Payments for software use not taxable in India under Indo-Denmark treaty. Revenue appeal dismissed.

The Tribunal upheld the decision that payments received for the use of software were not royalty or fees for technical services but part of shipping operations under Article 9(1) of the Indo-Denmark DTAA, exempt from tax in India. The Revenue's appeal was dismissed.

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Issues Involved:
1. Whether the payments received by the assessee are in the nature of royalty or fees for technical services under section 9(1)(vii) of the Income Tax Act, 1961 and Article 13(4) of Indo-Denmark DTAA.
2. Whether the payments received are covered under Article 9(1) of the Indo-Denmark DTAA, exempting them from tax in India.

Issue-wise Detailed Analysis:

Issue 1: Nature of Payments as Royalty or Fees for Technical Services

The Revenue challenged the decision of the Commissioner (Appeals) who held that the payments received by the assessee were not in the nature of royalty or fees for technical services. The Assessing Officer had treated the payments received from Maersk India Pvt. Ltd. (MIPL) for IT support services as fees for technical services and taxed them under section 115A of the Income Tax Act, 1961 at 10%. The Assessing Officer relied on several judicial pronouncements to support this view, including cases like E.P.W. Da Costa And Anr. v. Union Of India and CIT v. Travel Corporation Of India Ltd.

The Commissioner (Appeals) and the Tribunal, however, found that the payments were reimbursements for the use of the SAP-based ERP system software called FACT, which was used for tracking and recording various transactions related to the shipping business. The Tribunal noted that the software was integral to the shipping operations and was used by the CIS division of MIPL for accounting, integrated billing, and warehouse functionality. It was concluded that these payments were not for any independent technical services but were part of the overall shipping operations.

Issue 2: Applicability of Article 9(1) of Indo-Denmark DTAA

The Tribunal examined whether the payments received for the use of the FACT system software were covered under Article 9(1) of the Indo-Denmark DTAA. Article 9(1) provides that profits derived from the operation of ships in international traffic are taxable only in the country where the enterprise's effective management is situated, exempting such profits from tax in the other contracting state.

The Tribunal found that the software developed by the assessee was essential for the efficient operation of its shipping business and that the payments received were directly connected to the shipping operations. The Tribunal referenced its own decisions from previous years, where similar payments were considered part of the shipping operations and thus not taxable under Article 9(1). The Tribunal also drew on OECD commentary and other judicial precedents, such as the Delhi High Court's decision in DIT v. K. Royal Dutch Airline, to support its conclusion.

Conclusion:

The Tribunal upheld the Commissioner (Appeals)'s decision, ruling that the payments received by the assessee for the use of the FACT system software were not in the nature of royalty or fees for technical services. Instead, these payments were part of the overall shipping operations and were covered under Article 9(1) of the Indo-Denmark DTAA. Therefore, the payments were not taxable in India. The Revenue's appeal was dismissed.

Order Pronouncement:

The order was pronounced in the open Court on 8th November 2013.

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