AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2014 (10) TMI 618
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....as to pay hire charges of USD 725 per day. The charter agreement was also renewed for a further period of three months by another agreement dated 03-08-2005. According to the ld.representative, the owner of the vessel, viz. Lots International Ltd is a company incorporated in Dubai. According to the ld.representative, what was paid by the assesee is hire charges for hiring the vessel to run the same in the international waters. However, the assessing officer found that what was paid by the assessee is royalty. Therefore, the assessee had to deduct tax u/s 195 of the Act. According to the ld.representative, what was paid by the assessee is not royalty. A fully operational vessel with necessary permits and trained crew was hired by the assessee for use of the same for transportation of goods in the international waters. The owner of the vessel / recipient of the payment is a non resident Indian (NRI) based in Dubai, UAE. Therefore, according to the ld.representative, the Double Taxation Avoidance Agreement (DTAA) between the two sovereign countries, viz. Government of India and Government of UAE would come into operation. According to the ld.representative, the royalty arising in a co....
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....ken at any point of time. The vessel, M.V. Thekkadi sailed between Tuticorin Port to Maldives Port. Therefore, the operation of vessel M.V. Thekkadi is only in the international waters / traffic, therefore, according to the ld.representative, Article 8 of the DTAA would come into operation. Article 8 of the DTAA would override the provisions of section 9 of the I.T. Act since admittedly, Article 8 is more beneficial to the assessee. 5. Referring to Article 2 of the DTAA between India and UAE, the ld.representative for the assessee submitted that specific provision would override the general provisions in the DTAA. Charter and rental charges of the shipping business are specifically referred to in Article 8 of the DTAA. According to the ld.representative, the taxation of the rental / hire charges of the vessel M.V. Thekkadi has to be considered on the basis of the DTAA between Government of India and Government of UAE. Since, admittedly, the hire charges was paid for operating the vessel in the international waters from Tuticorin to Maldives more particularly at Mali Port, according to the ld.representative, the hire charges is not taxable in India. 6. Referring to the circular is....
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....essing officer on the copy of the charter agreement filed by the assessee before the CIT(A). The assessing officer found that the commercial operation of the vessel, M.V. Thekkadi is completely under the control of the assessee. The assessee was using the entire vessel. Referring to Explanation 2 to sub section (vi) of section 9 of the Act, the ld.DR submitted that royalty would include the consideration paid in respect of any right, property or information. Referring to the agreement between the parties, the ld.DR submitted that under the time charter, the trade limits is Tuticorin - Cochin range and the place of re-delivery of the vessel is also Tuticorin - Cochin range. Referring to the DTAA, the ld.DR submitted that royalty of any kind is taxable @10% in the source country. Since the time charter agreement is in the nature of royalty and the payment made by the assessee to the non resident is liable to be taxed in India being a source country, the assessee has to deduct tax. According to the ld.DR, time charter is not covered by Article 8 of the DTAA. According to the ld.DR, the assessee is having control over the vessel. The assessee has also right to use the vessel for a part....
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....t where the royalty is payable in respect of any right, property or information used or services utilized for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or (c) a person who is a non-resident, where the royalty is payable in respect of any right, property or information used or services utilized for the purposes of a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India; Provided that nothing contained in this clause shall apply in relation to so much of the income by way of royalty as consists of lump sum consideration for the transfer outside India of, or the imparting of information outside India of, in respect of, any data, documentation, drawing or specification relating to any patent, invention, model, deign, secret formula or process or trade mark or similar property, if such income is payable in pursuance of an agreement made before the 1st day of April, 1976, and the agreement is approved by the Central Government; Provided further that nothing contained in this clause sh....
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...., experience or skill; (iva) the use r right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB; (v) the transfer of all or any rights (including h granting of a licence) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films; or (vi) the rendering of any services in connection with the activities referred to in sub-clauses (i) to (iv), (iva) and (v). Explanation 3.- For the purposes of this clause, "computer software" means any computer programme recorded on any disc, tape, perforated media or other information storage device and includes any such programme or any customized electronic data;" 12. The assessing officer by referring to section 9(1) (vi) Explanation 2(iva) came to the conclusion that any payment made for use or right to use in industrial, commercial or scientific equipment would fall within the term "royalty". No doubt, a vessel is an instrument / equipment; therefore....
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.... that State. Where, however, the person paying the royalties, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the liability to pay the royalties was incurred, and such royalties are borne by such permanent establishment or fixed base, then such royalties shall be deemed to arise in the Contracting State in which the permanent establishment or fixed base is situated. 6. Where, by reason of a special relationship between the payer and the beneficial owner or between both of the m and some other person, the amount of the royalties, having regard to the use, right or information for which they are paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the lastmentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Agreement." 13. The royalty shall be taxed at 10% of the gross amount in the contracting state in which they arise.....
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....ment of other countries outside India, then, in relation to an assessee to whom such agreement applies, the provisions of the Income-tax Act would apply to the extent they are more beneficial to ITA No.39/Coch/2014 the assessee. In view of section 90 of the Indian Income-tax Act, it is obvious that if the provisions in the DTAA are more beneficial to the assessee, then the provisions in the DTAA would prevail over the Indian Income-tax Act. Therefore, this Tribunal is of the considered opinion that Article 8 of the DTAA between government of India and Government of UAE would be applicable to the facts of the case, since it is more beneficial to the assessee. Article 8 of the DTAA, more particularly, sub clause 2 clearly says that the profit from operation of the ship in international traffic will also include the charter or rental of ships incidental to such transportation. Therefore, this Tribunal is of the considered opinion that the profit arising to the non resident company on charter of the vessel M.V. Thekkadi has to be taxed only in the UAE in view of the DTAA between Government of India and Government of UAE, more particularly, Article 8(1) of the DTAA. The material filed b....
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....a non-resident, which is chargeable under the provisions of the IT Act. Here, the payments made by the assessee do not fall under s.9 and the payments do not take the character of any sum chargeable to tax under this Act. Therefore, s.195 does not come into operation. 17. When s.195 does not apply to the present case, there is no violation of that section and consequently invoking of s.40(a)(i) does not arise. Therefore, we find that the CIT(A) is justified in deleting the disallowance made by the AO. This issue is decided against the Revenue." This decision of the Tribunal is distinguished by the CIT(A) on the ground that it is only for charter hire payment and not specifically to the time charter; in this case what is paid by the assessee is a charter hire charges. Therefore, the CIT(A) is not justified in interpreting the fact as if it is a time charter. The charter agreement clearly says that it is a charter payment for hiring the vessel for three months @725 USD per day. The payment had to be made in Dubai to the account of Lots International Ltd with Emeritus Bank International. Therefore, the distinction made by the CIT(A) between the charter hire and time charter is unwar....