged as a bid process, thetax function of ATS Iac. will identify the appropriate taxesthat can arise on a project and work with the AIPL, to buildthe potential cost into the bid process to ensure it cancontinue to be profitable. Given the experience of ATS Inc.in supporting similar tax initiatives globally and thefamiliarity with tax rules, this allows an efficient resolutionof issues and ensure that AIPL is strategically placed tomanage its tax position and timely comply with local taxlaws and regulations. The tax function provides the following deliverables andbenefits to AIPL and AIGSPL: Deliverables - Above mentioned advisory & support services - Email correspondence with local tax advisors andinternally to discuss tax issues and proposed resolutions oractions suggested Benefits The tax function provides the following deliverables andbenefits to AIPL and AIGSPL: Deliverables - Above mentioned advisory & support services - Email correspondence with local tax advisors andinternally to discuss tax issues and proposed resolutions oractions suggested Benefits - Increase tax efficiency of its operations, which allows areduction in costs, both relating to internal time spent andadvisors fees, arising from inefficiently managing the taxcompliance process - Increase profitability on projects by more effectively determining tax costs and building that into a bid price - Reduce tax costs arising from more effective retention ofdocuments to support tax position taken on tax returns. (b) Treasury ATS Inc provides two main treasury services to AIPL andAIGSPL, as follows: (i) Negotiations with local banks to establish local bankingfacilities, including obtaining local overdraft protection andissuanceofbidbondstoprovidecashtosupportinvestments by AlPI associated with bids and projectfunding. (ii) Expertise and support when AIPL bids for localcontracts to ensure all financial risks associated with thepotential project have been appropriately identified andfactored into the bid process. These include the following: -Advice on foreign exchange and balance sheet risks whencontracts are in currencies other than local currencies; and -Assistance with the review of commercial terms incontracts to ensure sufficient risk management is built inaround items such as contingent liabilities and disclosures. The treasury function negotiates with local banks toestablishbankingfacilities,includingobtainingoverdraft protection and issuance of bid bonds toprovide cash to support investments in bids and projectfunding. Cash support on bids for potential new localcontracts to ensure all financial risks associated withpotential projects have been appropriately identified andfactored into the bid process, including foreign exchangeand balance sheet risks and contingent liabilities. Theservicesoftreasuryfunctionprovidefollowingdeliverables and benefits to AIPL and AIGSPL Deliverables Above mentioned advisory servicesAbove mentioned advisory services Bank facilities and bid bonds obtained from local banks Email correspondence on bid supportEmail correspondence on bid support Benefits -Allows terms of banking arrangements and funding ofbusiness operations on commercially favorable terms,taking into account the global banking relationships held byATS Inc. and the financial wherewithal of the global group. - Effectively manage risks related to accepting new localcontracts and building appropriate risk factors into itsbidding process to ensure AIPL. bids on projects in amanner that is both competitive and profitable taking intoaccount all risks (c) Financial Planning & Business Analytics -ATSInc.’sbusinessanalyticsteamperformsthefollowing key functions on behalf of AIPL and AIGSPL: - Prepares and delivers AIPL/AIGSPL's management andoperational financial reporting globally; - Prepares and delivers global financial planning andforecasting needs; - Manages and continuously develops AECOM's enterpriselevel data warehouse; - Manages and continuously develops data for the globalorganization which spans organizational hierarchies, clientprojects, opportunities, and management reporting metrics;and -Responds to company wide data requests supportingexecutive leadership, functional leadership, contract bidand proposal support, etc. The above services provide the following benefits to AIPLand AIGSPL: Above mentioned advisory servicesAbove mentioned advisory services -Financial analysis to enable and support decisionmaking with respect to investments Data and financial analysis to support winning projectsData and financial analysis to support winning projects and producing bids - Prepares and delivers global financial planning andforecasting needs; - Manages and continuously develops AECOM's enterpriselevel data warehouse; - Manages and continuously develops data for the globalorganization which spans organizational hierarchies, clientprojects, opportunities, and management reporting metrics;and -Responds to company wide data requests supportingexecutive leadership, functional leadership, contract bidand proposal support, etc. The above services provide the following benefits to AIPLand AIGSPL: Above mentioned advisory servicesAbove mentioned advisory services -Financial analysis to enable and support decisionmaking with respect to investments Data and financial analysis to support winning projectsData and financial