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APM Terminals Management B.V. Maersk Line India Pvt. Ltd. Versus DCIT (Intl. Taxation) -1 (1) , Mumbai

Taxability of Fees for Technical Services (FTS)/Royalty - Indian - Netherland DTAA - applicability of Article 12 of the tax treaty - income accrued to the assessee from India - consultancy fees received - services rendered outside India - Held that:- No taxable income was received by the assessee during the year under appeal. It is a fact that services were rendered outside India to a nonresident i. e. ZMPC and that same were utilised in manufacturing the cranes outside India i. e. in China. In .....

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the treaty, had applied the provisions of the Act. In our opinion, the stand of the AO/FAA cannot be endorsed, as the provisions of tax-treaties have to be given preference over the provisions of the Act. - The consultancy was rendered outside India and even if same has to be taxed it would be chargeable to tax in that country and not in India. The AO/FAA has failed to prove that services rendered by the assessee to ZMPC were in the nature of Royalty. Nothing has been brought on record to p .....

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opinion that consultancy fees received by the assessee from ZMPC cannot be held to be FTS and that same is not chargeable to tax in India. So, reversing the order of the FAA we decide the effective ground of appeal in favour of the assessee. - ITA No. 3621/Mum/2015 - Dated:- 6-9-2017 - Shri Rajendra, A. M. and Sandeep Gosain, J. M. Revenue by : Shri M. V. Raj Guru-Sr. DR Assessee by : S/Shri Sunil Motilala/ Fenil Bhatt/Tushar Hathiramani ORDER Per Rajendra, AM Challenging the order, dated 20/02 .....

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₹ 4. 51crores. The Assessing Officer (AO)completed the assessment, u/s. 143(3)r. w. s. 147 and 144C (3) of the Act, on 28/01/ 2011, determining its income at ₹ 4. 67 crores. 2. Effective ground of appeal is about taxability of Fees for Technical Services (FTS)/Royalty as per the provisions of the Act and Indian Netherland tax treaty. During the assessment proceedings, the AO found that the assessee had received an amount of ₹ 1, 67, 58, 000/-from Shanghai Zhenhua Port Machiner .....

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s per the terms and conditions of the agreement, that ZPMC was required to pay a fee of US dollars 15, 000 to the assessee for each crane sold through its group company, that in accordance with the agreement Gujarat Pipavav Port Ltd. (GPPL) entered into a contract for purchase of planes from ZPMC, that the assessee is part of A P Moller group and was paid money through ZPMC as per the agreement between APMM and ZPMC, that as per the agreements ZPMC was required to pay consultancy fees to the ass .....

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cranes in India by ZMPC was ₹ 1. 67 crores as calculated in order dated 24/07/2008 in the case of GPPL by the AO of that assessee. He further observed that the design for the crane was decided by APMM and ZPMC, that the group companies didn t have any say in change of design of the crane, that all the technical activities were carried out by APMM on behalf of its group companies worldwide, that the payment was actually in the nature of FTS. Referring to Article 12 of the DTAA, he held that .....

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tly held that it had conducted technical activities for its group entities, that the consultancy fees paid by ZPMC to it was in nature of FTS, that the payment of consultancy fees/receipt were linked to India, that same was liable to be taxed in India as royalty income as per the India-Netherland Tax Treaty, that the payment received in the hands of the assessee through ZPMC was in fact made by GPPL, that it was routed through ZPMC, that payment was liable to be taxed in India as royalty income .....

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pose of the agreement was to ensure procurement of standardised cranes for all its group entities and to facilitate trouble-free procurement of cranes, that group entities were required to enter into Specific Purchase Contract(SPC)with ZPMC for procurement of cranes, that as per the clause 22 and 23 of the MPA, ZPMC was required to pay to the assessee a fixed amount of consultancy fees per crane sold under the SPC, that GPPL had entered into SPC with ZMPC towards supply of 21 cranes, that persua .....

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ndia as per the tax treaty, that the provisions of treaty would be applicable only when there was a privity of contract between an Indian entity and the assessee, that agreements were entered into by to non-residents i. e. APMM and ZPMC, that there was no privity of contract between the assessee and GPPL(the Indian entity), that the assessee had rendered consultancy services to ZPMC in China in designing basic specification and improvement in crane performance, that it did not relate to transfer .....

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had to be paid for the said transaction it would have to be paid in China. It was further argued that even if it was presumed that the assessee had indirectly received the consultation fees from GPPL and that such payment was in the nature of FTS the disputed amount could not be subject to tax in India under the treaty. He referred to the provisions of articles 12(1)and 12(2) of the treaty and stated that FTS arising in India and paid to a tax resident of Netherlands can be taxed in India, that .....

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plan or design for GPPL, that the provision for services rendered by the assessee might require technical skill and experience, that it would not enable GPPL or ZPMC to apply that skill and experience on their own in future activities, that purchase price was to be paid by GPLL, that disputed amount was not FTS as it was part of purchase price, that it was not FIS, that amount in question was received by the assessee in the next assessment year. . He referred to the order of the Tribunal in the .....

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e MPA, ZPMC had supplied cranes to GPPL, that the AO and the FAA were of the opinion that amount in question was taxable in India, that the disputed amount was received by the assessee in the next AY. , that both the revenue authorities had held that as per the provisions of tax treaty the amount in question was taxable in India under the head FTS/Royalty. 5. 1. We find that while passing the order u/s. 201 r. w. s. 195 of the Act, in the case of GPLL(Pg. 91-125 of the PB), the AO had (at page 1 .....

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f Seimens Aktiengesellschaft, following question was raised by the Revenue (I. T. Appeal No. 124 of 2010, )before Hon'ble Bombay High Court: "i) Whether on the facts and in the circumstances of the case the Tribunal was right in law in holding that the Royalty and fees for technical services should be taxed on receipt basis without appreciating the fact that the Hon'ble Supreme Court has held in the case of Standard Drum Motors Private Limited V/s. CIT, 201 ITR 391 that the credit e .....

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al services should be made in the year in which the amounts are received and not otherwise. Counsel for the Revenue relied upon the Special Bench decision of the Tribunal in the assessee's own case, which in our opinion, has no relevance to the facts of the present case, as it relates to the period prior to the issuance of Notification dated 26t1 August 1985. In this view of the matter the decision of the Income Tax Appellate Tribunal in holding that the royalty and fees for technical servic .....

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ce or skill is imparted. It is a fact that services were rendered outside India to a nonresident i. e. ZMPC and that same were utilised in manufacturing the cranes outside India i. e. in China. In the circumstances consultancy fees received by the assessee from the Chinese entity for rendering services outside India cannot be deemed to accrue or arise in India, as per the provisions of section 5 read with section 9 of the Act. Consequently the same would not be taxable in India. India has signed .....

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