Meaning Of A Word In An Agreement Is To Be Judged By The Company Of Other Words Which It Keeps: Bombay HC

The Bombay High Court has reiterated that the meaning of a word in an agreement is to be judged by the company of other words which it keeps.

In that context, the Bench of Justice KR Shriram and Justice Neela Gokhale observed that, "The principle of noscitur a sociis mandates that the meaning of a word is to be judged by the company of other words which it keeps. The word ‘consultancy’ services follows ‘technical’ which is further followed by the phrase “which make available technical knowledge, experience, skill, know-how or processes, or consist of development and transfer of a technical plan or technical design.” A clear reading indicates that even if consultancy services is 'stand alone', the bunch of words indicate that the said 'consultancy' necessarily relates to consultancy which makes available technical or any other knowledge, experience, skill, know-how or processes and does not relate to consultancy on managerial issues."

Senior Counsel Jehangir D Mistri appeared for the petitioner, while Counsel Suresh Kumar appeared for the respondents.

The petition involved a dispute over tax liability for payments made by the petitioner to its non-resident group company, Shell International Petroleum Company Limited (SIPCL), for General Business Support Services (BSS) under a Cost Contribution Arrangement (CCA).

The Authority for Advance Rulings (AAR) determined, in a 2012 order, that these payments constituted income in the hands of SIPCL, qualifying as fees for technical services under the India-UK Double Tax Avoidance Agreement.

Consequently, the petitioner was obligated to withhold tax under Section 195 of the Income Tax Act, 1961. The petitioner challenged this order in the Supreme Court but later withdrew the petition and approached the High Court through a writ jurisdiction. The petitioner argued that the services availed were managerial, not technical, and the AAR misinterpreted the 'make available' condition. 

The High Court observed that, "A perusal of the list of services relate to managerial services not involving anything of a technical nature. The AAR has discussed the services appearing in the CCA and has concluded that these activities in a retail business are at the core of retail marketing and hence advice tendered in taking a decision of commercial nature is a consultancy service. The AAR has further considered the definition of the word ‘Consultancy’ as defined in the Oxford English dictionary and has observed that a consultant is a person who gives professional advice or services in a specialized field. However, the AAR failed to appreciate that the word ‘Consultancy’ appearing in the Article is to be interpreted in the context of consultancy which makes available technical knowledge, etc. and not of managerial nature."

It was further observed that even if it is fees for technical or consultancy services, it can be only where fees are paid in consideration for making available technical knowledge, experience etc.

Observing that, "the view of the AAR that SIPCL works closely and advises the employees of Petitioner and hence makes available the services is not correct. This view in fact suffers from fallacy since the agreement continues to operate till date.", the Court set aside the order of the AAR.

Appearances:

Petitioner: Senior Advocate Jehangir D Mistri, Madhur Agrawal, Sheeja John, Vaishnai Malasure

Respondents: Counsel Suresh Kumar

Cause Title: Shell India Markets Private Limited vs The Union of India & Ors.

Click here to read/download the Judgment