DDIT (IT) 1(1), MUMBAI V. A.P. MOLLER, MUMBAI

ITA 1808/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79154 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: L
• Next Hearing Date: 11-06-2014
• Assessment Year: 2003-2004
• Appeal Filed On: 15-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SOMANATH S UKKALI
• Keywords: Double taxation relief; Permanent establishment
• Section: 143(3); 148

Judgement Text

L IN THE INCOME TAX APPELLATE TRIBUNAL L BENCH, MUMBAI .. , , BEFORE SHRI P.M. JAGTAP, AM AND SHRI VIJAY PAL RAO, JM ./ I.T.A. NO.1808/ MUM/2012 ( / ASSESSMENT YEAR : 2003-2004 ASST. DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) 1(1), ROOM NO. 117, SCINDIA HOUSE, IST FLOOR, BALLARD ESTATE, N.M. ROAD, MUMBAI 400 038. / VS. M/S A.P. MOLLER, C/O MAERSK INDIA PVT. LTD., EMPIRE INDUSTRIES COMPLEX, 414, SENAPATI BAPAT MARG, LOWER PAREL, MUMBAI 400 013. ./ PAN : AASFA0501A ( ! / APPELLANT ) .. ( '#! / RESPONDENT ) ./ I.T.A. NO.1632/ MUM/2012 ( / ASSESSMENT YEAR : 2003-2004 M/S A.P. MOLLER, C/O MAERSK INDIA PVT. LTD., EMPIRE INDUSTRIES COMPLEX, 414, SENAPATI BAPAT MARG, LOWER PAREL, MUMBAI 400 013. / VS. ASST. DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) 1(1), ROOM NO. 117, SCINDIA HOUSE, IST FLOOR, BALLARD ESTATE, N.M. ROAD, MUMBAI 400 038. ./ PAN : AASFA0501A ( ! / APPELLANT ) .. ( '#! / RESPONDENT ) ITA 1632/M/12,1808/M/12 & ITA 1633/M/12 2 ./ I.T.A. NO.1633/ MUM/2012 ( / ASSESSMENT YEAR : 2008-2009 M/S A.P. MOLLER, C/O MAERSK INDIA PVT. LTD., EMPIRE INDUSTRIES COMPLEX, 414, SENAPATI BAPAT MARG, LOWER PAREL, MUMBAI 400 013. / VS. ASST. DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) 1(1), ROOM NO. 117, SCINDIA HOUSE, IST FLOOR, BALLARD ESTATE, N.M. ROAD, MUMBAI 400 038. ./ PAN : AASFA0501A ( ! / APPELLANT ) .. ( '#! / RESPONDENT ) A PPELLANT BY SHRI SOMANATH S. UKKALI R E SPONDENT BY : SHRI PORUS KAKA ' ( / DATE OF HEARING : 11-06-2014 ' ( / DATE OF PRONOUNCEMENT : 18/6/2014 [ / O R D E R PER BENCH . : OUT OF THESE THREE APPEALS, TWO APPEALS BEING ITA N O. 1632/MUM/12 (ASSESSEES APPEAL) AND ITA NO. 1808/MUM/2012 (REVE NUES APPEAL) ARE CROSS APPEALS FOR A.Y. 2003-04 WHILE THE REMAINING APPEAL IS THE APPEAL FILED BY THE ASSESSEE FOR A.Y. 2008-09 WHICH IS DIRECTED AGAINST THE ORDER OF LD. CIT(A) 10, MUMBAI DATED 29-09-2011. 2. FIRST, WE SHALL TAKE UP THE CROSS APPEALS FILED FOR A.Y. 2003-04 WHICH ARE DIRECTED AGAINST THE ORDER OF LD. CIT(A) - 10, MUMBAI DATED 29-09-2011. 5. THE RELEVANT FACTS OF THE CASE GIVING RISE TO TH IS APPEAL ARE AS FOLLOWS. THE ASSESSEE IN THE PRESENT CASE IS A PARTNERSHIP F IRM REGISTERED IN DENMARK. DURING THE PREVIOUS YEAR RELEVANT TO A.Y. 2003-04, IT WAS ACTING AS MANAGING OWNER OF AKITIESELSKAB DAMPSKIBSSELSKABET SVENDBORG (HEREINAFTER REFERRED TO ITA 1632/M/12,1808/M/12 & ITA 1633/M/12 3 AS SVENDBORG) AND M/S DAMPSKIBSSELSKABET AF 1912 AKTIESELSKAB (HEREINAFTER REFERRED TO AS 1912) BOTH OF WHICH A RE SHIPPING COMPANIES ENGAGED IN THE BUSINESS OF OPERATION OF SHIPS IN IN TERNATIONAL TRAFFIC. