TaxTMI 
TaxTMI 
2012 (9) TMI 293
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....ty companies which were once prevalent in India, a system of managing limited liability companies is still prevalent in Denmark. Managing Agents are called Managing owner. A firm by name "AP Moller" acted as managing owner of the assessee. The assessee was earlier known as "Aktieselskabet Dampskibsselskabet Svendborg" and now known as "AP Moller-MAERSK A/S". It is engaged in 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 DEMPSKIBSSELSKABET af 1912 A/s, 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 four assessment years 2001-02 to 2004-05. The learned CIT(Appeals), however, held that AP Moller was only a Managing owner and therefore income from shipping business which accrued to the two companies in India could not be assessed in the hands of the AP Moller. The learned CIT(Appeals) further directed the Assessi....
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....edule Information System (GSIS) * Global Transportation Systems such as Customer Information and Cargo Tracking (Star Track), Transportation Schedule and Service Guide; * Maersk Product Catalogue (MEPC) * Maersk Shared Knowledge System (MSKS) * EDI Data Quality Enhancement and Electronic Data Interchange; * Systems for Documentation (RKDS), Equipment Management, Container Control (RKEM), Freight Invoicing (RKFR/RKIN/MLIS), Accounting and Performance (RRIS), Geography (GEO), Statistics (RKMS) and Tables (RKTS/RKST). 6. As claimed by the assessee, it was not possible to conduct international shipping business without the above system nor would the agent be able to act as agent to the assessee. Out of the total cost incurred by the assessee for setting up the said system, a share of the cost, therefore, was recovered by it from MIPL, MLIL and SIPL. According to the Assessee, the said amount represented just a 'cost sharing arrangement' and hence the payment received from MIPL, MLIL and SIPL was in the nature of reimbursement of expenses. The Assessee explained that it was merely charging back to Agent proportionate....
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....nses: "I find that the appellant has used advance technology equipment systems developed with required technical skills and infrastructure in the form of powerful servers, 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 this technological system, collectively called the Maersk Network for which it received payment by raising single invoices during the year. The appellant has made detailed submissions which have been placed on record. It is seen that the appellant has allowed the use to its agent all over world on its highly sophisticated global technology and the same was also shared by the Indian entity i.e. MIPL and MLIL also. Basically the appellant's business structure is time bound service coupled with continuous real time transmission of information by using and making available such advanced sophisticated technology, without which the business of appellant would not flourish as claimed ....
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....sessee 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 could not be taxed in India. Aggrieved by the orders of the CIT(A), the Assessee has preferred the present appeals before the Tribunal. 12. The first contention raised by the Assessee in the grounds of appeal is that the payment in question received from MIPL, MLIL and SIPL is not in the nature of FTS. In this regard, it is observed that a similar issue had arisen before the Tribunal in the case of Dampskibsselskabet af 1912 A/s involving identical facts and circumstances and the coordinate bench of this Tribunal has decided the same in favour of the assessee for the following reasons given in paragraph No. 14 to 17 and 23 of its order dated 11-06-2010 passed in ITA Nos. 2083 to 2085/Mum/2009: 14. We will first deal with the question as to whether the receipt in question can be said to be FTS. 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. The substance of the definition is that it refers to a payment in consideration for the services of manergerial, technic....
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....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 in India. 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 the Hon'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, the Legislature has not set out with precision as to what would constitute "technical" service to render it "technical service". The meaning of the word "technical" as given in the New Oxford Dictionary is adjective 1. of or relating to a particular subject, art or craft or its techniques : technical terms (especially of a book or article) requiring special knowledge to be understood : ....
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....o 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 equipment in the exchange to ensure connectivity to its subscriber, does not on that score, make it provision of a technical service to the subscriber. The subscriber is not concerned with the complexity of the equipment installed in the exchange, or the location of the base station. All that he wants is the facility of using the telephone when he wishes to, and being able to get connected to the person....
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....s. 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. 23. The learned counsel for the Assessee has relied on the decision in the case of CIT v. Bharati Cellular Ltd., 319 ITR 139(Del) wherein the Hon'ble Delhi High Court had taken the view that to call a payment as fee for technical service, the payment should be for use of human skills and where only machines perform or give some services that would not be enough to call a payment a payment for FTS. The learned D.R. submitted that the basic data is entered by human effort and therefore the payment should be treated as FTS. We are of the view that the argument of the learned D.R. cannot be accepted because ultimately the machine only performs and no human element is involved. The learned D.R. also submitted that the huge cost for installation of the system and the huge payment made by the Assessee by itself is an indication that the payment is FTS. In t....
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....tary that the profits covered consist of profits directly obtained by the enterprise from transportation of passenger or cargo by ships or aircraft from operations in international traffic. They have also opined that such enterprises carrying on large variety of activities to permit, facilitate or support their international traffic operations; and that profits from activities directly connected with such operations as well as profits from activities which are not directly connected with operations of the enterprises ships in international traffic as long as they are ancillary to such operations are also to be considered as profits derived from operation of ships in international traffic. The following further examples have been given in the commentary :- "6. Profits derived by enterprises from the transportation of passengers or cargo otherwise than by ships or aircraft that it operates in international traffic are covered by the paragraph to the extent that such transportation is directly connected with the operation, by that enterprise, of ships or aircraft in international traffic or is an ancillary activity. One example would be that of an enterprise engaged in international ....