TMI Blog2012 (9) TMI 293X X X X Extracts X X X X X X X X Extracts X X X X ..... payment should be treated as FTS cannot be accepted because ultimately the machine only performs and no human element is involved - that the huge cost for installation of the system and the huge payment made by the Assessee by itself is an indication that the payment is FTS is without any merit as the percentage of payment received by the Assessee towards reimbursement compared to the total receipts in the form of freight etc., from shipping business in India is less than 1%. Thus the receipt in question cannot be considered as Fees for Technical services rendered. The amount in question received by the assessee from MIPL, MLIL and SIPL was not in the nature of FTS and the same being part of the income from shipping business was not taxable in India as per Article 9 of the DTAA since the place of effective management of the assessee company is situated in Denmark - in favour of assessee. - IT Appeal Nos. 2080 to 2082 & 4687 (mum.) of 2009 - - - Dated:- 31-8-2012 - D.K. Agarwal, P.M. Jagtap , JJ. ORDER Per Bench These four appeals filed by the assessee are directed against four separate orders passed by the learned CIT(Appeals)-XXXI, Mumbai, three dated 15-01-20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I.T. Act, 1961, as per article 9 of the DTAA entered into between Government of India and Kingdom of Denmark, profits derived from the operation of ships in international traffic is taxable only in the contracting state in which the place of effective management of the enterprise is situated. It was claimed that since the place of effective management of the assessee was in Denmark, the income from shipping business could not be brought to tax in India in terms of section 90 of the Act read with article 9 of the DTAA. The Assessing Officer accepted this claim of the assessee and did not bring to tax the shipping income in its hands in India. 5. During the years under consideration, MIPL, MLIL and SIPL were acting as Agents of the assessee for booking cargo and as clearing agents of the assessee in India. The assessee had 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d based on certain usage criteria. 7. The Assessing Officer did not accept the stand taken by the assessee on this issue. According to him, the payment by MIPL, MLIL and SIPL to the assessee was for the technical service rendered by the assessee and the same, therefore, was taxable in India in accordance with Article 13(2) of the DTAA as 'fees for technical service' at 20% u/s. 115A of the I.T. Act, 1961. 8. The orders of the A.O. bringing to tax the amount received from MIPL, MLIL and SIPL in its hands in India for all the four years under consideration were challenged by the assessee by way of appeals preferred before the learned CIT(Appeals). During the appellate proceedings before the learned CIT(Appeals), elaborate submissions were made on behalf of the assessee in support of its case, the gist of which is given hereunder. ( a ) That the said receipt represents merely on allocation of costs and hence is in the nature of reimbursement of expenses hence not taxable. ( b ) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned CIT(A) then proceeded to consider and decide the issue as to whether the amount in question was in the nature of "Fees for Technical services" (FTS) in the light of definition given in the DTAA and Explanation 2 to section 9(1)(vii) which read as under :- Article 13(4) The term 'fees for technical services' as used in this Article means payments of any amount to any person other than payments to an employee of the person making payments, in consideration for the services of managerial, technical or consultancy nature, including the provision of services of technical or other personnel. 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'. 11. The learned CIT(A) held in this context that the use of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... global telecommunication facility, capable of supporting communication facility between itself and its agents in various countries. The above facility run on a combination of mainframe and non-mainframe servers located at Denmark. These systems are an integral part of international shipping business. The systems comprise of booking and communication software, hardware and data communication network. It enables co-ordination of cargoes and ports of call for the Assessee fleet. The expenses incurred by the Assessee are in respect of systems mainly include network costs, data communication, data production, data processing costs etc. Without these systems the international shipping business cannot be conducted nor would the agents of the Assessee across the work be able to discharge their role as agents of 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 Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... way of service for a fee. The popular meaning associated with "technical" is "involving or concerning applied and industrial science". In the modern day world, almost every facet of one's life is linked to science and technology inasmuch as numerous things used or relied upon in every day life is the result of scientific and technological development. Every instrument or gadget that is used to make life easier is the result of scientific invention or development and involves the use of technology. On that score, every provider of every instrument or facility used by a person cannot be regarded as providing technical service. When a person hires a taxi to move from one place to another, he uses a product of science and technology, viz., an automobile. It cannot on that ground be said that the taxi driver 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... truction of the provisions of the Act must be in the background of the realities of day-to-day life in which the products of technology play an important role in making life smoother and more convenient. Section 194J, as also Explanation 2 in section 9(1)(vii) of the Act were not intended to cover the charges paid by the average house-holder or consumer for utilising the products of modern technology, such as, use of the telephone fixed or mobile, the cable T.V., the internet, the automobile, the railway, the aeroplane, consumption of electrical energy, etc. Such facilities which when used by individuals are not capable of being regarded as technical service cannot become so when used by firms and companies. The facility remains the same whoever the subscriber may be - individual, firm or company. "Technical service" referred in section 9(1)(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 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess of shipping which is not chargeable to tax in India by virtue of Article 9 of the DTAA. 14. After considering the rival submissions and perusing the relevant material on record, it is observed that this issue is also covered in favour of the assessee by the decision of coordinate bench of this Tribunal in the case of Dampsikibsselskabet af 1912 A/s (supra) wherein a similar issue has been decided in favour of the assessee in paragraph No. 25 to 28 which are reproduced hereunder : "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 axiomatic that clause or expression will have the same meaning as normally assigned in the tax literature of OECD. ITAT Mumbai Bench in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 as the services of agencies selling passage tickets on behalf of the enterprise concerned or on behalf of third enterprises. Therefore, prof ..... X X X X Extracts X X X X X X X X Extracts X X X X
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