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION W AS FILED BY IT ON 28-11- 2003 DECLARING TOTAL INCOME AT NIL. IN THE ASSES SMENT COMPLETED U/S 143(3) OF THE INCOME TAX ACT, 1961 VIDE AN ORDER DATED 24- 3-2006, THE TOTAL INCOME OF THE ASSESSEE WAS COMPUTED BY THE A.O. AT RS. 102 .96 CRORES. THEREAFTER IT WAS NOTICED BY THE A.O. THAT WHILE COMPUTING THE IN COME OF THE ASSESSEE FROM SHIPPING BUSINESS U/S 44B OF THE ACT, FREIGHT INCOM E AMOUNTING TO RS. 14,36,87,471/- WAS WRONGLY REDUCED FROM THE AMOUNT OF GROSS FREIGHT. HE WAS OF THE OPINION THAT THE INCOME OF THE ASSESSEE THUS HAD ESCAPED ASSESSMENT TO THE EXTENT OF RS. 1,07,76,560/- I.E. 7.5% OF RS. 14,36,87,471/-. HE THEREFORE REOPENED THE ASSESSMENT FOR A.Y. 2003- 04 AFTER RECORDING THE REASONS AND ISSUED NOTICE U/S 148 OF THE ACT ON 31- 3-2010 DECLARING NIL INCOME. IN THE REASSESSMENT COMPLETED U/S 143(3) R. W.S. 147 OF THE ACT VIDE AN ORDER DATED 16-12-2010, THE AMOUNT OF RS. 1,07,7 6,560/- WAS BROUGHT TO TAX BY THE A.O. IN THE HANDS OF THE ASSESSEE ON ACC OUNT OF INCOME FROM FEEDER FREIGHT. HE ALSO ADDED A FURTHER SUM OF RS. 52,02,5 35/- IN THE HANDS OF THE ASSESSEE ON ACCOUNT OF FEES FOR MANAGERIAL SERVICES TREATING THE SAME AS FEES FOR TECHNICAL SERVICES AS DONE IN THE ASSESSMENT OR IGINALLY COMPLETED U/S 143(3) OF THE ACT. 3. AGAINST THE ORDER PASSED BY THE A.O. U/S 143(3) R.W.S. 147 OF THE ACT, AN APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LD. CIT(A) CHALLENGING THE VALIDITY OF THE SAID ASSESSMENT AS WELL AS DISPUTIN G BOTH THE ADDITIONS OF RS. 1,07,76,560/- AND RS. 52,02,535/- MADE THEREIN BY T HE A.O. AFTER CONSIDERING THE SUBMISSIONS MADE ON BEHALF OF THE A SSESSEE AS WELL AS THE MATERIAL AVAILABLE ON RECORD, THE LD. CIT(A) HELD T HAT THE ASSESSEE HAVING DISCLOSED ALL THE MATERIAL FACTS IN THE RETURN OF I NCOME AND THERE BEING NO TANGIBLE FRESH MATERIAL HAVING BEEN BROUGHT ON RECO RD, THE REOPENING OF THE ITA 1632/M/12,1808/M/12 & ITA 1633/M/12 4 ASSESSMENT ORIGINALLY MADE U/S 143(3) OF THE ACT FO R A.Y. 2003-04 BY THE A.O. AFTER THE EXPIRY OF A PERIOD OF FOUR YEARS FROM THE END OF THE A.Y. WAS BAD IN LAW. HE ALSO OBSERVED THAT THE ENTIRE FREIGHT INCOM E FROM SHIPPING BUSINESS WAS LIABLE TO BE ASSESSED IN THE HANDS OF TWO COMPA NIES VIZ. 1912 AND SVENDBORG AND NOT IN THE HANDS OF THE ASSESSEE AS H ELD BY HIS PREDECESSOR IN ASSESSEES OWN CASE FOR THE IMMEDIATELY PRECEDING T WO YEARS I.E 2001-02 AND 2002-03 AS WELL AS IN THE FIRST ROUND OF LITIGATION FOR A.Y. 2003-04 EMANATING FROM THE ORDER OF THE A.O. PASSED U/S 143(3) OF THE ACT. HE ALSO NOTED THAT THE A.O. HAS ALREADY CONSIDERED THE FREIGHT INCOME FROM SHIPPING BUSINESS IN THE HANDS OF THE SAID TWO COMPANIES AND THE SAME IS HEL D TO BE NOT CHARGEABLE TO TAX IN INDIA AS PER THE BENEFIT AVAILABLE UNDER THE RELEVANT DTAA. 4. AS REGARDS THE OTHER ADDITION MADE BY THE A.O. O N ACCOUNT OF FEE FOR MANAGERIAL SERVICES TREATING THE SAME AS FEES FOR T ECHNICAL SERVICES, THE LD. CIT(A) OBSERVED THAT SIMILAR ADDITION WAS MADE BY T HE A.O. EVEN IN THE ASSESSMENT ORIGINALLY COMPLETED U/S 143(3) OF THE A CT FOR A.Y. 2003-04 AND THE SAME WAS CONFIRMED BY HIS PREDECESSOR. HE HELD THAT FRESH ADJUDICATION OF THIS ISSUE THEREFORE WAS NOT REQUIRED AND DISMIS SED THE GROUND RAISED BY THE ASSESSEE ON THIS ISSUE. