TaxTMI 
TaxTMI 
2010 (6) TMI 462
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....mpanies which were once prevalent inIndia, a system of managing limited liability companies is still prevalent inDenmark. Managing Agents are called Managing owner. A firm by name "AP Moller" acted as managing owner of the assesses. The assessee was earlier known as "Dampskibsselskabet AF 1912" and now known as "AP Moller MAERSK A/S". 4. The assessee carried on the business of shipping, chartering and related business. In the course of it's international shipping business it received income in the form of freight charges in India. The firm AP Moller acted as managing owner of another Denmark company by name AKTIESELSKABET DEMPSKIBSSELSKABET SUENDBOUGH, which was also in shipping business and was in receipt of income in the form of freight in India. In respect of the income in the form of freight received by both the above companies AP Moller was assessed to tax for the three assessment years 2001-02 to 2003-04. The learned CIT(A), however, held that AP Moller was only a Managing owner and therefore income from shipping business which accrues to the two companies inIndia cannot be assessed in the hands of the AP Moller. The learned CIT(A) further directed the Assessing Officer to....
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....t each of the premises. The communication network will enable an Agent to access following via MCP which includes but not limited to : l Compressed digital voice-on-data connectivity via interfaces to telephone switchboards; l Analogue dial-up service using Packet 3270 or other suitable, mutually agreed product; l TPC/IP network connection to external business partners via a supplier designated gateway; l TPC/IP Internet connection via a supplier designated firewall gateway. The systems applications will enable an Agent to access : l Global Customer Service System (GCSS); l Global Schedule Information System (GSIS) l Global Transportation Systems such as Customer Information and Cargo Tracking (Star Track), Transportation Schedule and Service Guide; l Maersk Product Catalogue (MEPC) l Maersk Shared Knowledge System (MSKS) l EDI Data Quality Enhancement and Electronic Data Interchange; &nbs....
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.... covered by Article 9 of the DTAA i.e. it is in the nature of income from shipping business and cannot be brought to tax in India since the assessee was resident of Denmark. (d) Without prejudice to the above, it was contended that if the receipt is otherwise considered as income, the same can be taxed only as business income but cannot be brought to tax in India because the assessee does not have a permanent establishment in India. 11. The learned CIT(A) considered the issue as to whether the receipt in question was fees for technical services. The learned CIT(A) first expressed the view that the payment cannot be reimbursement of expenses in the following words :- "I find that the appellant has used advance technology equipment systems developed with required technical skills and infrastructure in the form of powerful services, specially designed software like tracking and tracing, and data transmission and communication lines. It also uses the accounting software named Db2Ris and Hyperion. Thus the appellant's business activity is structured time bound service coupled with real time transmission of commercial information. The appellant has granted access of all thi....
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....hnical services and payment therefore is a payment of fee for FTS. He held that under the agreement the assessee has termed the payment as a prorata cost sharing payment whereas in reality it was FTS. The CIT(A) thereafter referred to several judicial pronouncements and finally concluded that the payment received by the Assessee was FTS, In view of the above conclusion, the CIT(A) did not deal with the issue as to whether the receipt would be part of income from the business of shipping and therefore exempt under Article-9 of the DTAA and the contention that if the receipt is considered as income it would be business income and since the Assessee did not have a PE in India, the same cannot be taxed in India. Aggrieved by the order of the CIT(A), the Assessee has preferred the present appeal before the Tribunal. 13. The issues raised by the Assessee in the grounds of appeal are that the payment in question is not FTS. The receipt in question is part of income from the business of shipping and therefore exempt under Article-9 of the DTAA. The receipt in question even if considered as income it would be business income and since the Assessee did not have a PE in India, the same can....
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.... MIL, MLIL, SIPL. The Assessee's Chartered Accountants at Denmark, M/S. KPMG have duly certified the basis of cost sharing between the Assessee and have opined that it was only reimbursement of cost and no profit element is involved in the use of the facility by the Agents for facility provided by the Assessee, The Assessee has also given a declaration that there is no mark up to the costs and only actual costs are recovered. All the above documents have been totally disregarded by. the CIT(A). 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 inIndia. 16. The learned counsel for the Assessee has placed reliance on the decision of the Hon'ble Madras High Court in the case of Skycell Communications Ltd. 251 ITR 53 (Mad.). In the aforesaid case theHon'ble Court had an occasion to examine the definition of "fee for technical services" in the context of payment of fees by a cellular/Mobile phone subscriber to the operator of the cellular/mobile phone facility. The following were its observations: Thus while stating that "technical service" would include managerial and consultancy service, th....
