TMI Blog2017 (2) TMI 993X X X X Extracts X X X X X X X X Extracts X X X X ..... f DTAA would necessarily include expenses for earning that income and cannot be separated, more so, when it is found that the business cannot be run without these expenses. This Court in Commissioner of Income Tax-4, Mumbai v. Kotak Securities Limited (2016 (3) TMI 1026 - SUPREME COURT ) has categorically held that use of facility does not amount to technical services, as technical services denote services catering to the special needs of the person using them and not a facility provided to all. Thus High Court is correct in holding that the income from the use of Global Telecommunication Facility called 'Maersk Net' can be classified as income arising out of shipping business and not as fees for technical services - Civil Appeal No. 8040 of 2015 - - - Dated:- 17-2-2017 - A. K. Sikri And Abhay Manohar Sapre, JJ. CIVIL APPEAL NO. 2959 OF 2017 (ARISING OUT OF SLP (C) NO. 5979 OF 2017 @ SLP (C) CC NO. 18880 OF 2015) CIVIL APPEAL NO. 2958 OF 2017 (ARISING OUT OF SLP (C) NO. 5978 OF 2017 @ SLP (C) CC NO. 20220 OF 2015 CIVIL APPEAL NO. 2962 OF 2017 (ARISING OUT OF SLP (C) NO. 5984 OF 2017 @ SLP (C) CC NO. 20248 OF 2015 CIVIL APPEAL NO. 2961 OF 2017 (ARISING OUT OF SL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all its agents, across the globe, in this business, the assessee had set up and was maintaining a global telecommunication facility called Maersk Net System which is a vertically integrated communication system. The agents were paying for said system on pro-rata basis. According to the assessee, it was merely a system of cost sharing and the payments received by the assessee from MIPL, MLIL, SIPL and MISPL were in the nature of reimbursement of expenses. The AO did not accept this contention and held that the amounts paid by these three agents to the assessee was consideration/fees for technical services rendered by the assesses and, accordingly, held them to be taxable in India under Article 13(4) of the DTAA and assessed tax @ 20% under Section 115A of the Income Tax Act, 1961. 7. The assessee preferred an appeal against the Assessment Order before the Commissioner of Income Tax (Appeals) (for short, 'CIT (A)'). The CIT(A) vide order dated 23.08.2010 dismissed the appeal. Aggrieved by the order passed by the CIT(A), the assessee preferred further appeal before the Income Tax Appellate Tribunal (ITAT). Here the assessee succeeded as the ITAT, by order dated 14.12.2012, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er any other provisions of the Income Tax Act except under DTAA. It is also pertinent to mention that while arriving at the aforesaid decision, the High Court has specifically observed that there is no finding by the AO or the Commissioner that there is only profit element involved in the payments received by the assessee from its agents. 9. It is in the aforesaid circumstances the issue arose as to whether any technical services were rendered by the assessee to its aforesaid three agents and the payment made by the agents was in the form of fee for the said technical services OR the payment was nothing but reimbursement of the cost by the three agents to the assessee for using the Maersk Net. 10. The facts which emerge on record are that the assessee is having its IT System, which is called the Maersk Net. As the assessee is in the business of shipping, chartering and related business, it has appointed agents in various countries for booking of cargo and servicing customers in those countries, preparing documentation etc. through these agents. Aforementioned three agents are appointed in India for the said purpose. All these agents of the assessee, including the three agents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gral part of the shipping business and the business cannot be conducted without the same, which was allowed to be used by the agents of the assessee as well in order to enable them to discharge their role more effectively as agents, it is only a facility that was allowed to be shared by the agents. By no stretch of imagination it can be treated as any technical services provided to the agents. In such a situation, 'profit' from operation of ships under Article 19 of DTAA would necessarily include expenses for earning that income and cannot be separated, more so, when it is found that the business cannot be run without these expenses. This Court in Commissioner of Income Tax-4, Mumbai v. Kotak Securities Limited (2016) 383 ITR 1 (SC) has categorically held that use of facility does not amount to technical services, as technical services denote services catering to the special needs of the person using them and not a facility provided to all. After taking note of Section 19 of the Income Tax Act,1961 and explanation 2 thereof which defines fee for technical services, the Court went on to describe the meaning of the said expression in the following manner: 6. What meaning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clusive to the seeker of the service, the latter, even if termed as a service, is available to all and would, therefore, stand out in distinction to the former. The service provided by the Stock Exchange for which transaction charges are paid fails to satisfy the aforesaid test of specialised, exclusive and individual requirement of the user or consumer who may approach the service provider for such assistance/service. It is only service of the above kind that, according to us, should come within the ambit of the expression technical services appearing in Explanation 2 to Section 9(1)(vii) of the Act. In the absence of the above distinguishing feature, service, though rendered, would be mere in the nature of a facility offered or available which would not be covered by the aforesaid provision of the Act. 9. There is yet another aspect of the matter which, in our considered view, would require a specific notice. The service made available by the Bombay Stock Exchange [BSE Online Trading (BOLT) System] for which the charges in question had been paid by the appellant assessee are common services that every member of the Stock Exchange is necessarily required to avail of to car ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed. Mr. Radhakrishnan also referred to Article 17 of the Agency Agreement between the assessee and the Indian agents which provides that the assessee may, from time to time, temporarily place its employees in agents office for training or other purposes . However, it could nowhere be pointed out that payment in question was made by the agents to the assessee for the aforesaid purposes. Mr. Radhakrishnan also argued that arrangement of profits is not essential to qualify receipt as income from free for technical services. This argument is, again, untenable as on the facts of this case it is clearly established that the payment made by the assessee was not for reimbursement of any technical services. 15. After the arguments were concluded, additional written submissions were filed by Mr. Radhakrishnan on behalf of the Revenue wherein altogether new point is raised viz. the payments made by the agents to the assessee for use of that Maersk Net System can be treated as royalty. However, this desperate attempt on the part of the Revenue cannot be allowed as no such case was sought to be projected before the High Court or even in the appeals in this Court. We have already mentioned ..... X X X X Extracts X X X X X X X X Extracts X X X X
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