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), BOTH THE ASSESSEE AND REVENUE HAVE PREFERRED THEIR APPEALS B EFORE THE TRIBUNAL ON THE FOLLOWING GROUNDS:- ASSESSEES GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) - 10, MUMBAI [CIT(A)] ERRED IN NOT ADJUDICATING THE FOLLOWING GROUNDS OF APPEAL RELATING TO TAXABILITY OF MANAGEMENT FEES OF RS. 5,202,535 RECE IVED BY THE APPELLANT OUTSIDE INDIA:. GROUND 4A: THE LEARNED DDI T ERRED IN HOLDING THAT MANAGEMENT FEES RECEIVED BY THE APPELLANT OUTSIDE I NDIA, PROPORTIONATE TO THE BUSINESS CARRIED ON BY THE PAY ERS, DAMPSKIBSSELSKABET AF 1912 AKTIESELSKAB (1912) AN D AKTIESELSKABET DAMPSKIBSSELSKABET SVENDBORG (SVEND BORG) WITH ITA 1632/M/12,1808/M/12 & ITA 1633/M/12 5 INDIA, AMOUNTING TO RS. 5,202,535 IS CHARGEABLE TO TAX IN INDIA IN THE HANDS OF THE APPELLANT AS FEES FOR TECHNICAL SERVICE. GROUND 4B: THE LEARNED SSIT ERRED IN HOLDING THAT T HE MANAGEMENT FEES RECEIVED BY THE APPELLANT IS CHARGE ABLE TO TAX IN INDIA WITHOUT APPRECIATING THAT SUCH MANAGEMENT FEES DO NOT ACCRUE OR ARISE TO THE APPELLANT IN INDIA. 1A. THE LEARNED CIT(A) ERRED IN OBSERVING THAT THE ISSUE HAS BEEN DECIDED AGAINST THE APPELLANT IN THE ORIGINAL PROCE EDINGS WITHOUT APPRECIATING THAT AS PER THE BENEFICIAL PROVISIONS OF INDIA-DENMARK TAX TREATY, MANAGEMENT FEES RECEIVED BY THE APPELLANT O UTSIDE INDIA IS NOT CHARGEABLE TO TAX IN INDIA. REVENUES GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE ID. CIT(A) HAS ERRED IN HOLDING THAT THE REASSESSME NT PROCEEDINGS ARE NOT VALID WHEN THERE WAS A FAILURE ON THE PART OF A SSESSEE TO MAKE FULL AND TRUE DISCLOSURE OF ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT. 2. THE APPELLANT PRAYS THAT THE ORDER OF THE LD. CI T (A) ON THE ABOVE GROUND(S) BE SET ASIDE AND THAT OF THE ASSESS ING OFFICER BE RESTORED. 5. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT IN THE ASSESSMENT COMPLETED U/S 143(3) R.W.S. 147 OF THE ACT, TWO ADDITIONS OF RS. 1,07,76,560/- AND RS. 52,02,535/- WERE MADE BY THE A.O. ON ACCOUNT OF INC OME FROM SHIPPING BUSINESS AS COMPUTED U/S 44B OF THE ACT IN RESPECT OF FEEDER FREIGHT AND FEES FOR MANAGERIAL SERVICES RECEIVED BY THE ASSESSEE TR EATING THE SAME AS FEES FOR TECHNICAL SERVICES. AS AGREED BY THE LD. REPRESENTA TIVES OF BOTH THE SIDES, BOTH THESE ISSUES ARE SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL RENDERED VIDE ITS COMMON ORDER DATED 8 TH NOV. 2013 IN ASSESSEES OWN CASE FOR THE EARLIER YEARS I.E ASSES SMENT YEARS 1997-98 TO 2002-03 AS WELL AS ASSESSMENT YEAR 2003-04 (EMANATI NG FROM THE ASSESSMENT ORIGINALLY MADE U/S 143(3) OF THE ACT). A COPY OF T HE SAID ORDER IS PLACED ON RECORD BEFORE US AND PERUSAL OF THE SAME SHOWS THAT THE ISSUE RELATING TO TAXABILITY OF SHIPPING INCOME WAS DECIDED BY THE TR IBUNAL IN FAVOUR OF THE ITA 1632/M/12,1808/M/12 & ITA 1633/M/12 6 ASSESSEE HOLDING THAT THE ENTIRE INCOME FROM SHIPPI NG BUSINESS WAS CHARGEABLE TO TAX IN THE HANDS OF TWO COMPANIES VIZ . 