ITAT MUMBAI BENCH 'L'

ITA Nos. 2786& 3019/Mum/2005, 4991, 5392, 5032, 5825, 5826  & 5393/Mum/2006, 2953 & 3632/Mum/2007 and 1968, 1970, 1972, 2477 to 2479/Mum/2008
and C.O. Nos. 351/Mum/2005, 25, 60, 61 & .221/Mum/2007
 and 134 to 136/Mum/2008; Asst. yrs. 1997 -98 to 2003-04

RAJENDRA SINGH, ACCOUNTANT MEMBER
AND AMIT SHUKLA, JUDICIAL MEMBER

Ajay Shrivastava for the Appellant.
Porus Kaka and Divesh Chawla for the Respondent.

ORDER

PER BENCH These bunch of cross appeals and the cross objections have been preferred by the Department and the assessee for various assessment years, challenging the separate impugned orders passed by the learned Commissioner (Appeals)-XXXI, Mumbai, the details of which are as under:-

2. Since all these cross appeals and cross objections pertain to the same assessee involving common issues arising out of identical set of facts and circumstances, which are permeating through in all the assessment years, therefore, as a matter of convenience, these were heard together and are being disposed off by way of this consolidated order. However, in order to understand the implication, it would be necessary to take note of the facts of one appeal.

3. We are, accordingly, discussing the facts and issues, as they appear in the appeals for the A.Y. 2001–02 in ITA no. 3019/Mum./2005, which has been preferred by the Revenue, following grounds have been raised:–

"On the facts and in circumstances of the case and in law the Ld.CIT(A) erred in holding that-
(A) the assessee is only managing the day-to-day operations of AKTIESELSKABET DAMPSKIBSSELSKABET, SVENDBORG (SVENDBORG); AND DAMPSKIBSSELSKBET AF 1912, AKTIESELSKAB (1912) in its capacity as managing owner, inspite of the fact that the return has been filed by the assessee and freight income has been claimed by the assessee in the computation of income filed with the return of income.

(B) The freight receipts from shipping business from India should be assessed in the hands of SVENDBORG and1912 and not in the hands of assessee.

2. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in directing the AO to examine the taxability of freight receipts in the hands of SVENDBORG and 1912, separately.

3. On the facts and in the circumstances of the case and in law, the Ld, CIT(A) erred I holding that as the payments are made by MPIL and MLIL to SVENDBORG AND 1912, the taxability of the same has to be considered in the assessment of SVAENBORG and 1912, ignoring the facts that the TDS certificates issued by MPIL and MLIL and filed alongwith the return of income indicates that the amount has been paid to the assessee after withholding taxes @ 20% on the payment.

4. On the facts and in the circumstances of the case and in law, the LD.CIT(A) erred in holding that the interest levied U/s 231B is not justified as the assessee cannot be said to be liable for advance tax."

In the aforesaid grounds of appeal, the Revenue has mainly raised the following issues, which require our adjudication on merits:–

In assessee's appeal in ITA no.2786/Mum./2005, for the assessment year 2001–02, following grounds have been raised:–

"1. The Commissioner of Income-tax (Appeals) XXXI, Mumbai [CIT(A)] erred in holding that the Management Fees received by and reimbursement of expenses to A P Moller is chargeable to tax in India under Sections 115A read with Section 44D of the Income-tax Act 1961 (the Act). Your Appellants submit that the management fees are not chargeable to tax in India and pray the Assessing Officer (AO) be directed accordingly.

2. The CIT(A) erred in observing that the benefits of Agreement for Avoidance of Double Taxation between India and Denmark (AADT) are not available to your appellants. Accordingly, the Management Fees and reimbursement of expenses are taxable in India under the Act.

3. Without prejudice to ground No.1, your Appellants submit that if it is held that management fees are chargeable to tax in India under the Act, they are entitled to the benefits of the AADT and the management fees are not chargeable to tax in India under the AADT and pray that the AO be directed accordingly.

4. The CIT(A) erred in confirming levy of interest under Section 234D of the Act."
In the aforesaid grounds of appeal, the assessee has mainly raised the following issues which require our adjudication on merits:–

4. Facts in brief:– The factual background of the case, which are culled out from the order of the learned Commissioner (Appeals) and also the submissions made by the parties which have a very relevant bearing on the issues involved are that the assessee i.e., A.P. Moller, is a partnership firm existing under the laws of Denmark. The said partnership firm consisted of four individuals namely, Mr. Maersk McKinney Moller, Mr. Jess Soderberg, Mr. Knud Stubkjaer and Mr. Bjarne Hansen. The said firm was the managing owner of the following two companies:–

5. Both the companies are incorporated under the Danish laws and are Public Limited Companies, listed in Copen Hagen Stock Exchange. With effect from 1st January 1913, the company "1912" has been merged into "Svendborg" and thereafter, the merged company has been re-named as "A.P. Moller Maersk A/S". These two companies are engaged in the business of shipping operation all over the world and are tax resident of Denmark as the effective place of management is in the Denmark. In accordance with the Danish laws, both the companies viz. Sevendborg and 1912 have appointed the assessee firm A.P. Moller as their "Managing Owner" for managing their shipping operations globally. As per the Articles of Association of these two limited companies, the firm A.P. Moller is their managing owner which shall represent these companies in all the matters of business all over the world. The firm had an authority to bind these two companies in any contract and in this representative capacity, is signatory to most of the agreements and legal documents. In this manner the assessee firm acted as a representative of these companies. Through out the world including India, the assessee firm managed the shipping business of these companies and also filed corporate tax return including in India on their behalf. In consideration of managing the day-to-day operations and affairs of these two companies, the managing owner is entitled to charge fees based on gross registered tonnage of the ships per annum. This payment is called management fees, which is received from these two companies for managing the entire business. It has been stated that the said firm is in no manner entitled for any shipping income or is any kind of beneficial owner of such income from the shipping operations. In other words, the income from operation of the shipping business, accrued to the two companies only and at no point of time, the assessee firm was entitled for such shipping income and its only remuneration, was by way of managing owners' fees or commission.

6. Like in the earlier years, for the year under appeal also, the assessee had filed return of income under section 139(1) on 29th October 2001, at "Nil" income after claiming benefit of Article-9 of India Denmark DTAA. The gross receipts from the shipping business from India were shown at Rs. 13,82,79,58,262, which has been claimed to be non-taxable in India by virtue of Article-9 of the treaty. It has been submitted by the learned Senior Counsel, Mr. Porus Kaka, on behalf of the assessee, that prior to the commencement of the assessment proceedings, the assessee has written a letter dated 15th March 2002, filed on 18th August 2002 before the Assessing Officer requesting for grant of certificate for 100% relief with regard to the income from shipping business in India. Along with the said letter, the assessee firm had submitted various documents which goes to show that not only these companies were the owners of the vessels and carrying out the shipping operations, but also the status and the capacity under which the assessee firm was looking after the affairs of these companies. The documents enclosed along with the letter included the following:-

7. It has been stated that on 28th March 2002, based on these documents, the DIT relief certificate for 100% relief in respect of the shipping income has been given. The copy of such certificate has been enclosed in the paper book at Page-152.

