NON-REPORTABLE IN SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 8040 OF 2015 DIRECTOR OF INCOME TAX (IT) I .....APPELLANT(S) VERSUS A.P. MOLLER MAERSK S .....RESPONDENT(S) WITH CIVIL APPEAL NO. 2959 OF 2017 (ARISING OUT OF SLP (C) NO. 5979 OF 2017 @ SLP (C) CC NO. 18880 OF 2015) CIVIL APPEAL NO. 2958 OF 2017 (ARISING OUT OF SLP (C) NO. 5978 OF 2017 @ SLP (C) CC NO. 20220 OF 2015 CIVIL APPEAL NO. 2962 OF 2017 (ARISING OUT OF SLP (C) NO. 5984 OF 2017 @ SLP (C) CC NO. 20248 OF 2015 CIVIL APPEAL NO. 2961 OF 2017 (ARISING OUT OF SLP (C) NO. 5983 OF 2017 @ SLP (C) CC NO. 20404 OF 2015 CIVIL APPEAL NO. 2964 OF 2017 (ARISING OUT OF SLP (C) NO. 5992 OF 2017 @ SLP (C) CC NO. 18833 OF 2015 CIVIL APPEAL NO. 2963 OF 2017 (ARISING OUT OF SLP (C) NO. 5985 OF 2017 @ SLP (C) CC NO. 20038 OF 2015 Civil Appeal No. 8040 of 2015 & Ors. Page 1 of 15 Page 1 AND CIVIL APPEAL NO. 2960 OF 2017 (ARISING OUT OF SLP (C) NO. 5980 OF 2017 @ SLP (C) CC NO. 19935 OF 2015 JUDGMENT A.K. SIKRI, J. Delay condoned. 2. Leave granted in all SLPs. 3. In these appeals, which are filed by Revenue challenging validity of judgment passed by High Court of Bombay, appellant-Revenue has posed issue that arises for consideration in following manner: Whether High Court is correct in holding that income from use of Global Telecommunication Facility called 'Maersk Net' can be classified as income arising out of shipping business and not as fees for technical services? 4. Similar question of law, according to Revenue, arises in all these appeals and for sake of convenience, we will take note of facts of Civil Appeal No. 8040 of 2015. Civil Appeal No. 8040 of 2015 & Ors. Page 2 of 15 Page 2 5. High Court has decided aforesaid issue by common judgment dated 29.04.2015, which is under appeal. From aforesaid, it becomes clear that only issue that has to be decided by this Court is whether income from use of Maersk Net is integral part of shipping business and cannot be taxed in India as fees for technical service under Indo-Danish Double Taxation Avoidance Agreement. 6. Seminal facts giving background of dispute may be taken note of at this stage in order to understand nuances of aforesaid issue. respondent assessee is foreign company engaged in shipping business and is tax resident of Denmark. There is Double Taxation Avoidance Agreement (hereinafter referred to as 'DTAA') between India and Denmark. Assessing Officer (AO) assessed income in hands of assessee and allowed benefit of said DTAA. However, while making assessment, AO observed that assessee had agents working for it, namely, Maersk Logistics India Limited (MLIL), Maersk India Private Limited (MIPL), Safmarine India Private Limited (SIPL) and Maersk Infotech Services (India) Private Limited (MISPL). These agents booked cargo and acted as clearing agents for assessee. In Civil Appeal No. 8040 of 2015 & Ors. Page 3 of 15 Page 3 order to help all its agents, across globe, in this business, assessee had set up and was maintaining global telecommunication facility called Maersk Net System which is vertically integrated communication system. agents were paying for said system on pro-rata basis. According to assessee, it was merely system of cost sharing and payments received by assessee from MIPL, MLIL, SIPL and MISPL were in nature of reimbursement of expenses. AO did not accept this contention and held that amounts paid by these three agents to assessee was consideration/fees for technical services rendered by assesses and, accordingly, held them to be taxable in India under Article 13(4) of DTAA and assessed tax @ 20% under Section 115A of Income Tax Act, 1961. 7. assessee preferred appeal against Assessment Order before Commissioner of Income Tax (Appeals) (for short, 'CIT (A)'). CIT(A) vide order dated 23.08.2010 dismissed appeal. Aggrieved by order passed by CIT(A), assessee preferred further appeal before Income Tax Appellate Tribunal (ITAT). Here assessee succeeded as ITAT, by order dated 14.12.2012, allowed appeal of Civil Appeal No. 8040 of 2015 & Ors. Page 4 of 15 Page 4 assessee following decisions of Madras High Court in Skycell Communications Ltd. & Anr. v. Deputy Commissioner of Income Tax & Ors.1, and Delhi High Court in Commissioner of Income Tax v. Bharti Cellular Ltd.2. ITAT considered nature of costs incurred by assessee and observed that three agents were booking cargo and acting as clearing agents for assessee and were entitled to utilisation of Maersk Net facility which consisted of communication system connected to mainframe and other computer services in each of countries of operation. These were all connected to Maersk Net Connecting Point (MCP) which were installed in each of premises. This communication network enabled agent concerned to access via MCP following services: Global Customer Service System (GCSS); Global Schedule 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; 1 (2001) 251 ITR 53 2 (2009) 319 ITR 139 Civil Appeal No. 8040 of 2015 & Ors. Page 5 of 15 Page 5 System 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). 