1912 AND SVENDBORG AND NOT IN THE HANDS OF THE ASSESSEE. THE REASONS G IVEN BY THE TRIBUNAL TO ARRIVE AT THIS CONCLUSION IN PARA 29 & 30 OF ITS OR DER ARE EXTRACTED HEREUNDER:- 29. IT IS SEEN FROM THE MATERIAL AVAILABLE ON RECO RD THAT THE ASSESSEE FIRM ON BEHALF OF THESE COMPANIES HAVE BEEN MAKING APPLICATIONS FROM TIME TO TIME AT THE BEGINNING OF EVERY FINANCIAL YE AR FOR OBTAINING ANNUAL DOUBLE INCOME TAX RELIEF / PORT CLEARANCE CE RTIFICATE. ALONG WITH THE SAID APPLICATION, DETAIL INFORMATION AND DOCUME NTS HAVE BEEN FILED WHICH GOES TO SHOW THAT FIRSTLY, THE BILLS OF LADIN G HAVE BEEN ISSUED IN THE NAME OF THE LISTED COMPANIES I.E., SVENDBORG AN D 1912 AS OWNERS OF THE VESSELS, SECONDLY, AGENCY AGREEMENT BETWEEN THE ASSESSEE FIRM ON BEHALF OF THESE TWO LIMITED COMPANIES AND AGENTS IN INDIA I.E., MIPL, WHICH EVIDENCES THAT BOOKING AND RECEIVING OF FREIG HT RECEIPT ARE DONE BY MIPL ON BEHALF OF THESE TWO COMPANIES; THIRDLY, COPIES OF THE ARTICLES OF ASSOCIATION OF THE LIMITED COMPANIES CLEARLY IND ICATE THAT THE FIRM A.P. MOLLAR HAS BEEN APPOINTED AS MANAGING OWNER AN D VESTED WITH THE AUTHORITIES WHICH MAY BIND THE COMPANIES; FOURTHLY, CERTIFICATE OF TAX RESIDENCY ISSUED BY THE TAX DANISH AUTHORITIES FOR THE TWO LIMITED COMPANIES TO THE MANAGING OWNER A.P. MOLLER THAT TH EY ARE TAX RESIDENT OF DENMARK; AND LASTLY, INCORPORATION CERTIFICATES OF THESE TWO COMPANIES ISSUED BY THE COMPETENT DANISH AUTHORITIE S. FROM THESE DOCUMENTS, IT CAN BE DEDUCED THAT SHIPPING INCOME I S THAT OF TWO COMPANIES AND THE ASSESSEE FIRM IS ONLY A REPRESENT ATIVE OF THESE TWO COMPANIES. BASED ON THESE DOCUMENTS, THE ASSESSEE H AS BEEN GIVEN DIT RELIEF CERTIFICATE FROM THE DEPARTMENT AND ON T HAT BASIS, IT HAS BEEN CLAIMING ITS INCOME FROM SHIPPING OPERATION AS NON TAXABLE BY VIRTUE OF ARTICLE9(1) OF THE DTAA. IN THE RETURN OF INCOM E FILED, THE ASSESSEE FIRM HAD DECLARED THE GROSS RECEIPTS FROM SHIPPING BUSINESS OF THESE TWO COMPANIES FROM INDIA AND THE SAME HAVE BEEN CLA IMED AS NOT LIABLE FOR TAX IN INDIA AND ACCORDINGLY, NIL INCOME IS O FFERED FROM SHIPPING BUSINESS. IT HAS ALSO BEEN BROUGHT ON RECORD BEFORE US THAT IN THE SUBSEQUENT YEARS FLE., FROM THE ASSESSMENT YEAR 200 405 TO THE ASSESSMENT YEAR 201011, THE INCOME FROM SHIPPING B USINESS HAS BEEN HELD TO BE NONTAXABLE IN INDIA AND THE BENEFI T OF THE TREATY HAS BEEN GIVEN. IN THE YEAR UNDER APPEAL BEFORE US, THE ASSESSING OFFICER HELD THAT THIS SHIPPING INCOME BELONGS TO THE ASSES SEE FIRM, AS THE ASSESSEE FIRM HAS BEEN FILING THE RETURN OF INCOME IN ITS OWN NAME AND UNDER THE PERMANENT ACCOUNT NUMBER ALLOTTED TO A.P. MOLLER (I.E., THE ASSESSEE FIRM) AND ALL THE SHIPPING INCOME IN THE R ETURN OF INCOME HAS BEEN SHOWN UNDER THE NAME OF THE ASSESSEE ONLY, THE REFORE, THE ASSESSEE IS A BENEFICIAL OWNER OF THE FREIGHT INCOM E IN INDIA. HE FURTHER HELD THAT SINCE THE ASSESSEE IS