8. During the course of the scrutiny proceedings, the Assessing Officer required the assessee to show cause as to why the benefit of Article–9 of the DTAA should not be withdrawn as the assessee is a partnership firm which is a transparent entity for the purpose of taxation in Denmark i.e., it is not liable for tax and, therefore, it is not a tax resident of Denmark for the purpose of Article–4 of the DTAA. In response, the assessee filed a detailed explanation which has been incorporated by the Assessing Officer from Page–2 to 8 of the assessment order. The main contention which was raised on behalf of the assessee was that, even though the assessee firm is a transparent entity for the Danish tax purpose, however, the same is irrelevant to the issue in hand because the shipping income belongs to the two limited companies, Svendborg and 1912 which are taxable entity in the Demank and the assessee is in no manner beneficial owner of the shipping income. The assessee's relationship with these two companies were also explained and was contended that the assessee as an entity is not claiming any relief under Article–9, but on behalf of these two companies. The entire operations of the ships in international traffic are being carried out by these two companies through "tankers and liners in partnership" under the name Maersk Sea Land. It was also submitted that otherwise also, even if the assessee is a transparent entity, however, the entire income from the partnership firm is divided between the partners, which are subjected to tax in Denmark, therefore, the partners are taxable entity under the Danish laws. If the partnership firm is not entitled to benefit of the treaty, then the benefit ought to have been granted to the partners. Various commentaries of OECD and other eminent authors were also relied upon in support of this contention. Thus, the entire income of the partnership flows to the partners only which are fully taxable and, therefore, the conditions of Article–4 and Article–9(1) stand fulfilled. The other main submissions were that the return of income of the two limited companies have also been filed on 5th March 2004, claiming same benefit of Article–9 and, therefore, these returns of income should be regularized and to be proceeded thereon, as ultimately the shipping income belongs to these two companies only.

9. The Assessing Officer, from the facts and material on record before him, deduced that the return of income was filed in case of A.P. Moller under section 139(1) and the computation of income filed along with the return of income mentioned gross receipts of shipping operation in case of A.P. Moller and the relief under Article-9 of the DTAA has been claimed by A.P. Moller, therefore, the entire shipping income belongs to A.P. Moller only. Earlier also the return of income were filed by the A.P. Moller only and benefit of DTAA has been claimed by A.P. Moller, thus, under the provisions of section 139(1) the income is assessable in the hands of an "assessee" because the return of income is filed only for his/its income. He also noted that in the application for claiming DIT relief, the name of the assessee has been given as A.P. Moller only and also referred to such application made by the assessee from time to time. He also referred to other documents like copy of certificate of double taxation relief and residency certificate from Danish tax authorities which only referred the name of A.P. Moller. He even incorporated the copy of certificate from A.P. Moller at Page-10 of the assessment order. After discussing these details from Page-8 to 11, he has drawn following premise to prove that the A.P. Moller firm is an assessable entity for the shipping business in India.

10. Having concluded in the aforesaid manner, the Assessing Officer further proceeded to deny treaty benefit to the assessee. He analysed various Articles of DTAA including Article–3(e) and Article–4(1) and observed that under these article the benefit can be given only to tax residents and that if the above entity is not taxable in the resident State then the relief under the DTAA will not be available. In support, he referred to OECD (model tax convention) commentaries and also the commentaries of eminent author like Klaus Vogel and Philip Baker and held that the entire gross receipts from shipping income has to be taxed as per the provisions of section 44B and, accordingly, 7.5% of the gross receipt was held to be taxable. The relevant findings of the Assessing Officer for coming to this conclusion, are as under:–

"7.12 On the basis of the above, it becomes obvious that M/s. A.P. Moller cannot be considered a resident of Denmark for the express purpose of claiming benefit under the DTAA as it is not liable to tax in Denmark.

7.13 It needs to be mentioned here that the returns of income of 'Svendborg' and '1912', as filed on 05-03-2004, cannot be considered for the purpose of the present assessment as they are non-est in law. Further, the AR of the assessee has made a claim that the income is finally flowing to 'Svendborg' and '1912', and those entities are liable to tax in Denmark and thus are resident in Denmark for the purpose of claiming the benefit of the DTAA. Accordingly, the income is fully attributable to them and non taxable in India as per Article 9 of the DTAA. Claim of the AR is not acceptable as no specific discussion on this issue is available in the DTAA. Unless and until the DTAA itself provides that in the case of income which is flowing through entities such as partnerships has to be considered in the hands of the final recepients and DTAA benefits are to be given to these recepients, such a course of action 'cannot be contemplated. On the other hand, as per the Income Tax Act, partnerships are taxable entities and once the benefits of the DTAA is• not available to such entities, they become liable to tax in India, as such. The OECD commentary also mentions the same, i.e., there has to be special inclusion in the DTAA, by the two contracting States, for extension of benefits of the DTAA.

8. As the provisions of the DT AA are held to be not applicable in the case of the assessee, the provisions of the I.T.Act, 1961, will apply.

9. The freight receipts of M/s.A.P. Moller amounting to Rs.13,82,79,58,262.66 are from the business of Shipping and as such are covered by the provisions of section 44B of the I. T. Act, 1961. This Section deems the income of non-resident assessees to be 7.5% of the gross receipts from shipping business. In the case of the assessee, this amounts to Rs.103,70,96,870/-. The same is held to be the income of the assessee from shipping business for A.Y.2001-02."

11. On the second issue of taxing the payment received on the cost of I.T. system in the hands of the assessee, the Assessing Officer noted that the TDS certificates filed along with the return of income, shows that M/s. Maersk India Pvt. Ltd., (for short "MIPL") has paid an amount of ' 10,03,60,921 to A.P. Moller and has deducted tax @ 20% amounting to ' 2,00,72,184. Similarly, Maersk Logistic India Ltd. (for short "MLIL") an amount of ' 29,92,560 has been paid to A.P. Moller after deducting tax @ 20% of ' 5,98,512. From this, he concluded that the payments are being made to the assessee only, which needs to be taxed in the hands of the assessee. In response to the show cause notice, the assessee submitted that the two listed company viz. Svendborg and 1912 have procured and maintained a global system portfolio which runs on combination of main frame and non–frame servers located at Denmark. These systems are integral part of international shipping business of these two companies, which comprises of booking and communication software and hardware and a data communication network. It enables these companies to co–ordinate Cargos and ports of call for its fleet. The expenditure incurred by these two companies mainly includes network cost, data communication, data production, project and development cost, etc. In this entire system, the charges are paid by these two companies and share of the cost is recovered from various group entities/agents including MIPL and MLIL in India based on the invoices raised. Thus, recovering of such cost cannot be treated as income either of the assessee firm or of these two companies. In any case, this I.T. systems are used for business operations for carrying on shipping business efficiently and, hence, it is a part of shipping business only. However, the Assessing Officer rejected such contention and held that such a payment is to be taxed as fee for technical services in the hands of the assessee under section 9(1)(vii) in the following manner:–

"10.4 It is seen that the system acquired by AP. Moller is for the use of its shipping business and inter alia, processes data related to its ships, cargo and their movement around the world. MIL and MLIL are making payments to AP. Moller for the use of the services. Thus, what is being termed as 'reimbursement of costs' is basically payment for the technical services provided by A P. Moller on the basis of its infrastructure facility. The same is borne out by the agreements also. In fact, such a situation arose in the case of M/s. Arthur Andersen & Co., India, and the Id.ITAT, Mumbia, '0' Bench, in their order dated 29.07.2003, in ITA No.9125/Muml 1995, for AY.1994-95, with regard to order u/s. 195(2) of the I.T. Act, 1961, have opined that: "Repayment of money cannot be construed to be the income of the recipient but it is to be proved that the amount in question is actually 'reimbursement' bereft of any profit for the services rendered. The nomenclature is not decisive to ascertain the real character of payment. In the present case attendant circumstances suggest that ex facie, the amount paid is not just reimbursement. It could be fee for technical services in the garb of reimbursement.

10.5 As the assessee is not entitled to the benefits of the DT AA as already discussed in the foregoing paras, the amount paid by MLiL and MIL to A.P. Moller are held as fees for technical services in its hands, u/s.9(i)(vii) of the I.T. Act, 1961.