analysis to support winning projects and producing bids Increased financial efficiency of projects through theprovision of analysis and supportIncreased financial efficiency of projects through theprovision of analysis and support 5. Legal and Compliance ATS Inc. oversees compliance and monitors AIPL andAIGSPL to ensure compliance with risk managementinitiatives. It provides support on local operational issues,which includes issues arising with respect to disputes withemployees, including solving complaints of unethicalbehavior via hotlines maintained, or third-party consultantsin India. This can also include clients that may be disputingor taking legal action against AIPL/AIGSPL. Where thisoccurs, ATS Inc. liaises with local legal counsel to obtainadvice on appropriate dispute resolution or mitigationmeasures. Based on this advice, ATS Inc. laises withemployees of AIPL and AIGSPL, or consultants orclients, where necessary, on how to handle and resolve asituation. Where there is legal action involved, ATS Inc.will have day-to-day involvement to ensure the bestglobal resources are deployed to manage the financialand reputational risk to AIPL and AIGSPL. ATS Inc. also reviews all bids for new projects to beentered into by AIPL and advises on contract negotiationswith clients where a bid is accepted. The advice providedby ATS Inc. assists AIPL in structuring bids and contractsin a strategically favorable manner to maximize profitswhile minimizing risks. The above function provides the following deliverables andbenefits to AIPL and AIGSPL: Deliverables Above mentioned advisory servicesAbove mentioned advisory services Email correspondenceEmail correspondence Benefits - Enable effective management of financial risks oncontracts with customer and vendors, as well as biddingcontracts, resulting in increased profitability. Financial analysis to enable and support decision making with respectto investments -Effectively resolves employees’ and third-party legalissues in a cost-effective manner with minimal impact tothe business operations 6. Procurement and Travel The corporate procurement team of ATS Inc., manages,maintains, and monitors the global margin improvementprograms for the company including serving as the primaryvendor contact; negotiating contracts, pricing, policies andprocedures, and program management; measuring progresstogoals;andverifyingtheresultsofthemarginimprovement program. The Corporate Travel team deliverstravel,meetingsandeventsandpaymentsolutions,supporting many aspects of project lifecycles as well asbusinessdevelopmentopportunities.Theteamisresponsible for procuring and overseeing enterprise hotel,business travel, and corporate card programs. 7. Risk, Safety and Security Management ATS Inc. provides coordination of general safety andsecurity measures for AIPL and AIGSPL and theirpersonnel and monitors compliance as well as directlyprovides security support where needed.” 7. Risk, Safety and Security Management ATS Inc. provides coordination of general safety andsecurity measures for AIPL and AIGSPL and theirpersonnel and monitors compliance as well as directlyprovides security support where needed.” 11.The petitioner disputes that the aforementioned services rendered aretechnical services and, therefore, contends that the cross charges cannot beconsidered as FTS. More importantly, the petitioner also claims that it doesnot make available any technical knowledge, experience, skill, know how orprocesses to its AEs; therefore, in terms of Article 12 of the India-USDTAA, services rendered cannot be considered as FIS. 12.We do not consider it necessary to examine the question whether thecosts cross charged by the petitioner to its AEs, AIPL and AIGSPL, in termsof the respective agreements constitute FTS under Section 9(1)(vii) of the Act. This is because it is apparent that the said charges do not fall within thedefinition of FIS, as set out in paragraph no.4 of the Article 12 of the India-US DTAA. The relevant paragraphs of Article 12 of the India-US DTAA areset out below:- “Article 12 - Royalties and fees for included services – 1. Royalties and fees for included services arising in aContracting State and paid to a resident of the otherContracting State may be taxed in that other State. 2. However, such royalties and fees for includedservices may also be taxed in the Contracting State inwhich they arise and according to the laws of thatState; but if the beneficial owner of the royalties orfees for included services is a resident of the otherContracting State, the tax so charged shall not exceed:(a) in the case of royalties referred to in sub-paragraph(a) of paragraph 3 and fees for included services asdefined in this Article [other than services described insub-paragraph (b) of this paragraph] : (i)during the first five taxable years forwhich this Convention has effect, (a)15 per cent of the gross amount of theroyalties or fees for included services asdefined in this Article, where the payer of theroyalties or fees is the Government of thatContracting State, a political sub-division ora public sector company ; and (b)20 per cent of the gross amount of theroyalties or fees for included services in allother cases ; and (ii) during the subsequent years, 15 per centof the gross amount of royalties or fees forincluded services ; and (b) in the case of royalties referred to in sub-paragraph(b) of paragraph 3 and fees for included services asdefined in this Article that are ancillary and subsidiaryto the enjoyment of the property for which payment isreceived under paragraph 3(b) of this Article, 10 percent of the gross amount of the royalties or fees forincluded services. 