TRANSPARENT ENTITY UNDER THE DANISH LAWS I.E., THE PARTNERSHIP FIRM IS TREATED AS NONT AXABLE ENTITY, THEREFORE, BENEFIT OF DTAA CANNOT BE GIVEN TO THE A SSESSEE. ACCORDINGLY, ITA 1632/M/12,1808/M/12 & ITA 1633/M/12 7 HE HAS TAXED THE SHIPPING INCOME IN THE HANDS OF TH E ASSESSEE FIRM. THE LEARNED COMMISSIONER (APPEALS), PARTLY ACCEPTED BY THE ASSESSEES CONTENTION INSOFAR AS THAT THE SHIPPING INCOME DOES NOT BELONG TO THE ASSESSEE FIRM, BECAUSE IT IS ONLY A MANAGING OWNER AND THE SAID INCOME BELONGS TO THESE TWO COMPANIES AND ACCORDINGLY, DIR ECTED THE ASSESSING OFFICER TO EXAMINE THE TAXABILITY OF THE FREIGHT RE CEIPTS IN THE HANDS OF THESE TWO COMPANIES. HOWEVER, HE HELD THAT THE MANA GEMENT FEES PAID BY THESE TWO COMPANIES TO THE ASSESSEE FIRM ARE LIA BLE FOR TAXATION AS FEES FOR TECHNICAL SERVICES / ROYALTY UNDER SECTION 9(1)(VII) IN INDIA. REGARDING DENIAL OF BENEFIT OF DTAA TO THE ASSESSEE FIRM, HE UPHELD THE CONTENTION OF THE ASSESSING OFFICER. 30. NOW, WHETHER THE ASSESSEE FIRM A.P. MOLLER AND THE TWO COMPANIES SVENDBORG AND 1912 CAN BE SAID TO BE ONE ENTITY INA SMUCH AS ALL THE SHIPPING INCOME CAN BE SAID TO BELONG TO THE ASSESS EE FIRM. FROM THE ARTICLE OF ASSOCIATION AND OTHER MATERIAL PLACED ON RECORD, IT IS EVIDENT THAT THE ASSESSEE FIRM IS THE MANAGING OWNER AND IN THAT CAPACITY ONLY, IT MANAGES THE AFFAIRS OF THESE TWO COMPANIES FOR W HICH IT IS REMUNERATED AS PER THE RELEVANT TERMS AGREED BETWEE N THE PARTIES. IN SUCH A SITUATION, IT CANNOT BE HELD THAT WHATEVER I NCOME ACCRUES DURING THE CARRYING ON SUCH BUSINESS BELONGS TO THE ASSESSEE FIRM. ONCE THE ENTIRE INFRASTRUCTURE INCLUDING THE VESSEL S WHICH ARE DEPLOYED IN THE INTERNATIONAL TRAFFIC BELONGS TO THE TWO COM PANIES, THEN IT CANNOT BE SAID THAT THE INCOME ACCRUING FROM EXPLOITING I DEPLOYMENT OF SUCH ASSETS / VESSELS BELONG TO THE ASSESSEE FIRM. THE A SSESSEE CAN BE COMPARED TO A CEO OF A COMPANY WHO IS MANAGING THE AFFAIRS OF THE COMPANY AND THIS DOES NOT LEAD TO ANY INFERENCE THA T THE INCOME OF THE COMPANY BELONGS TO THE CEO. AS PER THE ARTICLE OF A SSOCIATION, THE ASSESSEE ACTS AS A REPRESENTATIVE OF THE TWO COMPAN IES AND IN THAT PAIITY, IT ACTS AND DOES OBLIGATIONS ON BEHALF OF T HE TWO COMPANIES. ALL THE DOCUMENTS REFERRED TO BEFORE US ALSO GOES TO SH OW THAT THE ASSESSEE IS ONLY REPRESENTATIVE AND THE ACTUAL SHIP PING BUSINESS AND FREIGHT RECEIPTS BELONG TO THESE TWO COMPANIES. THU S, WE HOLD THAT THE ASSESSEE FIRM IS SEPARATE AND DISTINCT FROM TWO COM PANIES AND ANY INCOME ACCRUING ON ACCOUNT OF SHIPPING OPERATIONS D OES NOT BELONG TO THE ASSESSEE, BUT TO THESE TWO COMPANIES ONLY. INSO FAR AS THE ALLEGATION OF THE DEPARTMENT THAT THE RETURN OF INCOME WAS FIL ED BY THE ASSESSEE FIRM WHEREIN THE SHIPPING INCOME HAS BEEN DISCLOSED , WE ARE OF THE OPINION THAT SUCH AN INCOME HAS BEEN DISCLOSED AS A REPRESENTATIVE OF THE COMPANIES AND INCOME PER-SE CANNOT BE TAXED IN THE HANDS OF THE ASSESSEE AS A PARTNERSHIP FIRM BUT AS A REPRESENTAT IVE OF THESE TWO COMPANIES. THAT IS THE REASON WHY ALL THROUGHOUT