10.6 As per the terms of agreement, both MLiL and MIL have to. make the payments net of taxes and taxes are to be borne by them only. Thus, the amount forming fees for technical services in the hands of the assessee has to be grossed up. The same is being computed as under:

10.7 The above mentioned amounts are held to be taxable @ 20% u/s.115A of the I.T Act, 1961.
12. Before the learned Commissioner (Appeals), on the first issue, the assessee, while reiterating the submissions and the material on record, which were made/placed before the Assessing Officer, submitted that the two companies Sevendborg and 1912 have also filed revised return of income in the course of assessment proceedings and that the assessee is entitled to file any rightful claim in the course of the assessment proceedings. Besides this, it was also reiterated that in fact the shipping income belongs to the two companies and not to the assessee firm, which is only the managing owner, looking after day–to–day business of these companies in a representative capacity and is only entitled for management fees. The learned Commissioner (Appeals) on the issue whether the shipping income is assessable in the hands of the assessee or the two limited companies, agreed with the contention of the assessee and directed the Assessing Officer to examine the taxability of freight receipts in the hands of Svendborg and 1912 separately. Relevant observation and finding of the learned Commissioner (Appeals) for the sake of ready reference are reproduced herein below:–

"5.7 I have carefully considered the contentions of both, the Assessing Officer as well as the appellant. Mere fact that the appellant while furnishing its return of income has made certain wrong declarations does not imply that the position declared by the appellant in a return of income is a correct position. If certain facts are unearthed during the course of assessment proceedings then the same have to be factored in while determining the correct tax position.

5.8 It is very clear on the basis of submissions made by the appellant that it is only a managing owner of Svendborg and 1912 and acts as a representative on behalf of both the companies. The ships and other assets used in the shipping business are owned by Svendborg and 1912 and not by the appellant. Further, it is apparent from the bill of lading that the bill is issued in the name of Svendborg and 1912. The appellant is only managing the day to day operations of Svendborg and 1912 in its capacity as managing owner. It is entitled to management fees for the services rendered by it as managing owner. The income from operations of ships therefore accrues to Svendborg and 1912 and not to the appellant which merely acts as managing owner. The freight receipts from shipping business from India should thus be assessed in the hands of Svendborg and 1912 and not in the hands of the appellant. The DDIT should examine the taxability of the freight receipts in the hands of Svendborg and 1912 separately."

13. The learned Commissioner (Appeals), after holding that the assessee is not liable for tax insofar as shipping income is concerned, however, proceeded to examine, whether the management fees paid by Svendborg and 1912 to the assessee is liable for taxation under section 9(1) of the Act in India because such a payment amounts to income from "fee for technical services". In response to a query raised by the learned Commissioner (Appeals), the assessee submitted that the fee amount is computed on the basis of gross registered tonnage (GRT) on the ships per annum. No ships of these two companies are registered in India and, therefore, the management fee does not have any relation to the amount of GRT registered in India, as there were no vessels registered in India. Further, the appointment of the assessee as managing owner by the two companies is in Denmark and it is registered under Danish laws and all the activities of the assessee firm and the payments are done in Denmark and, therefore, no part thereof can be held to be deemed to accrue or arise in India. On the applicability of provisions of section 9(1)(i), the assessee submitted that the freight income arises to Svendborg and 1912 out of contract of carriage from trade with India and, therefore, deeming such freight income to accrue or arise in India will not apply. Further, such fees cannot be taxed under section 9(1)(vii) as there is no business or profession carried out in India by the assessee. The payment is being made by one non–resident to other non–resident being entity of Denmark. Lastly, it was submitted that the assessee does not have a P.E. in India, therefore, the same cannot be taxed either as business income or as fees for technical services in India under the respective Article of the DTAA between India and Denmark.

14. The learned Commissioner (Appeals), however, did not accept the assessee's contention and observed that as a managing owner, the assessee is required to represent Svendborg and 1912 in all the matters and exercise any authority vested in the capacity of managing owner which may bind these two companies. The fees received by the assessee would thus, qualify for fees for technical services, as the same have been received by the assessee firm for rendering managerial services for the purpose of earning freight income from India. Regarding taxability of management fees under the provisions of DTAA, he agreed with the contention of the Assessing Officer that the said DTAA is not applicable in the case of the assessee as the assessee being a partnership firm, which is not liable to tax in Denmark. In the absence of the applicability of DTAA, the taxability of management fees receivable or received by the assessee pertaining to Indian operations would, therefore, be determined under the provisions of Indian Income Tax Act only. Hence, he held that the said payment is taxable under section 9(1)(vii). He further observed that since the assessee could not provide for the quantification of the figures pertaining to Indian operations, he directed the Assessing Officer to determine the amount of fees/reimbursement received from Svendborg and 1912 for earning freight income in India and such income so ascertained would be liable for tax on net income basis under the provisions of section 115A r/w 44D of the Act.

15. On the issue of taxability of the amount paid by MIPL and MLIL towards their sharing of the cost for I.T. Global Online System, the assessee reiterated the same submissions. However, the learned Commissioner (Appeals) directed the Assessing Officer to consider the taxability of these payments in the assessment of Svendborg and 1912 and not in the hands of the assessee.

16. Regarding levy of interest under section 234B, the learned Commissioner (Appeals) agreed with the contention of the assessee that it was not liable for payment of advance tax after following various decisions cited by the assessee and directed the Assessing Officer to delete the levy of such interest.

17. Regarding assessee's objection of levy of interest under section 234D, the learned Commissioner (Appeals) rejected the assessee's contention and upheld the levy of interest under section 234D on the ground that the provisions of the said section does not specify that the period of interest is to start from 1st June 2003 only.

18. The learned Departmental Representative, on behalf of the Revenue, submitted that the assessee A.P. Moller, is a partnership firm which has been filing the return of income in India for the last several years and has been offering tax on shipping income in the earlier years. Not only this, even the Permanent Account Number is allotted to the assessee and has been assessed in the same name on the basis of disclosure of the income given in the return of income. In support of his contention, he also referred to the copies of return of income filed by the assessee. Once the assessee has been offering the shipping income for taxation in India in the earlier years and suddenly in subsequent years it started claiming that the shipping income now belongs to two companies, cannot be upheld. The reasons setforth by the Assessing Officer in the assessment order clearly brings out this fact and insomuch so, the entire gross receipts from the shipping business has been shown in the assessee's name only. He further submitted that even if the firm was filing return of income in the capacity of managing owner for the two companies, then also, it does not make any difference as the assessee has been actually managing the shipping business and all the day–to–day decisions and management of the shipping business is being carried out by the assessee and, therefore, the freight belongs to the assessee firm only. The Assessing Officer has rightly taxed the income in the status of the partnership firm in the assessment order. In the return of income also, there is no such declaration that the assessee has been filing the return of income as managing owner of the two companies and in fact, the A.P. Moller firm has itself represented as "assessee" before the income tax authorities in India. He thus, strongly relied upon the various observations and the reasoning given by the Assessing Officer in the assessment order.

19. On the issue of taxability of payments received from the two companies in India namely, MIPL and MLIL towards cost of software development by the assessee for global telecommunication facilities and for the use of its global shipping business the learned Departmental Representative submitted that these payments are in the nature of "fees for technical services" or "royalty" for the reason that firstly, the payment is made towards usage of software and secondly, these two companies have also deducted tax @ 20% on the payment made to the assessee, therefore, the same has rightly been treated as fees for technical services within the meaning of section 9(1)(vii) by the Assessing Officer, which is taxable in India. On this issue also, he strongly relied upon the order of the Assessing Officer.