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.... must deduct tax at source on the payment made to the bus service provider, for having used the bus. The electricity supplied to a consumer cannot, on the ground that generators are used to generate electricity, transmission lines to carry the power, transformers to regulate the flow of current, meters to measure the consumption, be regarded as amounting to provision of technical services to the consumer resulting In the consumer having to deduct tax at source on the payment made for the power consumed and remit the same to the Revenue. The Court finally concluded as follows: Installation and operation of sophisticated equipments with a view to earn income by allowing customers to avail of the benefit of the user of such equipment does not result in the provision of technical service to the customer for a fee. When a person decides to subscribe to a cellular telephone service In order to have the facility of being able to communicate with others, he does not contract to receive a technical service. What he does agree to is to pay for the use of the airtime for which he pays a charge. The fact that the telephone service provider has installed sophisticated technical equipme....
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....High court will apply to the facts of the present case. The Assessing Officer in coming to the conclusion that the payment was for fee for technical services has relied on the fact that there has been use of sophisticated equipments. This by itself will not be sufficient to holding technical services being rendered. All the above features enables better and efficient conduct of business. It is due to improved technology. That does not mean that the Assessee is providing technical services. The Assessee as well as its agents are the beneficiaries of such improved technology. The Assessee is not the owner of any technology to provide them for a fee to prospective user. They are themselves consumers of the technology. 18. Now we will deal with the cases relied upon by the learned CIT(A). In the case of Blue Dart Express Ltd. v JCIT 75 ITD 414 (mum.), the issue was with regard to validity of an order passed u/s.263. The CIT had invoked jurisdiction u/s.263 on the ground that the AO while completing the assessment did not make proper enquiry with regard to fee received by the Assessee for rendering technical/profession services outside India and allowed the claim of the Assessee for ....
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.... case of Hindalco Industries Ltd. v. ACTT 94 ITD 24 (Mum.) is a case where an Indian company purchased know how from an American Company. The Indian company also paid fees to the American Company for training its personnel. The tribunal held that the fees paid was an integral part of the transaction of the sale of know how and was to be treated as fees for included services. There were some incidental expenses which were reimbursed. These expenses were found to be part of the cost of acquiring the know-how and therefore were treated as fees for included services. This decision in our view stands on a different footing from the facts of the present case, were the entire payment is only reimbursement of cost and there was no agreement to transfer or make available any technical knowledge or skill. The decision Of the Hon'ble Kerela High Court in the case of Cochin Refineries Ltd. 222 ITR 354 (Ker.) is also similar to the case of Hindalco Industries Ltd, (supra), 21. The decision in the case of Couth Gummiwerke Aktiengeselischaft v. CIT 238 ITR 861 (AP) is a case where fees paid to a foreign company for deputing employees to supervise erection of conveyor belt in India was taxable ....
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....2) of the DTAA will not apply as the DTAA had come into force on 25.9.1989. Provisions of Article 9(1) are identical to Article 8(1) of the OECD model of convention. When expression or clause is picked up from OECD convention, normal presumption is that the person using the said clause or expression are also aware about the meaning assigned to the said clause or expression by the OECD and have used it in the same sense and for the same purpose. Unless, the contra intention is specifically expressed, it is only axiomatic that clause or expression will have the same meaning as normally assigned in the tax literature of OECD. ITAT Mumbai Bench in the case of Metchem Canada Incorporation v. DCIT, 284 ITR (AT) 196 (Mum.) has taken the above view in the matter of interpretation of tax treaties. The learned DR's argument that that OECD commentary cannot be looked into for interpretation of tax treaty is therefore without any merits. 26. The OECD commentary on Article 8 relating to taxation of income from operation of ships on international traffic is identical worded to Article 9(1) of DTAA between India and Denmark. OECD in its commentary on Article 8 paragraph 1 has explained express....
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....ld not be." 27. Eminent Author Klaus Vogel on double taxation conventions, Third Edition at page 484 while dealing with article 8 of the OECD model convention has expressed the following opinion on the issue : "In addition to the transportation of passengers and freight typically included in the term operation of ships or aircraft. Article 8 extends to cover all activities connected with such transportation services. There are primarily preparatory and auxiliary activities related to transportation, such as the services of agencies selling passage tickets on behalf of the enterprise concerned or on behalf of third enterprises. Therefore, profits from the activities of legally dependent agencies of shipping or air transport enterprises, together with any other profits made by them, are taxable at the place of management." 28. The Hon'ble Delhi High Court in the case of DIT v. K. Royal Dutch Airline, 178 Taxman 291 (Del.) had to dealt with the case where the assessee who was tax resident of Netherlands carrying on business of operation of aircraft in international traffic, was given right to use a shed in cargo complex at Bombay for use as a warehouse and office. This licens....