3. The term “royalties” as used in this Article means : (a) payments of any kind received as a considerationfor the use of, or the right to use, any copyright of aliterary,artistic,orscientificwork,includingcinematograph films or work on film, tape or othermeans of reproduction for use in connection with radioor television broadcasting, any patent, trade mark,design or model, plan, secret formula or process, or forinformationconcerningindustrial,commercialorscientific experience, including gains derived from thealienation of any such right or property which arecontingent on the productivity, use, or dispositionthereof ; and (b) payments of any kind received as consideration forthe use of, or the right to use, any industrial,commercial,orscientificequipment,otherthanpaymentsderivedbyanenterprisedescribedinparagraph 1 of Article 8 (Shipping and Air Transport)from activities described in paragraph 2(c) or 3 ofArticle 8. 4. For purposes of this Article, “fees for includedservices” means payments of any kind to any person inconsideration for the rendering of any technical orconsultancy services (including through the provisionof services of technical or other personnel) if suchservices : (b) payments of any kind received as consideration forthe use of, or the right to use, any industrial,commercial,orscientificequipment,otherthanpaymentsderivedbyanenterprisedescribedinparagraph 1 of Article 8 (Shipping and Air Transport)from activities described in paragraph 2(c) or 3 ofArticle 8. 4. For purposes of this Article, “fees for includedservices” means payments of any kind to any person inconsideration for the rendering of any technical orconsultancy services (including through the provisionof services of technical or other personnel) if suchservices : (a) are ancillary and subsidiary to the application orenjoyment of the right, property or information forwhich a payment described in paragraph 3 is received ;or (b) make available technical knowledge, experience,skill, know-how, or processes, or consist of thedevelopment and transfer of a technical plan ortechnical design. 5. Notwithstanding paragraph 4, “fees for includedservices” does not include amounts paid : (a) for services that are ancillary and subsidiary, aswell as inextricably and essentially linked, to the saleof property other than a sale described in paragraph3(a) ; (b) for services that are ancillary and subsidiary to therental of ships, aircraft, containers or other equipmentused in connection with the operation of ships oraircraft in international traffic; (c) for teaching in or by educational institutions; (d) for services for the personal use of the individualor individuals making the payments; or (e)to an employee of the person making thepayments or to any individual or firm of individuals(other than a company) for professional services asdefinedinArticle15(IndependentPersonalServices)…” 13.As noted above, the AO had briefly noted the services rendered bythe petitioner and had concluded the same would be falling within thedefinition of ‘included services’ however, the said view is unsustainable.The AO’s conclusion is based on the assumption that since the ITinfrastructure is used by AIPL and AIGSPL, the same would constitutemaking available the technical knowledge and skills to AIPL and AIGSPL.The AO had also reasoned that since the petitioner provided softwaredevelopment services with respect to the petitioner’s software applicationused by AIPL and AIGSPL’s business, including the Oracle system; the same would also constitute making available the technical knowledge toAIPL and AIGSPL. The said conclusions are unsustainable given thedescription of the services rendered by the petitioner. 14.As noted above, the petitioner renders wide range of services to AEs.None of the services can be considered as ‘included services’ within themeaning of paragraph no.4 of Article 12 of the India-US DTAA as the sameis not ancillary and subsidiary to the application or enjoyment of the right,property or information for which the petitioner receives royalty as coveredunder Article 12(3) of the India-US DTAA. The services rendered by thepetitioner also do not make available technical knowledge, experience, skill,know-how, or processes to AIPL and AIGSPL. The expression ‘makeavailable’ must be understood to mean transfer of technical knowledge,experience, skill or know-how, or process, which enables the recipient toabsorb and utilise the same. If the service provided does confer any right infavour of the recipient in respect of the knowledge, experience, skill orknow-how; the condition that the services ‘make available’ such technicalknowledge, know-how, skill, or process so as to fall with the sweep of FISare not satisfied. 