TMI Blog2010 (6) TMI 462X X X X Extracts X X X X X X X X Extracts X X X X ..... evan. JM. These are appeals by the assessee against three orders all dated 15.1.2009 of learned CIT(A)-XXXI, Mumbai relating to AYs 2001-02 to 2003-04. 2. The issue that arises for consideration in all these appeals is as to whether the amount received by the assessee from Maersk India Pvt. Ltd. (MIPL), Maersk Logistic India Ltd. (MLIL) and Safmarine India (P) Ltd. (SIPL) towards their share of shared IT Global Portfolio tracking system can be brought to tax in India. The issue arises under similar facts and circumstances in all the three assessment years. We deem it convenient to pass a common order. 3. The assessee is a non-resident company incorporated under the laws ofDenmark. like the Managing Agency System of managing Limited Liability companies which were once prevalent inIndia, a system of managing limited liability companies is still prevalent inDenmark. Managing Agents are called Managing owner. A firm by name AP Moller acted as managing owner of the assesses. The assessee was earlier known as Dampskibsselskabet AF 1912 and now known as AP Moller MAERSK A/S . 4. The assessee carried on the business of shipping, chartering and related business. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10,03,00,921 (b) MLIL 2001-02 29,92,560 2002-03 29,92,560 2003-04 29,02,560 (c) SIPL 2001-02 -_ 2002-03 _- 2003-04 47,62,275 MIPL, MLIL and SIPL were acting as Agents of the assessee for booking cargo and as clearing agents of the assessee inIndia. The above payments were made by them to the assessee for the following purpose. The assessee procured and maintained a global telecommunications facility (MaerskNet), a virtual integrated international communications infrastructures, capable of supporting communication services at various speeds and services levels via one or more Core Lines (MCN) connected to Mainframe and Non-mainframe servers, one or more MaerskNet Access Node (MAN) in each country and the MaerskNet Connecting Point (MCP) installed at each of the premises. The communication network will enable an Agent to access following via MCP which includes but not limited to : l Compressed digital voice-on-data connectivity via interfaces to telephone switchboards; l Analogue dial-up service using Packet 3270 or other suitable, mutually agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r technical service at 20% u/s- 115A of the I.T. Act, 1961. 9. Aggrieved by the order of the Assessing Officer, the assessee preferred appeal before learned CIT(A). 10. Before learned CIT(A) the assessee raised the following contentions :- ( a ) That the amount received by the assessee from MIPL, MLIL and SIPL is not fees for technical services assessable to tax u/s. 115A of the Act. ( b ) That the said receipt represents merely on allocation of costs and hence is in the nature of reimbursement of expenses hence not taxable. ( c ) That the said receipts are intrinsically linked to shipping business and are incidental thereto and thus covered by Article 9 of the DTAA i.e. it is in the nature of income from shipping business and cannot be brought to tax in India since the assessee was resident of Denmark. ( d ) Without prejudice to the above, it was contended that if the receipt is otherwise considered as income, the same can be taxed only as business income but cannot be brought to tax in India because the assessee does not have a permanent establishment in India. 11. The learned CIT(A) considered the issue as to whether the receipt in question was fees for te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Explanation 2 to section 9(1)(vii) of the Act: For the purposes of this clause fees for technical services means nay consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head salaries . 12. The learned CIT(A) was of the view that use of advanced sophisticated technology falls under the category of use of technical services and payment therefore is a payment of fee for FTS. He held that under the agreement the assessee has termed the payment as a prorata cost sharing payment whereas in reality it was FTS. The CIT(A) thereafter referred to several judicial pronouncements and finally concluded that the payment received by the Assessee was FTS, In view of the above conclusion, the CIT(A) did not deal with the issue as to whether the receipt would be part of income from the business of shipping and therefore exempt under Article-9 of the DTAA a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessee. This facility enables its agents across the world to access several information like tracking of cargo of a customer, transportation schedule, customer information, documentation system and several other information which we have already set out in the earlier part of this order. The cost for setting up this global telecommunication facility is shared between the Assessee and its agents across the world. We have already seen the relevant clause in the agreement between the Assessee and the agent and a reference to the rate sheet attached to the agency agreement. In respect of such cost sharing the Assessee has raised invoice on its agents MIL, MLIL, SIPL. The Assessee s Chartered Accountants at Denmark, M/S. KPMG have duly certified the basis of cost sharing between the Assessee and have opined that it was only reimbursement of cost and no profit element is involved in the use of the facility by the Agents for facility provided by the Assessee, The Assessee has also given a declaration that there is no mark up to the costs and only actual costs are recovered. All the above documents have been totally disregarded by. the CIT(A). There is no finding by the AO or CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... river who controls the vehicle, and monitors its movement is rendering a technical service to the person who uses the automobile. Similarly, when a person travels by train or in an aeroplane, it cannot be said that the railways or airlines