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TMI Blog2018 (2) TMI 1949X X X X Extracts X X X X X X X X Extracts X X X X ..... tute income chargeable to tax in the hands of the assessee. It is undisputed that he assessee is in business of conducting operation of ships in international traffic and not engaged in the business of providing communication services, and therefore, per se no separate royalty/FTS were rendered by the assessee. Hence, we allow this issue of assessee s appeal. Income from Inland Haulage Charges [IHC] of cargo - activities of the IHC are connected directly or an ancillary activity that provides minor contribution and should not be regarded as a separate business to the operations of ships. These activities are linked or connected to each other and as such one cannot say that one is to be conducted efficiently without the other and which have a nexus to the main business of the assessee of operations of ships should be considered as integral part of income from shipping operations. Accordingly, we allow the claim of assessee - repayment of money may be construed as reimbursement only if it is bereft of profits for the services rendered. There is no profit element in the pro rata costs paid by the agents of the assessee to the assessee and accordingly, we have no hesitation in h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 388.16 crores being part and parcel of the shipping business and hence not taxable in India as per Article-9 of the Treaty. It was pointed out that the assessee undertook transportation of goods on behalf of various shippers across the globe on ships owned and chartered by the assessee, which plied in international waters. These charges included ₹ 128.24 crores for export cargo and ₹ 259.92 Crores for import cargo. In case of imports, major portion of IHC was related with movement of cargo from Indian Port to Container Freight Station [CFS] or Inland Container Depot [ICD] and the assessee contended that in order to avoid congestion on Indian Ports, all shipping lines were compulsorily required to first move their containers to CFS or ICD from where the shippers could clear the cargo and therefore, the said activity could not be segregated from international voyage and the same was inextricably linked to movement of cargo in the international traffic. It was further pointed out that only one consolidated Bill of Lading was issued to the shippers from place of origin to place of destination against composite charges and complete responsibility to move the goods u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [ITA No. 1927 2054/Mum/2014 AY 2010-11 07/10/2016 Mumbai Tribunal] (iv) DDIT (IT) Vs. A.P.Moller Maersk A/s [ITA No. 1807/Mum/2012 AY 2008-09 08/11/2013 Mumbai Tribunal] For ease of reference, the relevant portion from Tribunal s order ITA No. 1798/Mum/2015 dated 15/02/2017 is extracted below- 4. Upon careful consideration, perusing the records we find that this tribunal in assessee own case ITA no. 1927 and 2054 for assessment year s 2010-11 as per its order dt. 7.10.2016 has adjudicated identical issue as under:- Brief facts leading to the above issue are that during the year assessee incurred certain expense towards operation, maintenance and upgradation of SAP based ERP solution (FACT), FACT has been procured by the assessee for efficient management of operations of its shipping business. This was done in order to streamline operations with its group companies around the world, and FACT is provided by the assessee to its agents across the globe including India. To streamline operations of its group companies having Container Inland Services (CIS) operations around the world, APMM requires them to install and use FA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese systems are an integral part international shipping business, and without these systems, the international shipping business cannot be conducted, nor would the agents of the assessee across the world be able to discharge their role as agents of the assessee. Activities are directly connected to its business of operations of ships in international traffic and hence taxable only in Denmark tinder Article 9(1) of India Denmark Tax Treaty. The assessee is in the business of shipping and not in the business of providing any technical services While the system enables better and efficient conduct in the business, it does not mean that the assessee is providing technical services. The cost for setting tip the IT Global System is shared between the assessee and its agent across the globe. The payment received is nothing hut a payment by way of reimbursement of cost for providing a particular system. The percentage of the payments received by the assessee towards reimbursement compared to the total receipts in the form of freight etc., from shipping business in India is less than 1%. The above order of the Hon'ble Tribunal has been followed by tribunal in orders for subsequent year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see in conducting its shipping business in more effective and efficient manner globally. This software in fact is a tool and integrated part of shipping operations only, usage of software cannot be segregated from such activities of overall shipping operations so as to hold it as rendering of any independent technical services. These activities are intrinsically linked to its business operation of ships in international traffic and therefore are a part of the business activity of the assessee. Which is operation of ships in international traffic. The FACT cost represent merely allocation of cost incurred and hence in the nature of reimbursement of expenses not having any element of profit embedded in it. Such recovery only includes proportionate cost incurred by the assessee for the development and maintenance of the system. Therefore, such recoupment of cost does not constitute income chargeable to tax in the hands of the assessee. It is undisputed that the assessee is in business of conducting operation of ships in international traffic and not engaged in the business of providing communication services, and therefore, per se no separate royalty/FTS were rendered by the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for the purpose of delivery through international waters and is directly connected with such transportation will always be included within the term operations of ships'. The activities of the IHC are connected directly or an ancillary activity that provides minor contribution and should not be regarded as a separate business to the operations of ships. These activities are linked or connected to each other and as such one cannot say that one is to be conducted efficiently without the other and which have a nexus to the main business of the assessee of operations of ships should be considered as integral part of income from shipping operations. Accordingly, we allow the claim of assessee and hence, this common issue of assessee appeal is allowed and that of revenue dismissed. 9. Further more we note that Hon ble jurisdictional High Court in assessee's own case in income tax appeal number 1306 and others as per order dated 29/14/2015 has considered the same issue elaborately and concluded as under; The Tribunal in the meanwhile had also decided (in the case the assessee's own case) for the previous assessment year in favour of the assessee and, th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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