15.In CIT v. Relx Inc.: (2024) 470 ITR 611, a Coordinate Bench of thiscourt had considered the meaning of “make available” and had held asunder: “15. Similarly, in order for that income to fall within the ambit of“fees for included services”, it was imperative for the Department toestablish that the assessee was rendering technical or consultancyservices and which included making available technical knowledge,experience, skill, know-how or processes. As has been found by the 15.In CIT v. Relx Inc.: (2024) 470 ITR 611, a Coordinate Bench of thiscourt had considered the meaning of “make available” and had held asunder: “15. Similarly, in order for that income to fall within the ambit of“fees for included services”, it was imperative for the Department toestablish that the assessee was rendering technical or consultancyservices and which included making available technical knowledge,experience, skill, know-how or processes. As has been found by the Tribunal, the access to the database did not constitute the rendering ofany technical or consultancy services and in any case did not amountto technical knowledge, experience, skill, know-how or processesbeing made available. 16. We note that while explaining the meaning liable to be ascribedto the expression “make available”, the court in CIT v. Bio-RadLaborataries (Singapore) Pte. Ltd. [CIT v. Bio-Rad Laborataries(Singapore) Pte. Ltd., (2023) 459 ITR 5 : 2023 SCC OnLine Del6770] had affirmed the following opinion as expressed by theTribunal. This is evident from a reading of paras 14, 14.1 and 15,which is extracted below (459 ITR p. 7): (SCC OnLine Del paras14 and 15) “14. According to the Tribunal, the agreement betweenthe respondent-assessee and its Indian affiliate had beeneffective from 1-1-2010, and if, as contended by theappellant-Revenue,technicalknowledge,experience,skill, and other processes had been made available to theIndian affiliate, the agreement would not have run itscourse for such a long period. 14.1. Notably, this aspect is adverted to in paras 17 to 23of the impugned order. For convenience, the relevantparas are extracted hereafter [33 ITR (Trib)-OL p. 463]:‘A perusal of the aforementioned provision shows that inorder to qualify as fees for technical services, the servicesrendered ought to satisfy the “make available” test.Therefore, in our considered opinion, in order to bringthe alleged managerial services within the ambit of feesfor technical services under the India-USA DoubleTaxation Avoidance Agreement, the services would haveto satisfy the “make available” test and such servicesshould enable the person acquiring the services to applythe technology contained therein.… … agreement is effective from 1-1-2009 and we are inAssessment Years 2018-2019 and 2019-2020. In ourconsidered opinion, if the assessee had enabled theservice recipient to apply the technology on its own, thenwhy would the service recipient require such service year after year every year since 2009? This undisputed fact in itself demolishes the action of theassessing officer/Dispute Resolution Panel. The facts onrecord show that the recipient of the services is notenabled to provide the same service without recourse tothe service provider i.e. the assessee. In our humble opinion, mere incidental advantage to therecipient of services is not enough. The real test is thetransfer of technology and on the given facts of the case,there is no transfer of technology and what has beenappreciatedbytheassessingofficer/learnedCommissioner of Income Tax (Appeals) is the incidentalbenefit to the assessee which has been considered to be ofenduring advantage. In our understanding, in order to invoke make availableclauses, technical knowledge and skill must remain withthe person receiving the services even after the particularcontract comes to an end and the technical knowledge orskills of the provider should be imparted to and absorbedby the receiver so that the receiver can deploy similartechnology or techniques in the future without dependingupon the provider.’(emphasis is ours) 15. We tend to agree with the analysis and conclusionarrived at by the Tribunal.” 17. As we examine the nature of the transaction between anIndian subscriber and the assessee, it becomes manifest andapparent that it neither comprises of a transfer of copyrightnor does it include a transfer of a right to apply technologyand other related aspects which are spoken of in Article12(4)(b) of the Double Taxation Avoidance Agreement.” 15. We tend to agree with the analysis and conclusionarrived at by the Tribunal.” 17. As we examine the nature of the transaction between anIndian subscriber and the assessee, it becomes manifest andapparent that it neither comprises of a transfer of copyrightnor does it include a transfer of a right to apply technologyand other related aspects which are spoken of in Article12(4)(b) of the Double Taxation Avoidance Agreement.” 