is rendering a technical service to the passenger and, therefore, the passenger is under an obligation to deduct tax at source on the payments made to the railway or the airline for having used it for travelling from one destination to another. When a person travels by bus, it cannot be said that the undertaking which owns the bus service Is rendering technical service to the passenger and, therefore, the passenger must deduct tax at source on the payment made to the bus service provider, for having used the bus. The electricity supplied to a consumer cannot, on the ground that generators are used to generate electricity, transmission lines to carry the power, transformers to regulate the flow of current, meters to measure the consumption, be regarded as amounting to provision of technical services to the consumer resulting In the consumer having to deduct tax at source on the payment made for the power consumed and remit the same to the Revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Technical service referred in section 9(l)(vii) contemplates rendering of a service to the payer of the fee. Mere collection of a fee for use of a standard facility provided to all those willing to pay for it does not amount to the fee having been received for technical services. 17. The payments received by the Assessee are for providing a facility to its agents. The payment received is nothing but a payment by way of reimbursement of the cost for providing a particular facility. The Assessee is in the business of shipping and not in the business of providing any technical service. We are of the view that this ratio of Hon ble Madras High court will apply to the facts of the present case. The Assessing Officer in coming to the conclusion that the payment was for fee for technical services has relied on the fact that there has been use of sophisticated equipments. This by itself will not be sufficient to holding technical services being rendered. All the above features enables better and efficient conduct of business. It is due to improved technology. That does not mean that the Assessee is providing technical services. The Assessee as well as its agents are the beneficiar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erminable on a proportional percentage of budget turnover weighted by growth rate and market maturity of the group company availing the services and any increase or shortfall in the actual turnover would proportionately increase or decrease the portion of cost to be absorbed by the group company which avails services from foreign company. The further finding of fact is that the payment is not reimbursement of actual expenses. In the present case we have already seen that the payment received by the Assessee is a proportion of the actual cost and the revenue authorities have conveniently omitted to even consider this aspect. 20. The decision in the case of Hindalco Industries Ltd. v. ACTT 94 ITD 24 (Mum.) is a case where an Indian company purchased know how from an American Company. The Indian company also paid fees to the American Company for training its personnel. The tribunal held that the fees paid was an integral part of the transaction of the sale of know how and was to be treated as fees for included services. There were some incidental expenses which were reimbursed. These expenses were found to be part of the cost of acquiring the know-how and therefore were treate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the plea of the learned D.R. in this regard is without any merit. We therefore hold that the receipt in question cannot be considered as Fees for Technical services rendered. 24. We will now deal with the issue as to whether receipts in question can be considered as income from business of shipping and therefore exempt under Article IX of the DTAA. We have already seen the provisions of Article 9 of the DTAA which provides that profits derived from operation of the ships in international traffic shall be taxable only in the contracting State in which, place of effective management of the enterprise is situated. 25. We may clarify here that provisions of Article 9(2) of the DTAA will not apply as the DTAA had come into force on 25.9.1989. Provisions of Article 9(1) are identical to Article 8(1) of the OECD model of convention. When expression or clause is picked up from OECD convention, normal presumption is that the person using the said clause or expression are also aware about the meaning assigned to the said clause or expression by the OECD and have used it in the same sense and for the same purpose. Unless, the contra intention is specifically expressed, it is only axio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irport to the passengers of its international flights. 7. A further example would be that of an enterprise that transports passengers or cargo by ships or aircraft operated in international traffic which undertakes to have those passengers or that cargo picked up in the country where the transport originates or transported or delivered in the country of destination by any mode of inland transportation operated by other enterprises. In such a case, any profits derived by the first enterprise from arranging such transportation by other enterprises are covered by the paragraph even though the profits derived by the other enterprises that provide such inland transportation would not be. 27. Eminent Author Klaus Vogel on double taxation conventions, Third Edition at page 484 while dealing with article 8 of the OECD model convention has expressed the following opinion on the issue : In addition to the transportation of passengers and freight typically included in the term operation of ships or aircraft. Article 8 extends to cover all activities connected with such transportation services. There are primarily preparatory and auxiliary activities related to transportation, such a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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