20. The learned Senior Counsel, Mr. Porus Kaka, on behalf of the assessee, first of all, explained the true nature of relationship between the assessee firm and the two companies and also the activities carried out by these two companies, and the function and the role of the assessee firm. He submitted that the assessee firm is the managing owner of these two companies which are carrying on the operation of ships in the international traffic at global level. Insofar as the freight receipt and income from shipping business is concerned, the same belongs to the two companies viz. Svendborg and 1912. The assessee firm has never claimed, either in the earlier years or in the subsequent years that the shipping income belongs to it. It was the two companies which have been showing the shipping income on which they have been paying taxes as per the earlier provisions of the treaty. He submitted that as per the Danish laws, the managing owner can represent the company in all the matters for managing the companies' business and also has the legal authority to bind these companies contractually and act as a representative in legal matters including before the tax authorities. A distinction has to be made between the managing owner of the company and the company itself. What the managing owner is remunerated has been clearly given in the Article of Association, which, in the present case, is based on GRT of the ships and not based on freights. The income from the operation of shipping business actually accrues to these two companies and at no point of time, this firm is entitled for any kind of shipping income. Before the Assessing Officer, in all the years, the assessee have been filing at the beginning of every financial year an application for obtaining annual double income tax relief/port clearance certificate. Along with such application, the assessee has been enclosing, agency agreement entered between the assessee firm on behalf of two limited companies and MLIL, which is an agent in India, bills of lading which are issued in the name of the two listed companies as owners of the vessels, tax residency certificate issued by Danish tax authorities relating to these two companies and other documents showing that shipping income and the vessels belong to the two companies and not the assessee firm. In the earlier years as well as in the subsequent years, the status of the assessee has been shown as the managing owner and the fact that shipping income belongs to these two companies have been accepted at the stage of the assessment itself. In support of his contention, he referred to compilation of various assessment orders right from the assessment years 2004–05 to 2010–11. He specifically drew our attention to the assessment order for the assessment year 2008– 09, wherein the Assessing Officer has categorically held that income from shipping business belongs to the companies and has also given relief under Article–9 of the DTAA. In the other years also, the Assessing Officer has given the relief under DTAA on shipping income. There never have been dispute or quarrel about the shipping income being non–taxable in India under Article–9. Even on the application filed for DIT relief, the assessee has received the certificate for claiming benefit under DTAA of the shipping income by the Assessing Officer. He drew our specific attention to the various documents filed before the Assessing Officer from where he pointed out that, it is clearly borne out that the main shipping business is carried out by these two companies whereas the assessee is only the managing owner and these companies in all matters would be represented by the managing owner only. It was for this reason, the return of income all through out has been filed under the name of the assessee firm, albeit, the shipping income was always meant to belong to these two corporate companies. This is also evident from the fact that in all the assessment orders for the earlier years as well as subsequent years, the status has been shown as non–resident company. Thus, the action of the Assessing Officer for these three years i.e., assessment years 2001–02, 2002–03 and 2003–04, for treating the shipping income in the hands of the assessee firm is not correct. Thus, the findings of the learned Commissioner (Appeals) after appreciating the entire facts and material placed on record that the income from operation of ships accrues to these companies only and not to the assessee, is legally and factually correct which should be upheld.

21. Regarding taxability of the payment towards usage of software for the purpose of global telecommunication facility and for the usage of global shipping business, from MIPL and MLIL as fees for technical services in the hands of the assessee, he submitted that neither it is fees for technical services nor any kind of taxable receipt in the hands of the assessee firm. The Svendborg and 1912 have developed a global telecommunication facility and a system portfolio for management and operations of the international shipping business. This software system comprises of booking and communication software, hardware and data communication network to co– ordinate cargos and for other container services, which is part of shipping business only. These software have been used by all the group entities and the agents including in India for the shipping operations and the payment have been made towards the cost of software which has been allocated to all such agents/companies all over the world. This recovery of the cost, neither can be termed as "Fees for Technical Services" nor in the nature of chargeable income in the hands of the assessee. The learned Commissioner (Appeals) has held that these amounts should be examined in the hands of the two companies. However, in case of these two companies, the Tribunal in the assessment years 2001–02 to 2003–04 in ITA no.2083– 2085/Mum./2009, has decided this issue in favour of the assessee after detail discussion and reasoning. This order of the Tribunal has been followed successively up to the assessment year 2007–08. The relevant observations made by the Tribunal were also highlighted before us. Thus, this issue, he submitted that, is squarely covered in favour of the assessee.

22. In the rejoinder, the learned Departmental Representative submitted that if in the earlier years, the Assessing Officer has assessed the income in the status of company, then it was an mistake which can be rectified under section 292B. He submitted that the confusion was always is on the part of the assessee, because the same assessee has been claiming to be a partnership firm and the return of income is being filed as managing owner of the companies in the representative capacity showing the status of a corporate company. The income is being shown under the name of the assessee firm and there is no such clarification in the return of income. This is evident from the copies of return of income filed by the assessee, a copy of which was also provided by the assessee's counsel. He also reiterated that once the return of income has been filed by the assessee in the earlier years and the assessee has been paying taxes on the same shipping income then how in the subsequent years on same facts it can be said that income belongs to the companies and not to the assessee firm.

23. Now coming to the issue whether the assessee firm is entitled to the benefit of the Indian Denmark DTAA and whether the management fees received by the assessee firm is chargeable to tax in India or not, which is the subject matter of the assessee's appeal before us. The learned Senior Counsel, Mr. Porus Kaka, submitted that, first of all, the Assessing Officer has denied the benefit of the DTAA on the ground that the assessee is a partnership firm which is transparent entity under the Danish tax laws and, therefore, the relief provided in the DTAA to the tax resident will not be available to the assessee firm. In this regard, he submitted that under the Danish laws, even though the partnership firm is not taxable, however, the income of the partnership firm is fully taxable in the hands of the partners and, therefore, the treaty benefit cannot be denied. On this aspect, he submitted that the same is squarely covered by the decision of the Tribunal in Linklaters LLP v. ITO, [2012] 132 TTJ (Mum.) 20, wherein, the Tribunal, after analyzing the various aspects of the Articles, commentaries and judicial decisions have reached to the conclusion that, where the partners are fully taxable on the income of the partnership, then the treaty benefit cannot be denied. On the issue whether the management fees received by the assessee firm from these two companies are chargeable to tax in India or not, he submitted that firstly, the entire shipping operation of these two companies is carried out from Denmark and the assessee as a managing owner manages the entire affairs and business activities from Denmark only; secondly, the entire payment is made by these two companies to the assessee firm in Denmark; and lastly, the management fees or commission does not depend upon the freight receipts but on the basis of GRT, which is the carrying capacity of the ships per annum and, therefore, the payment does not have any co–relation with the receipts from the ships from any of the country including that of India. There is no management of any Indian company by the assessee firm and it is also very difficult to apportion any income to the assessee firm from the Indian operation. The agent MIPL books the freight for shipping company in India and manages the affair of the freight receipts for India. The assessee firm has nothing to do with MIPL. He also relied upon certain old decision on the concept of managing owner/agency which was their in India in pre and post independence era wherein, the Courts have held that the taxability of managing agency is to be seen where the accounts are maintained and effective management is carried out. The taxability of managing agency cannot be governed by the place of business but from the place where business is managed and profits are calculated. The decisions which were relied upon by the learned Sr. Counsel, were, Salt & Industries Agencies Ltd. v. CIT, [1950] 18 ITR 58 (Bom.); K.R.M.T.T. Thiagaraja Chetty & CO. v. CIT, [1953] 24 ITR 535 (SC); and Shoorji Vallabhdas v. CIT, [1960] 39 ITR 775 (SC). The issue involved in Shoorji Vallabhdas (supra) was, whether the assessee firm which was resident of British India and was the managing agent of the two shipping companies which were also resident in British India and the business of these two companies was to carry cargo on other parts of India which were the native States (i.e., outside British India), the income received from these States can be said to have accrued or arisen in British India, when the part of commission for managing the ships pertained to the native States. The Hon'ble Supreme Court affirming the decision of the Bombay High Court held that when the assessee has performed all the services in British India then the commission also which it earned in respect of the two shipping companies for the business carried out outside British India, will accrue and arise in British India only.

