2014 (12) TMI 423 - AT - Income Tax

Payments for IT system not taxable as fees for technical services; Tribunal dismisses Revenue's appeal.

Assistant Director of Income-tax (International Taxation 1(1) Versus Aktieselskabet Dampskibsselskabet Svendborg

The Tribunal dismissed the Revenue's appeal, upholding the deletion of the addition made by the Assessing Officer regarding payments received for the ... Payments received to be treated as royalty or not u/s 9(1)(vi)&(vii) as well as Article 13(4) of DTAA – Whether the receipt can be said to be FTS - Held that:- Following the decision in DAMPSKIBSSELSKABET AF 1912 A/S AKTIESELSKABET, MUMBAI Versus. ADIT(IT) [2010 (6) TMI 462 - ITAT, MUMBAI] - The definition of FTS both under the DTAA as well as under Expln.-2 to Sec.9(1)(vii) of the Act has already been referred to earlier - it refers to a payment in consideration for the services of managerial, technical or consultancy nature - 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 – There is no finding by the AO or CIT(A) that there was a profit element embedded in the payments received from the Assessee from its agents in India - Installation and operation of sophisticated equipments with a view to earn income by allowing customers to avail of the benefit of the use of such equipment does not result in the provision of technical service to the customer for a fee – the order of the CIT(A) is upheld in deleting the addition made by the AO on account of amount received by the assessee towards shared IT Global Portfolio Tracking System by treating the same as fees for technical services – Decided against revenue. Issues Involved:1. Validity of reassessment proceedings.2. Taxability of payments received by the assessee as Royalty or fees for technical services under section 9(1)(vi) & (vii) of the I.T. Act and Article 13(4) of DTAA.Issue-wise Detailed Analysis:1. Validity of Reassessment Proceedings:The Revenue contended that the reassessment proceedings were valid as there was a 'reason to believe' that income had escaped assessment. However, the ld. CIT(A) held that the reassessment proceedings were not valid as it could not be said that there was escapement of income. The Tribunal, considering the deletion of the addition made by the A.O. on account of the amount received towards the shared IT Global Portfolio Tracking System, found this issue to be infructuous or academic and did not consider it necessary to adjudicate upon the same.2. Taxability of Payments Received by the Assessee:The core issue was whether the payments received by the assessee from M/s Maersk India Private Limited, M/s Maersk Logistics India Limited, and M/s Safmarine India Private Limited towards their share of IT Global Portfolio Tracking System were taxable as Royalty or fees for technical services.The A.O. had brought to tax Rs. 7,49,84,869/- in the hands of the assessee company, treating it as fees for technical services. However, the ld. CIT(A) deleted the addition, following the Tribunal's order in the case of Dampskibsselskabet af 1912 Aktiesselskab for assessment years 2000-01 to 2003-04, where similar additions were deleted.The Tribunal observed that the payments received were for providing a facility to its agents and were merely reimbursements of the cost for providing a particular facility. The Tribunal noted that the assessee maintained a global telecommunication facility essential for its international shipping business, and the costs were shared between the assessee and its agents. The payments did not involve any profit element and were certified by the assessee's Chartered Accountants at Denmark, M/S. KPMG, as reimbursements without any markup.The Tribunal relied on the decision of the Hon'ble Madras High Court in the case of Skycell Communications Ltd. and the Hon'ble Delhi High Court in the case of CIT v. Bharati Cellular Ltd., concluding that the payments could not be considered fees for technical services. The Tribunal emphasized that the payments were for the use of a standard facility and did not involve any human skills or technical services provided by the assessee.The Tribunal upheld the order of the ld. CIT(A) deleting the addition made by the A.O. and dismissed the Revenue's appeal on this ground.Conclusion:The appeal of the Revenue was dismissed. The Tribunal upheld the deletion of the addition made by the A.O. on account of the amount received towards the shared IT Global Portfolio Tracking System, treating it as fees for technical services. Consequently, the issue of the validity of reassessment proceedings became academic and was not adjudicated.