SU CH A SHIPPING INCOME HAS BEEN HELD TO BE NON-TAXABLE BY THE DEPAR TMENT IN THE SUBSEQUENT YEARS AND BENEFIT OF THE TREATY HAS BEEN GIVEN. EVEN IN THE EARLIER YEARS ALSO, WHEN SUCH A SHIPPING INCOME WAS OFFERED FOR TAX, THE SAME WAS IN THE CAPACITY OF THE REPRESENTATIVE OF T HESE TWO COMPANIES ONLY. THE STATUS IN THE RETURN OF INCOME AS WELL AS IN THE ASSESSMENT ORDERS HAS ALWAYS BEEN HELD TO BE THAT OF NON-RESID ENT CORPORATE COMPANY AND NOT AS A PARTNERSHIP FIRM. FROM THE ASS ESSMENT YEAR ITA 1632/M/12,1808/M/12 & ITA 1633/M/12 8 200405, TWO SETS OF RETURNS OF INCOME ARE BEING FI LED, ONE BY THE ASSESSEE FIRM ON MANAGING COMMISSION / FEES WHICH I S BEING CLAIMED AS NONTAXABLE AND SECOND RETURN OF INCOME IN THE N AME OF THESE TWO COMPANIES WHICH HAS NOW BEEN MERGED REFERRED TO AS A.P. MOLLER MAERSK A/S SHOWING SHIPPING INCOME.(THIS STATUS OF ASSESSMENT IS BEING CONTINUED TILL PRESENT. ONCE THE DEPARTMENT I TSELF HAS ACCEPTED THE ASSESSEE FIRM AS A REPRESENTATIVE OF THESE TWO COMPANIES AND HAS BEEN GIVING TREATY BENEFIT AND TREATING THE SHIPPIN G INCOME BELONGING TO THESE TWO COMPANIES YEAR-AFTER-YEAR, THEN IN THIS Y EAR, EXCEPTION CANNOT BE CARVED OUT SO AS TO HOLD THAT THE SHIPPIN G INCOME BELONGS TO THE ASSESSEE FIRM. THUS, WE FULLY AGREE WITH ALL TH E CONTENTION RAISED BY THE LEARNED SR. COUNSEL BEFORE US AND, ACCORDINGLY, HOLD THAT THE SHIPPING INCOME BELONGS TO THESE COMPANIES ONLY AND NOT IN THE HANDS OF THE ASSESSEE FIRM WHICH IS ONLY A REPRESENTATIVE OF THESE COMPANIES AND IS CARRYING OUT ITS OBLIGATION FOR FILING OF TH E RETURN OF INCOME AS WELL AS MANAGING THE ENTIRE AFFAIRS. THUS, THIS ISS UE STANDS DECIDED IN FAVOUR OF THE ASSESSEE. 6. AS REGARDS THE SECOND ADDITION MADE BY THE A.O. ON ACCOUNT OF MANAGERIAL SERVICES TREATING THE SAME AS FEES FOR T ECHNICAL SERVICES, IT IS OBSERVED THAT A SIMILAR ISSUE WAS ALSO INVOLVED IN ASSESSEES OWN CASE FOR THE EARLIER YEARS AND THE SAME WAS DECIDED BY THE TRIBU NAL VIDE ITS ORDER DATED 8 TH NOV. 2013 (SUPRA) IN FAVOUR OF THE ASSESSEE VIDE P ARA 33 & 34 WHICH READ AS UNDER: THE LEARNED COMMISSIONER (APPEALS), AFTER DIRECTIN G THE ASSESSING OFFICER TO CONSIDER THE SHIPPING INCOME IN THE HAND S OF THE SVENDBORG AND 1912 SEPARATELY, HOWEVER, HELD THAT INSOFAR AS THE MANAGEMENT FEES PAID BY THESE TWO COMPANIES BY THE ASSESSEE IN RELATION TO THE INDIAN RECEIPTS ARE CONCERNED, THE SAME ARE LIABLE FOR TAXATION UNDER THE PROVISIONS OF SECTION 9(1)(I) AND 9(1)(VII)(C). HE HAS ALSO DENIED THE TREATY BENEFIT GIVEN BY THE ASSESSING OFFICER. HOWE VER, THE MANNER AND THE METHOD IN WHICH SUCH A CALCULATION HAS TO BE DO NE HAS BEEN LEFT TO THE ASSESSING OFFICER TO BE DETERMINED. IT IS UNDIS PUTED FACT THAT THE ASSESSEE FIRM IS ENTITLED TO RECEIVE MANAGEMENT FEE FROM SVENDBORG AND 1912 FOR MANAGING THEIR BUSINESS AND SUCH A FEE IS DETERMINED ON THE BASIS OF GRT I.E., THE CARRYING CAPACITY OF THE SHI PS PER ANNUM. THE MAIN CONTENTION BEFORE US IS THAT FIRSTLY SUCH AN I NCOME CANNOT BE TAXED IN INDIA BY VIRTUE OF ARTICLE 13(6) AND, SECO NDLY, THE