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TMI Blog2014 (7) TMI 296X X X X Extracts X X X X X X X X Extracts X X X X ..... ging owner of Akitieselskab Dampskibsselskabet Svendborg (hereinafter referred to as 'Svendborg') and M/s Dampskibsselskabet af 1912 Aktieselskab (hereinafter referred to as '1912') both of which are shipping companies engaged in the business of operation of ships in international traffic. The return of income for the year under consideration was filed by it on 28-11- 2003 declaring total income at 'nil'. In the assessment 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 income of the assessee from shipping business u/s 44B of the Act, freight income 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls before the Tribunal on the following grounds:- Assessee's grounds: "1. On the facts and in the circumstances of the case 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 received by the appellant outside India:. "Ground 4a: The learned DDI T erred in holding that management fees received by the appellant outside India, proportionate to the business carried on by the payers, Dampskibsselskabet af 1912 Aktieselskab ('1912') and Aktieselskabet Dampskibsselskabet Svendborg ('Svendborg') with 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 the management fees received by the appellant is chargeable 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 proceedings without appreciating that as per the beneficial provisions of India-Denmar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 freight receipt are done by MIPL on behalf of these two companies; thirdly, copies of the Articles of Association of the limited companies clearly indicate that the firm A.P. Mollar has been appointed as managing owner and 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 they are tax resident of Denmark; and lastly, incorporation certificates of these two companies issued by the competent Danish authorities. From these documents, it can be deduced that shipping income is that of two companies and the assessee firm is only a representative of these two companies. Based on these documents, the assessee has been given DIT relief certificate from the Department and on that basis, it has been claiming its income from shipping operation as non-taxable by virtue of Article-9(1) of the DTAA. In the return of income filed, the assessee firm had declared the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be held that whatever income accrues during the carrying on such business belongs to the assessee firm. Once the entire infrastructure including the vessels which are deployed in the international traffic belongs to the two companies, then it cannot be said that the income accruing from exploiting I deployment of such assets / vessels belong to the assessee firm. The assessee 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 that the income of the company belongs to the CEO. As per the Article of Association, the assessee acts as a representative of the two companies and in that paiity, it acts and does obligations on behalf of the two companies. All THE DOCUMENTS referred to before us also goes to show that the assessee is only representative and the actual shipping business and freight receipts belong to these two companies. Thus, we hold that the assessee firm is separate and distinct from two companies and any income accruing on account of shipping operations does not belong to the assessee, but to these two companies only. Insofar as the allegation of the Department that the return of income was filed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer to consider the shipping income in the hands 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. However, the manner and the method in which such a calculation has to be done has been left to the Assessing Officer to be determined. It is undisputed 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 ships per annum. The main contention before us is that firstly such an income cannot be taxed in India by virtue of Article 13(6) and, secondly, 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 taxability/nontaxability of the royalty and fees for technical services. Article-13(6) carves out an exception that the royalty and fees for technical services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be deductible in the hands 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 Article-13(6). Insofar as the issue of denial of treaty benefit, we have already discussed this issue in the forgoing paragraphs wherein we have held that the assessee firm is entitled for treaty benefit. As we have already held that the payment of management fee is not taxable in India and by virtue of Article-13(6) and that the treaty benefit is available to the assessee, we are not dealing with the arguments raised by the either party on sections 9(1)(i) or 9(1)(vii). Thus, the third issue is also decided in favour of the assessee that the management fee cannot 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 assessee's own case for the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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