2023 (6) TMI 576 - AT - Income Tax

Singapore company's vessel income not Royalty under India-Singapore DTAA

Smit Singapore Pte. Ltd. Miti Shah & Associates Versus Dy. Commissioner of Income Tax International Taxation Circle–4 (2) (1), Mumbai

The Tribunal partly allowed the appeal by the Singapore-based company, holding that receipts from time chartering the vessel were not Royalty under the ... Taxability of receipts on hire of vessel on a time charter basis - Royalty receipts u/s 9(1)(vi) - services rendered for the 'use' of industrial, commercial or scientific equipment - HELD THAT:- We find that in assessee’s own case in Smit Singapore Pte Ltd. [2020 (11) TMI 415 - ITAT MUMBAI] held that the receipts on hire of vessel, viz Smit Borneo, on time charter basis to Leighton India Contractors Private Limited is not in the nature of Royalty as per Article 12 of the India Singapore DTAA. Also see assessee own case for the assessment year 2015-16 [2021 (8) TMI 329 - ITAT MUMBAI]. Nothing has been brought on record to show that during the entire operation, navigation and management of the vessel, it was not in exclusive control and command of the assessee. The issue arising in the present appeal is recurring in nature and has been decided in favour of the assessee by the decisions of the coordinate bench of the Tribunal for the preceding assessment years. Decided in favour of assessee. Taxability of reimbursement of expenses - Once the main receipt, i.e. pertaining to chartering of vessel has been held to be not a Royalty, the reimbursement of expenses in relation to the same agreement cannot be held to be taxable as Royalty, in the present case, as the AO is also of the view that the receipts are intricately linked to the chartering income. Accordingly, the addition on account of reimbursement of expenses is deleted. Decided in favour of assessee. Issues Involved:1. Taxability of receipts on hire of vessel on a time charter basis.2. Taxability of reimbursement of expenses.3. Levy of interest under section 234A.4. Levy of interest under section 234B.5. Initiation of penalty proceedings under section 270A.Summary of Judgment:1. Taxability of Receipts on Hire of Vessel on a Time Charter Basis:The assessee, a Singapore-based company, challenged the assessment of income from chartering the vessel 'Smit Borneo' to Boskalis Offshore Contracting BV (BOC BV) as 'Royalty' under section 9(1)(vi) of the Income Tax Act, 1961 and Article 12(4) of the India-Singapore DTAA. The assessee argued that the vessel was not independently used by BOC BV and control remained with the assessee. The AO and DRP, however, treated the income as Royalty. The Tribunal, following its previous decisions in the assessee's own case for the preceding years, held that the receipts from time chartering the vessel were not in the nature of Royalty under Article 12 of the India-Singapore DTAA. Therefore, the addition was deleted.2. Taxability of Reimbursement of Expenses:The assessee received Rs. 5,77,69,693 as reimbursement of expenses from BOC BV. The AO treated these receipts as Royalty, intrinsically linked to the chartering income. The Tribunal held that since the main receipt from chartering was not considered Royalty, the reimbursement of expenses related to the same agreement could not be taxable as Royalty. Thus, the addition on this account was deleted.3. Levy of Interest under Section 234A:The Tribunal remanded the issue of interest levy under section 234A to the AO for de novo adjudication, directing the AO to examine whether the return of income was filed within the prescribed time under the Act.4. Levy of Interest under Section 234B:The interest under section 234B was deemed consequential. The Tribunal allowed this ground for statistical purposes.5. Initiation of Penalty Proceedings under Section 270A:The initiation of penalty proceedings was considered premature and thus, dismissed.Conclusion:The appeal by the assessee was partly allowed for statistical purposes. The Tribunal upheld the assessee's plea on the non-taxability of receipts from chartering and reimbursement of expenses as Royalty, remanded the issue of interest under section 234A for further examination, and treated the interest under section 234B as consequential. The initiation of penalty proceedings was dismissed as premature.