SCOPE OF SECTION 9(1)(I) ALSO DOES NOT COVER SUCH KIND OF A PAYMENT. ARTICLE-13 OF THE INDO DENMARK DTAA PROVIDES FOR THE SCOPE OF TAX ABILITY/NON- TAXABILITY OF THE ROYALTY AND FEES FOR TECHNICAL SE RVICES. ARTICLE13(6) CARVES OUT AN EXCEPTION THAT THE ROYALTY AND FEES F OR TECHNICAL SERVICES SHALL BE DEEMED TO ARISE IN A CONTRACTING STATE WHE N SUCH NON RESIDENT HAS A P.E. OR FIXED BASE IN THE OTHER CONT RACTING STATE AND THE ITA 1632/M/12,1808/M/12 & ITA 1633/M/12 9 LIABILITY TO PAY ROYALTY OR FEES FOR TECHNICAL SERV ICES HAS BEEN INCURRED IN CONNECTION WITH SUCH P.E. AND SUCH ROYALTY OR FEES FOR TECHNICAL SERVICES ARE BORNE BY SUCH P.E. THE RELEVANT PORTIO N OF PARA6 OF ARTICLE13 IS REPRODUCED HEREUNDER FOR THE SAKE OF READY REFERENCE:- 13(6) ROYALTIES AND FEES FOR TECHNICAL SERVICES SH ALL BE DEEMED TO ARISE IN A CONTRACTING STATE WHEN THE PAYER IS T HAT STATE ITSELF, A POLITICAL SUB-DIVISION, A LOCAL AUTHORITY OR A RE SIDENT OF THAT STATE. WHERE, HOWEVER, THE PERSON PAYING THEIR ROYA LTIES OR FEES FOR THE TECHNICAL SERVICES, WHETHER HE IS A RESIDEN T OF A CONTRACTING STATE OR NOT, HAS IN A CONTRACTING STAT E A PERMANENT ESTABLISHMENT OR A FIXED BASE IN CONNECTION WITH WH ICH THE LIABILITY TO PAY THE ROYALTIES OR FEES FOR TECHNICA L SERVICES WAS INCURRED, AND SUCH ROYALTIES OR FEES FOR TECHNICAL SERVICES ARE BORNE BY SUCH PERMANENT ESTABLISHMENT OR FIXED BASE , THEN SUCH ROYALTIES OR FEES FOR TECHNICAL SERVICES SHALL BE D EEMED TO ARISE IN THE STATE IN WHICH THE PERMANENT ESTABLISHMENT OR F IXED IS SITUATED. 34. THUS, FOR TAXING THE ROYALTY AND FEES FOR TECHN ICAL SERVICES IN CASE OF A NON-RESIDENT UNDER THE INDO DENMARK DTAA, THE BAS IC CONDITION IS THAT THERE HAS TO BE A P.E. OR FIXED BASE IN CONNEC TION WITH WHICH SUCH A LIABILITY HAS BEEN INCURRED. NOT ONLY THIS, SUCH ROYALTY OR FEES FOR TECHNICAL SERVICES ARE BORNE BY SUCH P.E. OR FIXED BASE. IF THAT IS NOT SO, THE SAME CANNOT BE TAXED IN THE HANDS OF THE NON-RE SIDENT. IN THIS CASE, ADMITTEDLY, THIS PAYMENT HAS NOT BEEN MADE BY ANY P.E. TO THE ASSESSEE FIRM ALBEIT THE PAYMENT HAS BEEN MADE BY N ON-RESIDENT COMPANY I.E., TWO DANISH COMPANIES TO ANOTHER NON-R ESIDENT I.E., A PARTNERSHIP FIRM ESTABLISHED UNDER THE LAWS OF DENM ARK. ONCE THE PAYMENT HAS BEEN MADE FROM ONE NONRESIDENT TO ANOTH ER NON-RESIDENT IN CONNECTION WITH THE ENTIRE GLOBAL BUSINESS IN DE NMARK ONLY, THEN IT CANNOT BE HELD THAT SUCH A PAYMENT CAN BE TAXED IN INDIA EITHER AS FEES FOR TECHNICAL SERVICES OR AS ROYALTY. THUS, WE ARE OF THE OPINION THAT SUCH A PAYMENT CANNOT TAXED AS FTS IN CASE OF THE A SSESSEE. OTHERWISE ALSO, BY VIRTUE OF ARTICLE13(6), SUCH A PAYMENT CA NNOT BE TAXED IN INDIA, BECAUSE IT HAS NOTHING TO DO WITH THE MIPL A S THE MAIN CRITERIA THAT SUCH A PAYMENT HAS TO BE DEDUCTIBLE IN THE HAN DS OF THE P.E. IS NOT AT ALL APPLICABLE IN THE PRESENT CASE. NEITHER THERE IS ANY ECONOMIC LINK OF THE ASSESSEE WITH THE P.E. NOR ANY PAYMENT HAS BEEN DEDUCTED BY THE RE. THUS, IN OUR CONCLUSION, THE PAYMENT OF MANAGEMENT FEE CANNOT BE SUBJECTED