2017 (1) TMI 1208 - AT - Income Tax

Tribunal rules in favor of assessee on DTAA benefits & tax treatment, upholds deletion of interest.

The Tribunal ruled in favor of the assessee, affirming eligibility for DTAA benefits and applying Section 44BB to tax revenues from both companies. The ... Eligibility of assessee for benefit of DTAA between India and UAE - income was wrongly assessed as Royalty u/s 9(1)(vi) - Held that:- assessee-company was eligible for the benefits of DTAA between India and UAE and that in view of the provisions of Sec. 90(2) of the Act, it was open for the assessee-company to chose between the taxation as per the India-UAE DTAA or as per the Act, whichever was more beneficial to it. - Decided in favour of assessee. Application of Sec. 44BB of the Act in order to compute assessee’s tax liability - Held that:- Insofar as the earnings from M/s. Aracadia Shipping Ltd. is concerned, in our view, the fact-situation clearly brings out that the tug boats have been used in connection with prospecting for or extraction or production of mineral oils. The finding of CIT(A) in this regard is supported by not only the certificate issued by M/s. Aracadia Shipping Ltd., but also by the terms of arrangement of hiring with the said concern. Copies of such arrangements have been placed in the Paper Book at pages 1 to 4. In the absence of any cogent material brought out by the Revenue, we hereby affirm the said finding of CIT(A) and accordingly, Revenue fails on this aspect. In respect to the earnings from M/s. Leigthton Contractors India Pvt. Ltd. for hiring of barge JU-251 following the phraseology of Sec. 44BB of the Act, in our considered opinion, even the earnings from hiring of barge JU-251 to M/s. Leigthton Contractors India Pvt. Ltd. are eligible for assessment u/s 44BB of the Act. In coming to such a conclusion, we are also conscious of the stand of Assessing Officer as manifested in the assessment order for Assessment Year 2008-09, wherein hiring receipts from M/s. Leigthton Contractors India Pvt. Ltd. on account of hire of barge JU-251 in terms of same contract have been accepted to be assessable u/s 44BB of the Act. Therefore, considering the facts and circumstances of the case, we allow the additional Ground raised by assessee that the amount of ₹ 11,77,55,535/- received from M/s. Leigthton Contractors India Pvt. Ltd. is also liable to be taxed in terms of Sec. 44BB of the Act. Thus, assessee succeeds on its additional Ground of appeal. Interest charged u/s 234B - Held that:- Notably, in terms of the judgment of Hon'ble Bombay High Court in the case of DIT(IT) vs. NGC Network Asia LLC (2009 (1) TMI 174 - BOMBAY HIGH COURT ), wherein held that where the duty is cast on the payer of income to deduct tax at source, the failure of the payer to do so would not result in imposition of interest u/s 234B of the Act in the case of the assessee recipient. Thus, following the judgment above the decision of CIT(A) on this aspect is affirmed and accordingly, Revenue fails on this aspect. Issues Involved:1. Taxation of revenues earned from Arcadia Shipping Limited and Leighton Contractor (I) Private Limited.2. Eligibility for the benefit of DTAA between India and UAE.3. Deletion of interest charged under section 234B.4. Application of Section 44BB of the Income Tax Act, 1961.Detailed Analysis:Issue 1: Taxation of Revenues Earned from Arcadia Shipping Limited and Leighton Contractor (I) Private LimitedThe assessee contended that revenues earned from Arcadia Shipping Limited for the charter hire of Tug Boat Valentine III & Zakher King and from Leighton Contractor (I) Private Limited for Time Charter Hire Tug Boat JU 251 should be treated as Business Income under Article 7 of the DTAA between India and UAE. The CIT(A) held that Valentine Maritime (Gulf) LLC is entitled to tax benefits under the DTAA and since the assessee did not have a PE in India, the income is not taxable. However, the CIT(A) taxed the revenues under Section 44BB of the Income Tax Act, 1961 instead of treating them as Business Income under Article 7 of the DTAA.Issue 2: Eligibility for the Benefit of DTAA Between India and UAEThe CIT(A) upheld the assessee's eligibility for the benefits of the India-UAE DTAA, following the earlier appellate order in the assessee's own case for Assessment Year 2006-07. The CIT(A) concluded that the assessee-company was eligible for the benefits of the DTAA and could choose between taxation as per the DTAA or the Act, whichever was more beneficial. This decision was challenged by the Revenue but was decided in favor of the assessee by the Tribunal, following precedents from earlier years.Issue 3: Deletion of Interest Charged Under Section 234BThe CIT(A) directed the deletion of interest charged under Section 234B of the Act for shortfall in the payment of advance tax. The Tribunal affirmed this decision, following the judgment of the Hon'ble Bombay High Court in the case of DIT(IT) vs. NGC Network Asia LLC, which held that where the duty is cast on the payer of income to deduct tax at source, the failure of the payer to do so would not result in the imposition of interest under Section 234B of the Act in the case of the assessee recipient.Issue 4: Application of Section 44BB of the Income Tax Act, 1961The assessee's earnings from hiring vessels to M/s. Arcadia Shipping Ltd. and M/s. Leighton Contractors India Pvt. Ltd. were claimed to be taxed under Section 44BB of the Act. The CIT(A) held that the earnings from M/s. Arcadia Shipping Ltd. were eligible for taxation under Section 44BB but denied the same for earnings from M/s. Leighton Contractors India Pvt. Ltd., treating them as Royalty under Article 12(3) of the DTAA. The Tribunal, however, concluded that both earnings should be taxed under Section 44BB of the Act, following the precedent set by the Delhi Bench of the Tribunal in the case of M/s. SBS Marine Ltd. and the assessment order for Assessment Year 2008-09, where similar earnings were accepted under Section 44BB.Conclusion:The Tribunal ruled in favor of the assessee on the eligibility for DTAA benefits and the application of Section 44BB for taxing the earnings from both M/s. Arcadia Shipping Ltd. and M/s. Leighton Contractors India Pvt. Ltd. The deletion of interest under Section 234B was also upheld. The Revenue's appeal was dismissed, and the assessee's appeal was partly allowed.