Supreme Court today in a judgement decided which came as appeal to decide on the matter "Whether the High Court is correct in holding
that the income from the 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?”
There was a foreign company, a tax resident of Denmark, engaged in the shipping business. There is a Double Taxation Avoidance Agreement between India and Denmark. The Company had several agents working for booking cargo and were acting as clearing agents for the foreign company. As the company was in the business of shipping it had several agents in various countries for booking of cargo and servicing customers in those countries, preparing documentation etc. through these agents.
In the present case, a common facility of using Maersk Net System is provided to all the agents across the countries to carry out their work using the said system.
After taking note of Section 19 of the Income Tax Act,1961 and explanation 2 thereof which defines fee for technical services, the Court went on to describe the meaning of the said expression in the following manner:
“What meaning should be ascribed to the words “technical services” appearing in Explanation 2 to clause (vii) to Section 9(1) of the Act is the 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 the High Courts and Tribunals have taken the view that the words “technical services” have got to be read in the narrower sense by applying the rule of noscitur a sociis, particularly, because the words “technical services” in Section 9(1)(vii) read with Explanation 2 comes in between the words “managerial and consultancy services”.
“Managerial and consultancy services” and, therefore, necessarily “technical services”, would obviously involve services rendered by human efforts. This has been the consistent view taken by the 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 the specific human element in an otherwise fully automated process by which such services may be provided. The search for a more effective basis, therefore, must be made.
A reading of the very elaborate order of the assessing officer containing a lengthy discourse on the services made available by the Stock Exchange would go to show that apart from facilities of a faceless screen based transaction, a constant upgradation of the services made available and surveillance of the essential parameters connected with the trade including those of a particular/single transaction that would lead credence to its authenticity is provided for by the Stock Exchange. All such services, fully automated, are available to all members of the Stock Exchange in respect of every transaction that is entered into. There is nothing special, exclusive or customised service that is rendered by the Stock Exchange. “Technical services” like “managerial and consultancy service” would denote seeking of services to cater to the special needs of the consumer/user as may be felt necessary and the making of the same available by the service provider. It is the above feature that would distinguish/identify a service provided from a facility offered. While the former is special and exclusive to the seeker of the service, the latter, even if termed as a service, is available to all and would, therefore, stand out in distinction to the former. The service provided by the Stock Exchange for which transaction charges are paid fails to satisfy the aforesaid test of specialised, exclusive and individual requirement of the user or consumer who may approach the service provider for such assistance/service. It is only service of the above kind that, according to us, should come within the ambit of the expression “technical services” appearing in Explanation 2 to Section 9(1)(vii) of the Act. In the absence of the above distinguishing feature, service, though rendered, would be mere in the nature of a facility offered or available which would not be covered by the aforesaid provision of the Act.
There is yet another aspect of the matter which, in our considered view, would require a specific notice. The service made available by the Bombay Stock Exchange [BSE Online Trading (BOLT) System] for which the charges in question had been paid by the appellant assessee are common services that every member of the Stock Exchange is necessarily required to avail of to carry out trading in securities in the Stock Exchange. The view taken by the High Court that a member of the Stock Exchange has an option of trading through an alternative mode is not correct. A member who wants to conduct his daily business in the Stock Exchange has no option but to avail of such services. Each and every transaction by a member involves the use of the services provided by the Stock Exchange for which a member is compulsorily required to pay an additional charge (based on the transaction value) over and above the charges for the membership in the Stock Exchange. The above features of the services provided by the Stock Exchange would make the same a kind of a facility provided by the Stock Exchange for transacting business rather than a technical service provided to one or a section of the members of the Stock Exchange to deal with special situations faced by such a member(s) or the special needs of such member(s) in the conduct of business in the Stock Exchange. In other words, there is no exclusivity to the services rendered by the Stock Exchange and each and every member has to necessarily avail of such services in the normal course of trading in securities in the Stock Exchange. Such services, therefore, would undoubtedly be appropriate to be termed as facilities provided by the Stock Exchange on payment and does not amount to “technical services” provided by the Stock Exchange, not being services specifically sought for by the user or the consumer. It is the aforesaid latter feature of a service rendered which is the essential hallmark of the expression “technical services” as appearing in Explanation 2 to Section 9(1)(vii) of the Act.”