Thus, he submitted that in view of these decisions, it can be very well inferred that the income of the managing owner will only be taxed where the affairs of the companies are being managed.

24. He further elaborated that whatever services are performed by the assessee in relation to India, it is neither managerial service nor any consultancy or any technical services. In fact, all the shipping business of collection of freight receipts are being done by the agents of the two companies and not by the assessee firm. Role of the assessee firm is entirely at global level and the entire control is from Denmark only. Article–13 of the DTAA, deals with royalty and fees for technical services which provides that royalty and fees for technical services arising in a contracting State and paid to a resident of other contracting State, may be taxed in that other State. However, Para–6 of Article–13 provides that such royalty and fees for technical services are chargeable to tax if there is a P.E. or fixed base in connection with which the liability to pay the royalty or fees for technical services has been incurred and such royalty or FTS are borne by the P.E. or fixed base. The payment should be in connection with the P.E. and must be by the P.E. In the present case, the assessee neither has any P.E. nor has any fixed base in India. The payment has been made by one non–resident to other non–resident in connection with managerial services rendered outside India. The payment is nothing to do with the Indian agent i.e., MIPL. There has to have some economic link of the assessee with the P.E. and such a payment must be deductible in the hands of the P.E. In this case, all these conditions are completely non–existent and, therefore, within the provisions of DTAA, such a payment cannot be held to be either fees for technical services or royalty. In support of his contention, he strongly relied upon the decision of Mumbai Bench of the Tribunal in Set Satellite Singapore Pte. Ltd. v. ADIT, [2010] 132 TTJ 459 (Mum.). He further submitted that even otherwise also within the meaning of section 9(1)(vii), the payment made by these companies to the assessee do not fall within the ambit of managerial, technical or consultancy services because no managerial service has arisen or accrued directly or indirectly to the assessee or from any business connection in India or through any property in India. No service has been utilized in business or profession carried on in India for the purpose of earning any income in India. The assessee's entire remuneration is based on GRT of the ships per annum which is calculated on the basis of carrying capacity of the ship and has nothing to do with the freight receipts earned in India or elsewhere.

25. Regarding the reasoning given by the learned Commissioner (Appeals) as well as the Assessing Officer that benefit of Indo Denmark DTAA will not be applicable to the assessee as the assessee is a partnership firm and it is a transparent entity in the Denmark, he submitted that the partnership firm is a taxable in respect of its profit not in its own right but in the hands of the partner as per the Danish laws and, therefore, the treaty benefits cannot be declined as long as the entire income of the partnership firm is taxed in the resident country i.e., Denmark. This issue has been discussed threadbare in the decision of a co–ordinate bench in Linklaters LLP (supra) wherein the Tribunal, after discussing the various commentaries, relevant articles, various decisions of foreign Courts have come to the conclusion that even in case of a partnership firm where the income of the partnership is taxable in the hands of the partner then also the benefit of the treaty is to be given to such partnership firm. He thus strongly relied upon the decision in Linklaters LLP (supra) and also clarified that insofar as this part of the decision is concerned, the same has not been overruled or reversed by the Special Bench order or by the High Court.

26. Thus, he concluded that firstly the shipping income belongs to the two companies and the assessee is merely a representative in the capacity of managing owner and, therefore, no such income accrues to the assessee firm; secondly, the payment made by the Indian agents MIPL and MLIL on account of cost sharing of the software is not taxable either in the hands of the assessee firm or in the hands of the two companies, as the Tribunal in the case of the company has decided this issue in favour of the assessee; thirdly, the management fees receivable by the assessee firm is not chargeable to tax in India by virtue of Article 13(6) of the DTAA and lastly, the assessee firm is entitled for relief under the India Denmark DTAA.

27. Per contra, the learned Departmental Representative submitted that the assessee is managing the entire business of these two companies globally and it is a global advisor in all respects. Such an advise extends to the business carried out in India also. Thus, not only the commission/remuneration on managerial services are taxable in India by virtue of the provisions of section 9(1)(vii) but also under Article 13, because MIPL has some economic connection with the assessee also. Regarding the decision in Linklaters LLP (supra), he submitted that the said decision was rendered in the context of U.K. treaty, wherein there was a special clause which is not applicable in the Denmark treaty. In the Denmark, partnership firm is not a taxable entity and, therefore, benefit of treaty cannot be extended to the assessee firm. In support of his contention, he strongly relied upon the AAR ruling in case of Schelleaverg Wittmer A.R. no.1029 of 2010, order dated 27th August 2012. He submitted that in this case, the AAR, while interpreting similar treaty with Switzerland held that once the partnership firm is not taxable entity under Switzerland, then the benefit of the treaty cannot be given. Moreover, he submitted that the MIPL is the subsidiary of A.P. Mollar group and, therefore, there is a strong economic connection with the assessee firm, two companies (Svendborg and 1912) and MIPL. Even if the managerial services are rendered in the Denmark then also it pertains for entire global business and any strategy made at global level, involves Indian operation or business in India also. Thus, he strongly relied upon the findings given by the learned Commissioner (Appeals) on this issue.

28. We have carefully considered the entire gamut of facts and material placed on record with reference to the rival contentions putforth by the parties and also the findings of the Assessing Officer as well as the learned Commissioner (Appeals). In the present case, the assessee, A.P. Moller is a partnership firm existing under the laws of Denmark and is also the resident of Denmark. As per the Memorandum of Articles of Association of the two Danish companies namely, Svendborg and 1912, which are public limited companies incorporated and registered under Danish law, the assessee has been appointed as the managing owner of these two companies. The main activities of these two companies are shipping operations in the international traffic at the global level and the effective place of management is in Denmark. All the shipping business and the vessels belong to these two companies, however, management of the entire business operation is being carried out by the managing owner as a representative of these two companies from Denmark. In that capacity, it represents these two companies on all the business spheres and day–to–day operations of these companies at global level. For rendering these services, the assessee firm is entitled to charge fee which is calculated on the basis of Gross Registered Tonnage (GRT) of the ships per annum which is nothing but carrying capacity of the ships which are owned and deployed by these two companies. It has been brought on record that freight receipts from the shipping operation have nothing to do with the remuneration/fees or commission paid to the assessee firm. The assessee firm has been filing return of income of these companies and showing the gross receipts form the shipping income on which benefit of non taxation has been claimed under Article–9 of the India Denmark DTAA. Based on the arguments and the grounds of appeal raised by the rival parties, following issues are culled out for our adjudication:–

Decision on the first issue:–

29. It is seen from the material available on record that the assessee firm on behalf of these companies have been making applications from time to time at the beginning of every financial year for obtaining annual double income tax relief/port clearance certificate. Along with the said application, detail information and documents have been filed which goes to show that firstly, the bills of lading have been issued in the name of the listed companies i.e., Svendborg and 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 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 gross receipts from shipping business of these two companies from India and the same have been claimed as not liable for tax in India and accordingly, "Nil" income is offered from shipping business. It has also been brought on record before us that in the subsequent years i.e., from the assessment year 2004–05 to the assessment year 2010–11, the income from shipping business has been held to be non–taxable in India and the benefit of the treaty has been given. In the year under appeal before us, the Assessing Officer held that this shipping income belongs to the assessee 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 return of income has been shown under the name of the assessee only, therefore, the assessee is a beneficial owner of the freight income in India. He further held that since the assessee is transparent entity under the Danish laws i.e., the partnership firm is treated as non–taxable entity, therefore, benefit of DTAA cannot be given to the assessee. Accordingly, he has taxed the shipping income in the hands of the assessee firm. The learned Commissioner (Appeals), partly accepted by the assessee's 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, directed the Assessing Officer to examine the taxability of the freight receipts in the hands of these two companies. However, he held that the management fees paid by these two companies to the assessee firm are liable 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 inasmuch as all the shipping income can be said to belong to the assessee 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 which it is remunerated as per the relevant terms agreed between the parties. In such a situation, it cannot 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/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 capacity, 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 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 representative of these two companies. That is the reason why all through out such a shipping income has been held to be non–taxable by the Department 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 these 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–resident corporate company and not as a partnership firm. From the assessment year 2004–05, two sets of returns of income are being filed, one by the assessee firm on managing commission/fees which is being claimed as non–taxable and second return of income in the name of these two companies which has now been merged and referred to as A.P. Moller Maersk A/S showing shipping income. This status of assessment is being continued till present. Once the Department itself has accepted the assessee firm as a representative of these two companies and has been giving treaty benefit and treating the shipping income belonging to these two companies year– after–year, then in this year, exception cannot be carved out so as to hold that the shipping income belongs to the assessee firm. Thus, we fully agree with all the 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 the return of income as well as managing the entire affairs. Thus, this issue stands decided in favour of the assessee.