16.In CIT v. De Beers India Minerals P. Ltd.: (2012) 346 ITR 467 aDivision Bench of the Karnataka High Court held as under: “21. What is the meaning of "make available". The technical orconsultancy service rendered should be of such a nature that it"makes available" to the recipient technical knowledge, know-how and the like. The service should be aimed at and result intransmitting technical knowledge, etc., so that the payer of theservice could derive an enduring benefit and utilize theknowledge or know-how on his own in future without the aid ofthe service provider. In other words, to fit into the terminology"making available", the technical knowledge, skills, etc., mustremain with the person receiving the services even after theparticular contract comes to an end. It is not enough that theservices offered are the product of intense technological effortand a lot of technical knowledge and experience of the serviceprovider have gone into it. The technical knowledge or skills ofthe provider should be imparted to and absorbed by the receiverso that the receiver can deploy similar technology or techniquesin the future without depending upon the provider. Technologywill be considered "made available" when the person acquiringthe service is enabled to apply the technology. The fact that theprovision of the service that may require technical knowledge,skills, etc., does not mean that technology is made available tothe person purchasing the service, within the meaning ofparagraph (4)(b). Similarly, the use of a product whichembodies technology shall not per se be considered to make thetechnology available. In other words, payment of considerationwould be regarded as "fee for technical/included services" onlyif the twin test of rendering services and making technicalknowledge available at the same time is satisfied.” 17.In so far as the IT infrastructure and software development isconcerned,thepetitionerhadexplaineditmaintainsthenetworkconnectivity and ensures that the business of AIPL and AIGSPL is beingmaintained and run at optimum effectiveness and maximum security. Thesame would include the applications and software, which are used by theprofessionals of AIPL and AIGSPL. However, the assumption that there isany transfer of right in relation to the said software or applications to AIPL and AIGSPL is not supported by any material on record. 18.Although the petitioner has also stated that it provided the softwaredevelopment services with respect to the various software applications,which are used by AIPL and AIGSPL in their businesses. However, there isnothing on record to indicate that the AEs acquired any rights in relation tothese software and applications developed by the petitioner. 19.The AO also observed that part of the charges was taxable asroyalties. The said information was premised on the basis that the petitionercentrally procured software / tools for joint use by its AE. The AO reasonedthat cross charges would thus, be the reimbursement of the actual cost ofsuch software / tools and, therefore, taxed as royalty. 20.Given the fact that AIPL and AIGSPL did not acquire any copyrightin the software, the cross charges paid by them could not be construed asroyalties within the scope of Article 12(3) of the India-US DTAA. This issueis covered by the decision of the Supreme Court in the case of EngineeringAnalysis Centre of Excellence Private Limited v. CIT & Anr.: (2021) 432ITR 471. 19.The AO also observed that part of the charges was taxable asroyalties. The said information was premised on the basis that the petitionercentrally procured software / tools for joint use by its AE. The AO reasonedthat cross charges would thus, be the reimbursement of the actual cost ofsuch software / tools and, therefore, taxed as royalty. 20.Given the fact that AIPL and AIGSPL did not acquire any copyrightin the software, the cross charges paid by them could not be construed asroyalties within the scope of Article 12(3) of the India-US DTAA. This issueis covered by the decision of the Supreme Court in the case of EngineeringAnalysis Centre of Excellence Private Limited v. CIT & Anr.: (2021) 432ITR 471. 21.It is relevant to note that the AO had not controverted that the saidview was not in consonance with the decision of the Supreme Court inEngineering Analysis Centre of Excellence Private Limited v. CIT & Anr.:(supra) but merely observed that the Revenue’s review petition is pendingbefore the Supreme Court. 22.The decision of the Supreme Court is binding under Article 141 of theConstitution of India and could not have been disregarded on the ground thata review petition is pending. In Milestone Systems A/S v. Dy. CIT: (2023)453 ITR 250, – a case where the AO had not followed the decision ofEngineering Analysis Centre of Excellence Private Limited v. CIT & Anr.(supra) on the ground that a petition to review the said decision was pending– a Coordinate Bench of this court had observed: “10. According to us, as long as the judgment of the SupremeCourt is in force, the concerned authority could not have sidestepped the judgment, based on the fact that the review petitionhad been preferred. It would have been another matter, if theconcerned officer had, on facts, distinguished the judgment oftheSupremeCourtinEngineeringAnalysisCentreofExcellence P. Ltd. v. CIT.” 23.In view of the above, the impugned order is not sustainable andtherefore, is, set aside.We, accordingly, direct the AO to issue thenecessary certificate or ‘NIL’ withholding Tax Certificate in respect of thecross-cost charges as received by the petitioner from AIPL and AIGSPL. 24.We clarify that this order would not preclude the Revenue fromexamining the taxability of the receipts in normal course of assessmentunder the Act and the present order is confined to the issuance of thecertificate under Section 197 of the Act based on the description of theservices as provided and furnished by the petitioner. Signature Not Verified 25.The petition is allowed in the aforesaid terms. The pendingapplication is also disposed of. VIBH