Reimbursement under cost-sharing arrangement held outside fees for technical services, with treaty protection prevailing over domestic tax charge.

Amounts recovered from Indian agents for use of the MaerskNet communication system were held to be reimbursements under a cost-sharing arrangement, not fees for technical services. The receipts carried no profit element and represented only the pro rata cost of maintaining and using an automated, software-based system essential to the shipping business. As there was no human intervention in the rendition of services, the payments did not constitute technical services in the statutory sense. The applicable treaty provisions, being more beneficial, prevailed over the domestic charging provisions, and the receipts were not taxable in India as FTS.

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Issues: Whether the amounts recovered from the assessee's Indian agents for use of the MaerskNet communication system were taxable as fees for technical services, or were merely reimbursements under a cost sharing arrangement and, therefore, not chargeable to tax in India.

Analysis: The amounts received did not involve any profit element and were recovered only towards the pro rata cost of maintaining and using an automated, software-based communication system essential to the shipping business. The arrangement did not involve rendering of technical services in the statutory sense, as there was no human intervention in the nature of service provision. The payments were part of the shipping business and fell to be governed by the applicable treaty provisions, which, being more beneficial, prevailed over the domestic charging provisions.

Conclusion: The receipts were not taxable as fees for technical services and were only reimbursement of shared costs. The issue was decided in favour of the assessee.

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