Decision on second issue:–
31. The Assessing Officer has denied the benefit of the Indo–Denmark treaty to the assessee firm which has also been confirmed by the learned Commissioner (Appeals), on the ground that the assessee firm is transparent entity i.e., not liable for tax in Denmark and, therefore, by virtue of Article–3 and 4, the benefit of treaty would not be available. Under the Indo Denmark DTAA, Article–3(1)(e) defines the term "Person" to include an individual, a company and any other entity which is treated as taxable units under the taxation laws in force in the respective contracting States. Article– 4(1), the term "Resident" of a contracting State means any person who, under the laws of that the State is liable to tax therein by reason of his domicile resident, place of management or any other criterion of similar nature. Thus, a person who is a resident of contracting State is entitled to treaty benefit if an income of such a person is subjected to taxation of the State of resident. As per the Danish laws, the partnership firm as such is not taxable, however, the entire income of the partnership firm is taxed in the hands of the partner and, therefore, the entire income earned by the partnership firm can be said to be fully taxable in the resident State. The OECD commentary which has been referred by the Assessing Officer, clearly envisages that:–

"8.4 Where a State disregards a partnership for tax purposes and treats it as fiscally transparent, taxing the partners on their share of the partnership income, the partnership itself is not liable to tax and may not, therefore, be considered to be a resident of that State. In such a case, since the income of the partnership "flows through" to the partners under the domestic law of that State, the partners are the persons who are liable to tax on that income and are thus the appropriate persons to claim the benefits of the conventions concluded by the States of which they are residents. This latter result will be achieved even if, under the domestic law of the State of source, the income is attributed to a partnership which is treated as a separate taxable entity. For States which could not agree with this interpretation of the Article, it would be possible to provide for this result in a special provision which would avoid the resulting potential double taxation where the income of the partnership is differently allocated by the two States."

Thus, the OECD commentary stipulates that when the income of the partnership flows through the partners under domestic law, the partners who are liable to tax on that income can claim to the benefits of the treaty. As long as income of the partnership is taxed albeit in the hands of the partners in the resident State, the treaty benefit cannot be denied. The basic purpose is whether the entire income is taxable in the resident State or not. The mode of taxability whether in the hands of partnership or the partners cannot be given much credence, so long as the income is fully taxed in the resident State. There is another aspect which strengthens the above proposition, if the income of the partnership firm is fully taxed in the other contracting State (say, India) and the same income is also taxed in the hands of the partners in the resident State (say, Denmark), then it will result into double taxation. This cannot be the mandate of the treaty, specifically when the shipping income is to be taxed entirely in the resident State (i.e., place of effective management). Without going deep into analyzing this issue, we find that this aspect of the matter has been elaborately explained and analysed by the co–ordinate bench of the Tribunal, Mumbai, in Linklaters LLP (supra), wherein the learned Accountant Member, speaking on behalf of the Bench, has not only considered the various commentaries, international views but also various Court decisions on this point to come to the following conclusion:–

"71. Viewed in the light of the detailed analysis above, in our considered view, it is the fact of taxability of entire income of the person in the residence State, rather than the mode of taxability there, which should govern whether or not the source country should extend treaty entitlement with the contracting state in which that person has fiscal domicile. In effect thus, even when a partnership firm is taxable in respect of its profits not in its own right but in the hands of the partners, as long as entire income of the partnership firm is taxed in the residence country, treaty benefits cannot be declined."

32. Thus, even though the partnership firm is a transparent entity but once its income and profit is taxed in the hands of the partners, the treaty benefit should be extended to the partners. Accordingly, we respectfully following the reasoning and the conclusion drawn by the co–ordinate bench in Linklaters LLP (supra), we hold that the assessee firm is entitled for the treaty benefit and if any such income of the assessee is not liable for tax under the Articles of the treaty, the benefit has to be given. Once the resident State has a right to tax the income of the partnership firm irrespective of the fact that the same is being taxed from the partners, then it is suffice that it has to be treated as fiscal domicile of that State within Article–4.

Decision on third issue:–

33. The learned Commissioner (Appeals), after directing the 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/non– taxability of the royalty and fees for technical services. Article–13(6) carves out an exception that the royalty and fees for technical services shall be deemed to arise in a contracting State when such non–resident has a P.E. or fixed base in the other contracting State and the liability to pay royalty or fees for technical services 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 portion of Para–6 of Article–13 is reproduced hereunder for the sake of ready reference:–

"13(6) Royalties and fees for technical services shall be deemed to arise in a Contracting State when the payer is that State itself, a political sub-division, a local authority or a resident of that State. Where, however, the person paying their royalties or fees for the technical services, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the liability to pay the royalties or fees for technical 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 deemed to arise in the State in which the permanent establishment or fixed base is situated."

34. Thus, for taxing the royalty and fees for technical services in case of a non–resident under the Indo Denmark DTAA, the basic condition is that there has to be a P.E. or fixed base in connection 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–resident. 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 non–resident company i.e., two Danish companies to another non–resident i.e., a partnership firm established under the laws of Denmark. Once the payment has been made from one non– resident to another non–resident in connection with the entire global business in Denmark 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 assessee. Otherwise also, by virtue of Article–13(6), such a payment cannot be taxed in India, because it has nothing to do with the MIPL as the main criteria that such a payment has 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 P.E. 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.

Decision on forth issue:–

35. The facts regarding this issue has already been discussed in detail in the forgoing paragraph that these payments were on account of sharing of the cost of I.T. Global Online System and Software which is mainly used for international shipping business of Svendborg and 1912. Out of the total charges paid by these two companies, the cost is shared by all the group entities/agents globally and the same is recovered from them. The MIPL and MLIL have also shared the cost of these Global Online System and Software which is used for shipping business only. This issue has already been decided by the Tribunal in case of these two companies as have been referred and relied upon by the learned Senior Counsel. We have also decided a similar matter in DDIT v. A.P. Moller, ITA no.1807/Mum./2012, vide order dated 8th November 2013, wherein the earlier decision of the Tribunal has been followed in the following manner:–

"10. We have heard the rival contention, perused the relevant findings of the authorities below and the material available on record. It is an undisputed fact that the assessee is wholly engaged in the business of operation of ships in the international traffic and its effective place of management is at Denmark. All its profits from shipping business is taxed in Denmark only. In the return of income, the gross receipts earned from operations of ships has been claimed as non–taxable under Article–9(1) of the Indo Denmark DTAA and the same has been allowed so by the Assessing Officer in his order dated 18th January 2011. He has computed "Nil" income under the head "Shipping Business". The main controversy is with regard to the treatment of amount of ' 66,04,349 recovered from MIPL towards software usage which has been developed and maintained by the assessee. The Assessing Officer has treated the said payment in the nature of "royalty" or "FTS" under the provisions of the Act and also under the DTAA. As per the material on record, the software developed by the assessee is based on ERP system which is the software solution called FACT for tracking and recording various transactions. This software enables the various agents of the assessee all over the world (which have also been termed as "group companies" in the impugned orders) in the container inland service which are part of the shipping operations only. This software is used by CIS division, which handles tracking of the containers, accounting and integrated billing of freight receipts, warehouse functionality, etc. which in turn, helps the assessee 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 over all shipping operations so as to hold it as rendering of any independent technical services. Article–9(1) of Indo Denmark DTAA provides that the profits derived from operations of the ships in international traffic shall be taxable at a place where the effective management of the enterprise is situated and such a profit is exempt from tax in the other contracting State. The term "Profit" under this Article has to be construed more broadly so as to include not only the activities directly connected with the shipping operations but also to include income from activities which facilitates or support such operation as well as any ancillary activities. The OECD commentary on Article–8 (similar to Article–9 of the Indo– Denmark DTAA) also expresses the same view. If any activity is directly linked with carrying on shipping operations and results into some kind of an income, then it has to be treated as a part of such shipping operations only. This aspect of the matter has been discussed at length by the Tribunal in assessee's own case for the assessment years 2001–02 to 2003–04 in ITA no.2083 to 2085/Mum./2009, wherein this issue has been analysed in detail from Para–24 to 28 which, for the sake of ready reference is reproduced herein below:–

"The OECD commentary on Article 8 relating to taxation of income from operation of ships on international traffic is identical worded to Article 9(1) of DTAA between India and Denmark. OECD in its commentary on Article 8 paragraph 1 has explained expression profit of an enterprise from the operation of ships in international traffic. It has been opined in that commentary 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 transport that would have some 01 Its passengers or cargo transported internationally by ships or aircraft operated by other enterprises, e.g. under code-sharing or slot-chartering arrangements or to take advantage of an earlier sailing. Another example would be that of an airline company that operates a bus service connecting a town with its airport primarily to provide access to and from that airport to the passengers of its international flights.

7. A further example would be that of an enterprise that transports passengers or cargo by ships or aircraft operated in international traffic which undertakes to have those passengers or that cargo picked up in the country where the transport originates or transported or delivered in the country of destination by any mode of inland transportation operated by other enterprises. In such a case, any profits derived by the first enterprise from arranging such transportation by other enterprises are covered by the paragraph even though the profits derived by the other enterprises that provide such inland transportation would not be."

27. Eminent Author Klaus Vogel on double taxation conventions, Third Edition at page 484 while dealing with article 8 of the OECD model convention has expressed the following opinion on the issue:–

"In addition to the transportation of passengers and freight typically included in the term operation of ships or aircraft, Article 8 extends to cover all activities connected with such transportation services. There are primarily preparatory and auxiliary activities related to transportation, such as the services of agencies selling passage tickets on behalf of the enterprise concerned or on behalf of third enterprises. Therefore, profits from the activities of legally dependent agencies of shipping or air transport enterprises, together with any other profits made by them, are taxable at the place of management."

28. The Hon'ble Delhi High Court in the case of DIT v. K. Royal Dutch Airline, 178 Taxman 291 (Del) had to dealt with the case where the assessee who was tax resident of Netherlands carrying on business of operation of aircraft in international traffic, was given right to use a shed in cargo complex at Bombay for use as a warehouse and office. This license was granted by Airport Authority of India (AAI). The Netherlands company entered into an agreement with an agent in India for handling cargo on its behalf. The Netherlands company allowed the agent to use premises given on license to it by AAI. For allowing such a use, Netherlands company .recovered rent from the agent. The Tribunal held that rent received was also income from operation of aircraft in international traffic. The Hon'ble Delhi High Court upheld the decision of the Tribunal. We are of the view that the aforesaid decision fully supports the plea of the assessee before us. We are of the view that receipt in question by the assessee would be profits derived from operation of ships in international traffic and therefore not taxable in India in view of the provisions of Article 9(1) of the DTAA. We have already explained the nature of receipt by the assessee from its agent in India. The activity of providing communicating facility is only to facilitate assessee's international traffic operations. These activities are directly connected with such operations. They can be said to be ancillary to such operations. They can also be said to be preparatory and auxiliary activity related to transportation and would therefore be covered by the provisions of Article 9(1) of DTAA. We therefore hold that the receipt in question cannot be brought to tax in India. In view of the above conclusion, we are not dealing with the issue as to whether receipt can be considered as business profit and if so considered, the same cannot be taxed in India because the assessee does not have PE in India."

11. Once in assessee's own case it has been held that the cost recovered from the various agents towards usage of software are directly connected with the shipping operations then the same has to be treated as covered under Article–9(1) and, hence, it cannot be taxed in India. Thus, respectfully following the judicial precedence, we also held that any kind of receipts recovered by way of software usage/development cost from MIPL cannot be taxed in India under Article– 9(1) of DTAA.

12. Further, this receipt also cannot be taxed as fees for technical services or royalty independently because in the present case, the assessee is not rendering any service of managerial, technical or consultancy to its agent or group entities by allowing its group companies to be usage of software. The assessee's main income is only from freight receipt received from operations of ships and it is not providing any technical service to them. It has developed a software for running of shipping business globally in a more effective and efficient manner and access of such software has been provided to various agents/group companies all over the world who are using this software for facilitating the freight receipts from shipping for which software they are reimbursing the cost to the assessee without any mark–up. Such a recovery of a cost cannot be held to be fees for technical services. This issue again has come up for consideration before the Tribunal in assessee's own case right from the assessment year 2001–02 to 2007–08 wherein the Tribunal has very categorically held that such payments received by the assessee towards recovery of cost is not fees for technical services. Even in the latest judgment in for the assessment year 2006–07 and 2007–08, the Tribunal, vide order dated 28th August 2013, have held that such payments are not in the nature of FTS after following the earlier year's decision. Thus, the finding of the learned Commissioner (Appeals) as reproduced above are in consonance with the decisions given by the Tribunal in assessee's own case for the earlier years and, therefore, as a judicial precedence, we do not find any reason to deviate from such a findings and conclusions. Accordingly, the ground raised by the Revenue is treated as dismissed."

36. Thus, the payment made by the MIPL and MLIL can neither be taxed as fees for technical services nor as royalty. Thus, the 4th issue also stands decided in favour of the assessee.

37. The Revenue, in its appeal in ITA no.5825/Mum./2006, for the assessment year 1997–98, has also challenged levy of interest u/s 234B.

38. After hearing both the parties, we find that this issue stands covered in assessee's own case in ITA no.375/Mum./2011 dated 20th July 2011 and also by the decision of Bombay High Court in DIT (IT) v. NGC Network Asia LLC, [2009] 313 ITR 187 (Bom.). In any case, we have already held that no part of the income is taxable in the hands of the assessee firm and, therefore, question of levy of interest under section 234B does not arise. The ground thus raised by the Revenue is treated as dismissed.

39. In assessee in its appeal in ITA no.5392/Mum./2006, for the assessment year 1997–98, has raised one more ground challenging the levy of interest under section 234D of the Act.

40. It has been admitted by both the parties that the Hon'ble Supreme Court in its recent decision in CIT v. Reliance Energy Ltd., vide order 30th September 2013, has held that section 234D cannot be applied retrospectively. Accordingly, we direct the Assessing Officer to consider and follow the decision of the Hon'ble Supreme Court at the time of giving effect to this order. Thus, all the grounds raised by the assessee are treated as allowed, whereas all the grounds raised by the Department stand dismissed.

41. In respect of the assessment years 1997–98 to 2000–01, the learned Departmental Representative submitted that the Assessing Officer has re– opened the case on the basis of finding given in the assessment year 2001–02 wherein it has been held that the entire shipping income belongs to the partnership firm i.e., the assessee and the benefit of DTAA cannot be given and also the management fee is also to be taxed as fee for technical services. His only submission was that whatever tax which has been paid in the return of income for the assessment year 1997–98 to 2000–01, the same now cannot be held to be non–taxable. To this, the learned Senior Counsel submitted that insofar as the tax paid on the returned income, the same has not been disputed by the assessee. Otherwise, both the parties agreed that, on merits, the issues involved are common in all the years under appeal.

42. On a perusal of the various grounds raised in all the appeals and cross objections, it is seen that in all there are nine issues raised. The first issue which is common in all the years under appeal in Revenue's appeals is whether the learned Commissioner (Appeals) has erred in law and facts in holding that freight income is assessable in the hands of the two companies Svendborg and 1912 and not in the hands of the assessee firm.

43. This issue has been raised by the Revenue in ground no.1, 2, 3 and 4 in ITA no.5825/Mum./2006, for the assessment year 1997–98; ground no.1 and 2 in ITA no.2477/Mum./2008, for the assessment year 1998–99; ground no.1, 2, 3 and 4 in ITA no.5826/Mum./2008, for the assessment year 1999– 2000, ground no.1 and 2 in ITA no.2478/Mum./2008, for the assessment year 2000–01; ground no.1 and 2 in ITA no.3019/Mum./2005 and ITA no.2478/ Mum./2008, for the assessment year 2001–02, ground no.1, 2 and 3 in ITA no.5032/Mum./2006, for the assessment year 2002–03 and ground no.1, 2 and 3 in ITA no.3632/Mum./2007, for the assessment year 2003–04. All these grounds are treated as dismissed in view of our findings given in ITA no.3019/Mum./2005.

44. The second issue, raised by the Revenue in its appeals for all the year under assessment, is whether the learned Commissioner (Appeals) has erred in law and in facts in holding that the I.T. system cost is assessable in the hands of the two companies viz. Svendborg and 1912.

45. The aforesaid issue has been raised vide ground no.3 in ITA no.3019/Mum./ 2005, ITA No.2479/Mum./2008, Cross objection no.351/Mum./2005; Cross objection no.136/Mum./2005, for the assessment year 2001–02, ground no.4 and 5 in ITA no.3032/Mum./2006, for the assessment year 2002–03, ground no.2 in cross objection no.25/Mum./2007, for the assessment year 2002–03, ground no.4 and 5 in ITA no.3632/Mum./2007, for the assessment year 2003–04. In view of our decision given above in the forgoing paragraphs, this issue is decided against the Department and in favour of the assessee. Therefore, all the grounds raised by the Revenue are treated as dismissed whereas the grounds raised in cross objection by the assessee are treated as allowed.

46. The third issue raised by the assessee is, whether the assessee firm is entitled to the benefit of DTAA between India and Denmark. This ground has been raised by the assessee in ground no.4 and 5 in ITA no.5392/Mum./ 2006, for the assessment year 1997–98, ground no.1, in C.O. no.60/Mum./ 2007, for the assessment year 1997–98, ground no.4 and 5 in ITA no.1968/Mum./2008, for the assessment year 1998–99, ground no.1 in C.O. no.134/Mum./2008, ground no.4 and 5 in ITA no.5393/Mum./2006 for the assessment year 1999–2000, ground no.1 in C.O. no.61/Mum./2007, ground no.4 and 5 in ITA no.1970/Mum./ 2008, for the assessment year 2000–01, ground no.1 in C.O. no.135/Mum./ 2008, for the assessment year 2000–01, in ground no.2, in ITA no.2786/ Mum./2005, for the assessment year 2001– 02, ground no.1, in C.O. no.351/Mum./2005, for the assessment year 2001– 02, in ground no.4 and 5 in ITA no.1972/Mum./2008, for the assessment year 2001–02, ground no.1, in C.O. no.136/Mum./2005, for the assessment year 2001–02, ground no.3 and 4 in ITA no.4991/Mum./2006, for the assessment year 2002–03, ground no.1 in C.O. no.25/Mum./2007, ground no.3 and 4 in ITA no.2953/Mum./ 2007, for the assessment year 2003–04 and ground no.1 in C.O. no.221/ Mum./2007, for the assessment year 2003– 04. In view of our findings given in ITA no.3019/Mum./2005, the grounds raised by the assessee are treated as allowed whereas the grounds raised by the Revenue in its appeals are treated as dismissed.

47. The fourth issue is whether the management fee receivable by the assessee firm is chargeable to tax in India as raised by the assessee in ground no.2 and 3 in ITA no.5392/Mum./ 2006, for the assessment year 1997–98, in ITA no.1968/ Mum./2008, for the assessment year 1998–99, in ITA no.5393/Mum./2006 for the assessment year 1999–2000, in ITA no.1970/Mum./2008, for the assessment year 2000–01, ground no.1, in ITA no.2786/ Mum./2005, for the assessment year 2001–02, in ground no.2 and 3 in ITA no.1972/Mum./2008, for the assessment year 2001–02, in ground no.1 and 2 in ITA no.4991/ Mum./2006, for the assessment year 2002–03 and ground no.1 and 2 in ITA no.2953/Mum./2007, for the assessment year 2003–04. In view of our findings given in ITA no.3019/Mum./2005 is decided in favour of the assessee, thus, the grounds raised by the assessee in all these appeals are treated as allowed.

48. The fifth issue is with regard to chargeability of interest under section 234B which has been raised by the Revenue vide ground no.6 in ITA no.5826/Mum./2006, for the assessment year 1999–2000, ground no.4 in ITA no.3019/Mum./ 2005 for the assessment year 2001–02. This issue has been decided against the Revenue and in favour of the assessee as above, therefore, the same is being treated as dismissed.

49. The sixth issue raised by the assessee is, whether the learned Commissioner (Appeals) has correctly held that the interest is leviable under section 234D. This issue has been raised in ground no.6 in ITA no.1968/ Mum./2008, for the assessment year 1998–99, in ITA no.5393/Mum./2006, for the assessment year 1999–2000, in ITA no.1970/Mum./2008, for the assessment year 2000–01, in ground no.3, in ITA no.2786/Mum./2005, for the assessment year 2001–02, in ground no.6 in ITA no.1972/Mum./2008, for the assessment year 2002–03, in ground no.5 in ITA no.4991/ Mum./2006, for the assessment year 2002–03 and in ground no.2953/Mum./2007, for the assessment year 2003–04. In view of our findings given above, we restore the issue back to the file of the Assessing Officer and direct him to give effect of this order keeping in view the ratio laid down by the Hon'ble Supreme Court in Reliance Energy Ltd. (supra). Thus, these grounds are treated as partly allowed for statistical purposes.

50. The seventh issue raised by the assessee is whether the learned Commissioner (Appeals) was correct in upholding the re–opening of the re– assessment in the assessment year 1997–98, 1998–99, 1999–2000, 2000– 01 and 2001–02. Since we have already allowed the appeal of the assessee on merits, therefore, the issue of validity of the assessment is not being adjudicated upon and the same is treated as dismissed.

51. The eighth issue which has been raised by the assessee in the assessment year 1997–98 is regarding not giving effect of credit of taxes. This issue has been raised in ground no.6 in ITA no.5392/Mum./2008, for the assessment year 1997–98

52. Before us, it has been contended by the learned Sr. Counsel that the credit of TDS has not been given by the Assessing Officer properly. Accordingly, we direct the Assessing Officer to verify the contention of the assessee and to give credit of the TDS in accordance with law.

53. The last issue raised by the Revenue in IiTA no.5825/Mum./2006, for the assessment year 1997–98, is that the learned Commissioner (Appeals) has erred in holding that the interest is not leviable under section 234A in assessee's case.

54. After hearing both the parties, we find that this issue is consequential in nature. Consequently, we direct the Assessing Officer to give consequential effect keeping in view our findings given above.