Bareboat charter hire not taxable in India where treaty protection and no PE meant no TDS disallowance

Bareboat charter hire paid to a Singapore entity was treated as not chargeable to tax in India on the facts found, because the recipient had no permanent establishment in India and the India-Singapore DTAA applied. On that basis, section 195 was not attracted, since tax deduction at source arises only where the payment is chargeable to tax in India. The Tribunal further noted the assessee's claim under the special presumptive regime of section 44BB, supported by maintained and audited books, and held that this regime, read with the treaty position, left no scope for disallowance under section 40(a)(i). The additions were deleted.

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Issues: Whether the bareboat charter hire paid to the Singapore entity was chargeable to tax in India so as to attract deduction of tax at source under section 195 and disallowance under section 40(a)(i), and whether the assessee's claim under section 44BB displaced such disallowance.

Analysis: The payment was held to be a bareboat charter receipt of the foreign recipient and not taxable in India on the facts found, since the recipient had no permanent establishment in India and the income fell to be governed by the India Singapore DTAA. The Tribunal held that section 195 applies only where the sum paid is chargeable to tax in India. It further held that the assessee had opted for the special presumptive regime under section 44BB by maintaining books and getting them audited, and that the special scheme, read with the treaty position, left no room for disallowance of the charter hire under section 40(a)(i).

Conclusion: The disallowance was unsustainable and the assessee succeeded on the issue.

Final Conclusion: The assessment additions based on non-deduction of tax on bareboat charter hire were deleted, and the assessee's appeal was allowed.

Ratio Decidendi: Section 195 is attracted only when the payment made to a non-resident represents income chargeable to tax in India, and a payment covered by the special presumptive regime and protected by the applicable treaty cannot be disallowed under section 40(a)(i) when it is not so chargeable.

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