Case Law Details
Brief of the case
Assessee is a foreign company engaged in shipping business and had 3 clearing agents in India; namely, Maersk Logistics India Limited (MLIL), Maersk India Private Limited (MIPL) and Safmarine India (Pvt) Limited (SIPL). The assessee procured and maintained a global telecommunication facility called MaerskNet for effective and efficient conduct of the business via networking with the agents. The agents were to share the cost of this equipment and therefore the assessee received the reimbursement of cost from the agents. The Assesssing officer did not accept this contention and held the amounts paid by agents to be fees for technical services liable to tax u/s 115A of IT act @ 20%. Assessee’s further appeal to CIT also confirmed the Assessing Officer’s stand. However, the Tribunal allowed the appeal following the decisions of Madras High Court Skycell Communications Limited 251 ITR 53 (Mad) and the Delhi High Court in Commissioner of Income Tax vs. Bharti Cellular Ltd. 319 ITR 139 (Del).
In the case of Skycell Communications Limited it was held that payment from subscribers is for use of airtime and not fees for any technical service and hence not liable for deduction of tax u/s 194J.
In the case of Bharti Celllular Ltd. It was held that the interconnect charges or port access charges cannot be regarded as fees for technical services and so not subject to TDS u/s 194J.
Finally, the Mumbai High Court held that there being ‘no profit element’ involved in the payment of pro-rata costs by the agents, such payment is only in the nature of reimbursement of expense and not fees for technical service.
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