TO TAX IN INDIA BY VIRTUE OF AR TICLE-13(6). INSOFAR AS THE ISSUE OF DENIAL OF TREATY BENEFIT, WE HAVE ALRE ADY DISCUSSED THIS ISSUE IN THE FORGOING PARAGRAPHS WHEREIN WE HAVE HE LD THAT THE ASSESSEE FIRM IS ENTITLED FOR TREATY BENEFIT. AS WE HAVE ALREADY HELD THAT THE PAYMENT OF MANAGEMENT FEE IS NOT TAXABLE IN IND IA AND BY VIRTUE OF ARTICLE-13(6) AND THAT THE TREATY BENEFIT IS AVAILA BLE TO THE ASSESSEE, WE ARE NOT DEALING WITH THE ARGUMENTS RAISED BY THE EI THER PARTY ON SECTIONS 9(1)(I) OR 9(1)(VII). THUS, THE THIRD ISSU E IS ALSO DECIDED IN ITA 1632/M/12,1808/M/12 & ITA 1633/M/12 10 FAVOUR OF THE ASSESSEE THAT THE MANAGEMENT FEE CANN OT BE TAXED IN INDIA IN THE HANDS OF THE ASSESSEE. 7. BOTH THE ISSUES INVOLVED IN THIS CASE IN RESPECT OF WHICH ADDITIONS WERE MADE BY THE A.O. IN THE REASSESSMENT COMPLETED U/S 143(3) R.W.S. 147 FOR A.Y. 2003-04 THUS ARE SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE EARLIER YEARS AND RESPECTFULLY FOLLOWING THE SAME, WE HOLD THAT BOTH THE ADDITIONS MADE BY THE A.O. IN THE REASSESSMENT MADE FOR A.Y. 2003-04 ARE NOT SUSTAINABLE. 8. KEEPING IN VIEW THE DECISION RENDERED ABOVE DELE TING BOTH THE ADDITIONS MADE BY THE A.O. IN THE REASSESSMENT COMPLETED U/S 143(3) R.W.S. 147 OF THE ACT, THE ISSUE RAISED BY THE REVENUE IN ITS APPEAL RELATING TO VALIDITY OF THE SAID ASSESSMENT MADE BY THE A.O. HAS BECOME INFRUCT UOUS/ACADEMIC. WE THEREFORE DO NOT CONSIDER IT NECESSARY OR EXPEDIENT TO ADJUDICATE UPON THE SAME. THE APPEAL OF THE ASSESSEE FOR A.Y. 2003-04 I S ACCORDINGLY ALLOWED WHEREAS THE APPEAL OF THE REVENUE FOR A.Y. 2003-04 IS DISMISSED. 9. AS REGARDS THE APPEAL OF THE ASSESSEE FOR A.Y. 2008-09, IT IS OBSERVED THAT THE SOLITARY ISSUE INVOLVED THEREIN RELATING T O THE ADDITION OF RS. 1.22 CRORES MADE BY THE A.O. AND CONFIRMED BY THE LD. CI T(A) ON ACCOUNT OF MANAGEMENT FEES RECEIVED BY THE ASSESSEE TREATING T HE SAME AS FEES FOR TECHNICAL SERVICES IS SIMILAR TO THE ONE INVOLVED I N THE APPEAL OF THE ASSESSEE FOR A.Y. 2003-04 WHICH HAS ALREADY BEEN DECIDED BY US IN FAVOUR OF THE ASSESSEE WHILE DISPOSING OF THE APPEAL OF THE ASSES SEE FOR A.Y. 2003-04. FOLLOWING OUR CONCLUSION DRAWN IN A.Y. 2003-04, WE DELETE THE ADDITION MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) ON ACCO UNT OF MANAGEMENT FEES AND ALLOW THE APPEAL OF THE ASSESSEE FOR A.Y. 2008- 09. ITA 1632/M/12,1808/M/12 & ITA 1633/M/12 11 10. IN THE RESULT, APPEALS OF THE ASSESSEE FOR A.Y. 2003-04 & 2008-09 ARE ALLOWED WHEREAS APPEAL OF THE REVENUE FOR A.Y. 2003 -04 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH JUNE, 2014 . ' 5 6 18/06/2014 ' SD/- SD/- (VIJAY PAL RAO) (P.M. JAGTAP ) JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; 6 DATED 18/06/2014 [ \ .../ RK , SR. PS ' #%& '& / COPY OF THE ORDER FORWARDED TO : 1. ! / THE APPELLANT 2. '#! / THE RESPONDENT. 3. : () / THE CIT(A)CONCERNED, MUMBAI. 4. : / DIT CONCERNED, MUMBAI 5. '> , ( > , / DR, ITAT, MUMBAI L BENCH 6. A / GUARD FILE. / BY ORDER, # ' //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI