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2017 (2) TMI 1356 - AT - Income TaxProfit derived from the operation of ships in international traffic - DTAA between India and Denmark - whether treated as Royalty as per Article 13 and section 9(1)(vi) and (vii) - income deemed to accrue and arise in India - incurring expense towards operation, maintenance and upgradation of SAP based ERP solution (FACT)- Held that:- As decided in assessee's own case amendment is carried out under domestic law, same cannot be read into the treaty. Accordingly, we are of the view that The FACT cost represent merely allocation of cost incurred and hence in the nature of reimbursement of expenses not having any element of profit embedded in it. Such recovery only includes proportionate cost incurred by the assessee for the development and maintenance of the system. Therefore, such recoupment of cost does not constitute income chargeable to tax in the hands of the assessee. It is undisputed that he assessee is in business of conducting operation of ships in international traffic and not engaged in the business of providing communication services, and therefore, per se no separate royalty/FTS were rendered by the assessee. Hence, we allow this issue of assessee’s appeal. Income from Inland Haulage Charges [IHC] of cargo - whether covered under Article 9 of the tax treaty between India and Denmark and therefore not liable for tax in India and that section 44B - Held that:- As decided in assessee's own case the activities of the IHC are connected directly or an ancillary activity that provides minor contribution and should not be regarded as a separate business to the operations of ships. These activities are linked or connected to each other and as such one cannot say that one is to be conducted efficiently without the other and which have a nexus to the main business of the assessee of operations of ships should be considered as integral part of income from shipping operations. Accordingly, we allow the claim of assessee - repayment of money may be construed as “reimbursement” only if it is bereft of profits for the services rendered. There is no profit element in the pro rata costs paid by the agents of the assessee to the assessee and accordingly, we have no hesitation in holding that the amounts paid by the agents to utilize the amount arose out of the shipping business cannot be brought to tax as sought to be done - revenue appeal dismissed.
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