8. Aggrieved by order passed by ITAT, department filed ITA No. 1306 of 2013 before High Court of Bombay. High Court, by judgment dated 29.04.2015, has dismissed Revenue's appeal holding that ITAT has correctly observed that utilisation of Maersk Net Communication System was automated software based communication system which did not require assessee to render any technical services. It was merely cost sharing arrangement between assessee and its agents to efficiently conduct its shipping business. High Court has further held that principles involved in decision of Director of Income Tax (International Taxation)-1 v. M/s. Safmarine Container Lines NV3 will also govern present case and that Maersk Net used by agents of assessee entailed certain costs reimbursement. It was part of shipping business and could not be captured under any other provisions of Income Tax Act except under DTAA. It is also pertinent to mention that while arriving at aforesaid decision, 3 (2014) 367 ITR 209 Civil Appeal No. 8040 of 2015 & Ors. Page 6 of 15 Page 6 High Court has specifically observed that there is no finding by AO or Commissioner that there is only profit element involved in payments received by assessee from its agents. 9. It is in aforesaid circumstances issue arose as to whether any technical services were rendered by assessee to its aforesaid three agents and payment made by agents was in form of fee for said technical services OR payment was nothing but reimbursement of cost by three agents to assessee for using Maersk Net. 10. facts which emerge on record are that assessee is having its IT System, which is called Maersk Net. As assessee is in business of shipping, chartering and related business, it has appointed agents in various countries for booking of cargo and servicing customers in those countries, preparing documentation etc. through these agents. Aforementioned three agents are appointed in India for said purpose. All these agents of assessee, including three agents in India, used Maersk Net System. This system is facility which enables agents to access several information like tracking of cargo of customer, transportation schedule, customer information, Civil Appeal No. 8040 of 2015 & Ors. Page 7 of 15 Page 7 documentation system and several other informations. For sake of convenience of all these agents, centralised system is maintained so that agents are not required to have same system at their places to avoid unnecessary cost. system comprises of booking and communication software, hardware and data communications network. system is, thus, integral part of international shipping business of assessee and runs on combination of mainframe and non-mainframe servers located in Denmark. Expenditure which is incurred for running this business is shared by all agents. In this manner, systems enable agents to co-ordinate cargos and ports of call for its fleet. 11. Aforesaid are findings of facts. It is clearly held that no technical services are provided by assessee to agents. Once these are accepted, by no stretch of imagination, payments made by agents can be treated as fee for technical service. It is in nature of reimbursement of cost whereby three agents paid their proportionate share of expenses incurred on these said systems and for maintaining those systems. It is reemphasised that neither AO nor CIT (A) has stated that there was any profit element embedded in payments received Civil Appeal No. 8040 of 2015 & Ors. Page 8 of 15 Page 8 by assessee from its agents in India. Record shows that assessee had given calculations of total costs and pro-rata division thereof among agents for reimbursement. Not only that, assessee have even submitted before Transfer Pricing Officer that these payments were reimbursement in hands of assessee and reimbursement was accepted as such at arm's length. Once character of payment is found to be in nature of reimbursement of expenses, it cannot be income