Read the full judgement here.
There was a foreign company, a tax resident of Denmark, engaged in the shipping business. There is a Double Taxation Avoidance Agreement between India and Denmark. The Company had several agents working for booking cargo and were acting as clearing agents for the foreign company. As the company was in the business of shipping it had several agents in various countries for booking of cargo and servicing customers in those countries, preparing documentation etc. through these agents.
In the present case, a common facility of using Maersk Net System is provided to all the agents across the countries to carry out their work using the said system.
After taking note of Section 19 of the Income Tax Act,1961 and explanation 2 thereof which defines fee for technical services, the Court went on to describe the meaning of the said expression in the following manner:
“What meaning should be ascribed to the words “technical services” appearing in Explanation 2 to clause (vii) to Section 9(1) of the Act is the 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 the High Courts and Tribunals have taken the view that the words “technical services” have got to be read in the narrower sense by applying the rule of noscitur a sociis, particularly, because the words “technical services” in Section 9(1)(vii) read with Explanation 2 comes in between the words “managerial and consultancy services”.
“Managerial and consultancy services” and, therefore, necessarily “technical services”, would obviously involve services rendered by human efforts. This has been the consistent view taken by the 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 the specific human element in an otherwise fully automated process by which such services may be provided. The search for a more effective basis, therefore, must be made.
A reading of the very elaborate order of the assessing officer containing a lengthy discourse on the services made available by the Stock Exchange would go to show that apart from facilities of a faceless screen based transaction, a constant upgradation of the services made available and surveillance of the essential parameters connected with the trade including those of a particular/single transaction that would lead credence to its authenticity is provided for by the Stock Exchange. All such services, fully automated, are available to all members of the Stock Exchange in respect of every transaction that is entered into. There is nothing special, exclusive or customised service that is rendered by the Stock Exchange. “Technical services” like “managerial and consultancy service” would denote seeking of services to cater to the special needs of the consumer/user as may be felt necessary and the making of the same available by the service provider. It is the above feature that would distinguish/identify a service provided from a facility offered. While the former is special and exclusive to the seeker of the service, the latter, even if termed as a service, is available to all and would, therefore, stand out in distinction to the former. The service provided by the Stock Exchange for which transaction charges are paid fails to satisfy the aforesaid test of specialised, exclusive and individual requirement of the user or consumer who may approach the service provider for such assistance/service. It is only service of the above kind that, according to us, should come within the ambit of the expression “technical services” appearing in Explanation 2 to Section 9(1)(vii) of the Act. In the absence of the above distinguishing feature, service, though rendered, would be mere in the nature of a facility offered or available which would not be covered by the aforesaid provision of the Act.
There is yet another aspect of the matter which, in our considered view, would require a specific notice. The service made available by the Bombay Stock Exchange [BSE Online Trading (BOLT) System] for which the charges in question had been paid by the appellant assessee are common services that every member of the Stock Exchange is necessarily required to avail of to carry out trading in securities in the Stock Exchange. The view taken by the High Court that a member of the Stock Exchange has an option of trading through an alternative mode is not correct. A member who wants to conduct his daily business in the Stock Exchange has no option but to avail of such services. Each and every transaction by a member involves the use of the services provided by the Stock Exchange for which a member is compulsorily required to pay an additional charge (based on the transaction value) over and above the charges for the membership in the Stock Exchange. The above features of the services provided by the Stock Exchange would make the same a kind of a facility provided by the Stock Exchange for transacting business rather than a technical service provided to one or a section of the members of the Stock Exchange to deal with special situations faced by such a member(s) or the special needs of such member(s) in the conduct of business in the Stock Exchange. In other words, there is no exclusivity to the services rendered by the Stock Exchange and each and every member has to necessarily avail of such services in the normal course of trading in securities in the Stock Exchange. Such services, therefore, would undoubtedly be appropriate to be termed as facilities provided by the Stock Exchange on payment and does not amount to “technical services” provided by the Stock Exchange, not being services specifically sought for by the user or the consumer. It is the aforesaid latter feature of a service rendered which is the essential hallmark of the expression “technical services” as appearing in Explanation 2 to Section 9(1)(vii) of the Act.”
Read the full judgement here.
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