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2013 (11) TMI 827 - AT - Income TaxIndo Denmark DTAA - Taxability of software as Royalty or FTS - Shipping Business - income from software usage which has been developed and maintained by the assessee – Held that:- Article-9(1) of Indo Denmark DTAA provides that the profits derived from operations of the ships in international traffic shall be taxable at a place where the effective management of the enterprise is situated and such a profit is exempt from tax in the other contracting State. The term "Profit" under this Article has to be construed more broadly so as to include not only the activities directly connected with the shipping operations but also to include income from activities which facilitates or support such operation as well as any ancillary activities - The OECD commentary on Article-8 (similar to Article-9 of the Indo-Denmark DTAA) also expresses the same view. If any activity is directly linked with carrying on shipping operations and results into some kind of an income, then it has to be treated as a part of such shipping operations only. In assessee's own case of the earlier year, it has been held that the cost recovered from the various agents towards usage of software are directly connected with the shipping operations then the same has to be treated as covered under Article-9(1) and, hence, it cannot be taxed in India. Thus, respectfully following the judicial precedence, held that any kind of receipts recovered by way of software usage/development cost from MIPL cannot be taxed in India under Article-9(1) of DTAA. Further, this receipt also cannot be taxed as fees for technical services or royalty independently because in the present case, the assessee is not rendering any service of managerial, technical or consultancy to its agent or group entities by allowing its group companies to be usage of software. The assessee's main income is only from freight receipt received from operations of ships and it is not providing any technical service to them. It has developed a software for running of shipping business globally in a more effective and efficient manner and access of such software has been provided to various agents/group companies all over the world who are using this software for facilitating the freight receipts from shipping, for which they are reimbursing the cost to the assessee without any mark-up. Such a recovery of a cost cannot be held to be fees for technical services – Decided against the Revenue.
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