Ship treated as plant; charter hire royalty under s.9(1)(vi), triggering TDS duties and valid proceedings under ss.195,201,201A

HC held that a ship qualifies as "plant", as the term includes all tools, apparatus and equipment used for business, movable or fixed. Under the time charter, periodic payments to the vessel owner were characterized as hire charges and hence revenue expenditure, but for taxability they constituted "royalty" under s. 9(1)(vi), Explanation 2(iv a), being consideration for the use of equipment. The foreign enterprise had a permanent establishment in India through the moving ship as a fixed place of business. Consequently, TDS obligations under s. 195 applied, and proceedings under ss. 201 and 201A were valid, operating independently of the representative assessee provisions in ss. 160 and 163.

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Issues Involved:
1. Whether the payment made for taking a ship on a time chartered basis constitutes "royalty" under Section 9(1)(vi)(b) of the Income Tax Act.
2. Whether the ship is considered "equipment" within the meaning of Article XII of the India-Cyprus Double Taxation Avoidance Agreement (DTAA).
3. Whether the lease of vessels by the assessee from Foreign Shipping Companies is only on time charter.
4. Whether the payment made by the assessee to the foreign shipping companies towards hire charges is "royalty."
5. Whether the Tribunal was correct in remitting the matter back to the assessing officer for fresh consideration under Section 201 or Section 195 of the Income Tax Act.
6. Whether the assessee is liable to deduct tax under Section 195 in respect of Charter Hire Charges paid to Foreign Shipping Companies.
7. Whether the assessee can be treated as a representative assessee under Section 163 of the Income Tax Act.
8. Whether the reopening of assessment under Section 148 of the Income Tax Act was barred by limitation and constituted a change of opinion.

Detailed Analysis:

1. Payment for Time Charter as "Royalty":
The court held that the payment made for taking a ship on a time chartered basis constitutes "royalty" under Section 9(1)(vi)(b) of the Income Tax Act. The Tribunal followed the decision in West Asia Maritime Ltd., where it was held that a ship is an equipment and hire charges for its use are considered "royalty" under the Income Tax Act.

2. Ship as "Equipment" under DTAA:
The court held that a ship is considered "equipment" within the meaning of Article XII of the India-Cyprus DTAA. The definition of "plant" under Section 43(3) of the Income Tax Act includes ships, and thus, the payment for the use of the ship is considered "royalty."

3. Lease of Vessels as Time Charter:
The Tribunal held that the lease of vessels by the assessee from Foreign Shipping Companies is only on time charter. The court agreed with this interpretation, emphasizing that the payment was for the use of the ship, not for affreightment.

4. Payment Made to Foreign Shipping Companies as "Royalty":
The court confirmed that the payment made by the assessee to the foreign shipping companies towards hire charges is "royalty." The Tribunal's interpretation that the payment for the use of the ship falls under the definition of "royalty" was upheld.

5. Tribunal's Remand to Assessing Officer:
The Tribunal remitted the matter back to the assessing officer for fresh consideration under Section 201 or Section 195 of the Income Tax Act. The court found this direction appropriate, given the complexity of the issues involved.

6. Liability to Deduct Tax under Section 195:
The court held that the assessee is liable to deduct tax under Section 195 in respect of Charter Hire Charges paid to Foreign Shipping Companies. The Tribunal's decision that the assessee cannot be treated as a representative assessee under Section 163, but is still liable to deduct tax under Section 195, was upheld.

7. Assessee as Representative Assessee under Section 163:
The court held that the assessee cannot be treated as a representative assessee under Section 163 of the Income Tax Act. However, the assessee is still liable to deduct tax at source under Section 195.

8. Reopening of Assessment under Section 148:
The court rejected the assessee's contention that the reopening of assessment under Section 148 was barred by limitation and constituted a change of opinion. The Tribunal found that the officer had valid reasons for reopening the assessment.

Conclusion:
The court dismissed the appeals filed by the assessees and allowed the appeals filed by the Revenue. The court held that the payment made for taking a ship on a time chartered basis constitutes "royalty" under the Income Tax Act and the DTAA, and the assessee is liable to deduct tax at source under Section 195. The court also upheld the Tribunal's decision to remit the matter back to the assessing officer for fresh consideration.

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