chargeable to tax. 12. Pertinently, Revenue itself has given benefit of Indo-Danish DTAA to assessee by accepting that under Article 9 thereof, freight income generated by assessee in these Assessment Years is not chargeable to tax as it arises from operation of ships in international waters. Once that is accepted and it is also found that Maersk Net System is integral part of shipping business and business cannot be conducted without same, which was allowed to be used by agents of assessee as well in order to enable them to discharge their role more effectively as agents, it is only facility that was allowed to be shared by agents. By no stretch of imagination it can be treated as any technical services provided to agents. Civil Appeal No. 8040 of 2015 & Ors. Page 9 of 15 Page 9 In such situation, 'profit' from operation of ships under Article 19 of DTAA would necessarily include expenses for earning that income and cannot be separated, more so, when it is found that business cannot be run without these expenses. This Court in Commissioner of Income Tax-4, Mumbai v. Kotak Securities Limited4 has categorically held that use of facility does not amount to technical services, as technical services denote services catering to special needs of person using them and not facility provided to all. After taking note of Section 19 of Income Tax Act,1961 and explanation 2 thereof which defines fee for technical services, Court went on to describe meaning of said expression in following manner: 6. What meaning should be ascribed to words technical services appearing in Explanation 2 to clause (vii) to Section 9(1) of Act is moot question. In CIT v. Bharti Cellular Ltd. [CIT v. Bharti Cellular Ltd., (2014) 6 SCC 401 : (2011) 330 ITR 239] this Court has observed as follows: (SCC p. 402, para 5) 5. Right from 1979, various judgments of High Courts and Tribunals have taken view that words technical services have got to be read in narrower sense by applying rule of noscitur sociis, particularly, because words technical services in Section 9(1)(vii) read with 4 (2016) 383 ITR 1 (SC) Civil Appeal No. 8040 of 2015 & Ors. Page 10 of 15 Page 10 Explanation 2 comes in between words managerial and consultancy services . 7. Managerial and consultancy services and, therefore, necessarily technical services , would obviously involve services rendered by human efforts. This has been consistent view taken by courts including this Court in Bharti Cellular Ltd. [CIT v. Bharti Cellular Ltd., (2014) 6 SCC 401 : (2011) 330 ITR 239] However, it cannot be lost sight of that modern day scientific and technological developments may tend to blur specific human element in otherwise fully automated process by which such services may be provided. search for more effective basis, therefore, must be made. 8. reading of very elaborate order of assessing officer containing lengthy discourse on services made available by Stock Exchange would go to show that apart from facilities of faceless screen based transaction, constant upgradation of services made available and surveillance of essential parameters connected with trade including those of particular/single transaction that would lead credence to its authenticity is provided for by Stock Exchange. All such services, fully automated, are available to all members of Stock Exchange in respect of every transaction that is entered into. There is nothing special, exclusive or customised service that is rendered by Stock Exchange. Technical services like managerial and consultancy service would denote seeking of services to cater to special needs of consumer/user as may be felt necessary and making of same available by service provider. It is above feature that would distinguish/identify service provided from facility offered. While former is special and exclusive to seeker of service, latter, even if termed as service, is available to all and would, therefore, stand out in distinction to former. service provided by Stock Exchange for which transaction charges are paid fails to satisfy aforesaid test of specialised, Civil Appeal No. 8040 of 2015 & Ors. Page 11 of 15 Page 11 exclusive and individual requirement of user or consumer who may approach service provider for such assistance/service. It is only service of above kind that, according to us, should come within ambit of expression technical services appearing in Explanation 2 to Section 9(1)(vii) of Act. In absence of above distinguishing feature, service, though rendered, would be mere in nature of facility offered or available which would not be covered by aforesaid provision of Act. 9. There is yet another aspect of matter which, in our considered view, would require specific notice. service made available by Bombay Stock Exchange [BSE Online Trading (BOLT) System] for which charges in question had been paid by appellant assessee are common services that every member of Stock Exchange is necessarily required to avail of to carry out trading in securities in Stock Exchange. view taken by High Court that member of Stock Exchange has option of trading through alternative mode is not correct. member who wants to conduct his daily business in Stock Exchange has no option but to avail of such services. Each and every transaction by member involves use of services provided by Stock Exchange for which member is compulsorily required to pay additional charge (based on transaction value) over and above charges for membership in Stock Exchange. above features of services provided by Stock Exchange would make same kind of facility provided by Stock Exchange for transacting business rather than technical service provided to one or section of members of Stock Exchange to deal with special situations faced by such member(s) or special needs of such member(s) in conduct of business in Stock Exchange. In other words, there is no exclusivity to services rendered by Stock Exchange and each and every member has to necessarily avail of such services in normal course of trading in securities in Stock Exchange. Such services, Civil Appeal No. 8040 of 2015 & Ors. Page 12 of 15 Page 12 therefore, would undoubtedly be appropriate to be termed as facilities provided by Stock Exchange on payment and does not amount to technical services provided by Stock Exchange, not being services specifically sought for by user or consumer. It is aforesaid latter feature of service rendered which is essential hallmark of expression technical services as appearing in Explanation 2 to Section 9(1)(vii) of Act. 13. In present case, common facility of using Maersk Net System is provided to all agents across countries to carry out their work using said system. 14. Mr. Radhakrishnan, learned senior counsel appearing for assessee, laboured to demonstrate that reliance by High Court on its earlier judgment in case of M/s. Safmarine Container Lines NV was not appropriate as that was case where Indo-Belgium DTAA was considered by Court which was different from Indo-Denmark DTAA. However, having regard to factual position noted above, it is not even necessary to go into this aspect, though we may observe that it is principle of law enunciated in Safmarine which is followed. Mr. Radhakrishnan also referred to Article 17 of Agency Agreement between assessee and Indian agents which provides that assessee may, from time to time, temporarily place its employees in agents office for training or other Civil Appeal No. 8040 of 2015 & Ors. Page 13 of 15 Page 13 purposes . However, it could nowhere be pointed out that payment in question was made by agents to assessee for aforesaid purposes. Mr. Radhakrishnan also argued that arrangement of profits is not essential to qualify receipt as income from free for technical services. This argument is, again, untenable as on facts of this case it is clearly established that payment made by assessee was not for reimbursement of any technical services. 15. After arguments were concluded, additional written submissions were filed by Mr. Radhakrishnan on behalf of Revenue wherein altogether new point is raised viz. payments made by agents to assessee for use of that Maersk Net System can be treated as royalty. However, this desperate attempt on part of Revenue cannot be allowed as no such case was sought to be projected before High Court or even in appeals in this Court. We have already mentioned in beginning issue raised by Revenue itself which shows that only contention raised is as to whether payment in question can be treated as fee for technical services. Having held that issue against Revenue, no further consideration is required of any other aspects in these appeals. These appeals Civil Appeal No. 8040 of 2015 & Ors. Page 14 of 15 Page 14 are, therefore, bereft of any merit and are accordingly dismissed. .................J. (A.K. SIKRI) .........J. (ABHAY MANOHAR SAPRE) NEW DELHI; FEBRUARY 17, 2017. Civil Appeal No. 8040 of 2015 & Ors. Page 15 of 15 Page 15 Director of Income-tax (IT)-I v. A.P. Moller Maersk S