TaxTMI 
TaxTMI 
2021 (8) TMI 329
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....or scientific equipment, thereby treating the same as "Royalty" under section 9(1)(vi) of the Income Tax Act, 1961 ('the Act'); 3. erred in holding that the impugned time charter services shall be covered within the definition of the term "Royalty" under Article 12 of the India - Singapore Double Tax Avoidance Agreement (DTAA'); 4. without prejudice to the above, erred in not applying the special deeming provisions of section 44BB of the Act, wherein 10% of the gross receipts shall be deemed to be income of the Appellant; Taxability of revenues received on account of provision of services through time charter of vessel during the period when the vessels outside India: Rs. 2,02,53,777/- 5. without prejudice to the above, erred in holding that an amount of Rs. 2,02,53,777 representing charter hire fees earned during the period when the vessel "Smit Borneo" was outside India shall be taxable as "Royalty" under the Act as well as under Article 12 of the India-Singapore DTAA. 6. without prejudice to the above, erred in not appreciating the fact that the aforesaid income was neither received nor deemed to be received in India nor a....
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.... to enable the Income tax Appellate Tribunal to decide the appeal according to law. 2. The Brief facts of the case are that the assessee is a foreign company and is a nonresident and was incorporated in Singapore. The assessee operates maritime sector and primarily engaged in the business of salvage, wreck removal, environmental protection and consultancy services. In the Financial Year 2014-15 the assessee company has earned revenues in connection with its contracts with Leighton India Contractors Private Ltd. in respect of charter of the vessel" Smit Borneo". The assessee has chartered the vessel for carrying out certain activities of exploration or extraction of mineral oils. The assessee has filed the return of income for A.Y 2015-16 on 30.09.2015 with total income of Rs. Nil. Subsequently, the case was selected for scrutiny and notice u/s. 143(2) and 142(1) of the Act are issued. In compliance, the Ld. AR of the assessee appeared from time to time and furnished the details and the case was discussed. The A.O scrutinized the details supporting the return of income filed. The assessee was called to explain the reasons for not offering any income to tax u/s. 44BB of the Act an....
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....nal and was decided the issue in favour of the assessee and are equally apply to the present assessment year. Contra the Ld. DR made the submissions and relied on the orders of the A.O. and DRP. 5. We heard the rival submissions and perused the material on record. The issues in the present appeal are identical and similar to preceding Assessment Year 2014-15 and were allowed in favour of the assessee by the Hon'ble Tribunal in the assessee's own case for the A.Y 2014-15 in ITA No. 7055/Mum/2017 dated 9-11-2020 at page 15 to 28 Para 14 to 20 are read as under: 14. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements relied upon by them. As observed by us hereinabove, the assessee had sought our indulgence for adjudication of three issues viz. (i) that, as to whether or not the consideration received by the assessee from time charter of its vessel 'Smit Borneo' had rightly been assessed as 'royalty' by the A.O/DRP under clause (iva) of the 'Explanation 2' to Sec. 9(1)(vi) of the Act, and also Article 12(3)(b....
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....al, commercial or scientific knowledge, experience or skill; (v) the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB; (vi) the transfer of all or any rights (including the granting of a license) 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 (vii) the rendering of any services in connection with the activities referred to in sub-clauses (i) to (iv), (iva) and (v)" Further, the term 'royalty' has been defined as per Article 12 of the India-Singapore tax treaty, as under: "3. The term "royalties" as used in this Article means payments of any kind received as a consideration for the use of, or the right to use: (a) any copyright of a literary, artistic or scientific work, including cinematograph films or films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, ....
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.... now when the time charter receipts during the year under consideration had not been brought to tax, or in fact, could not have been subjected to tax under Sec. 44BB of the Act, therefore, the claim of the assessee that the same would fall within the scope and gamut of the exclusion carved out in the definition of term 'royalty' as contemplated in clause (iva) of the 'Explanation 2' to Sec. 9(1)(vi) cannot be accepted, and is thus rejected. 16. We shall now advert to the claim of the assessee that as it had time chartered its vessel 'Smit Borneo' along with the crew to Leighton India Contractor Pvt. Ltd., and had at no stage given or parted with the 'use' or 'right to use' of the said vessel to the charterer, viz. Leighton India Contractor Pvt. Ltd., the same thus could not be treated as royalty in the hands of the assessee. On a perusal of the records, we find substantial force in the claim of the assessee that the nature of 'agreement' entered into by it with Leighton India Contractor Pvt. Ltd., was for providing of time charter services, and not for hiring of any equipment. As such, there is substance in the claim of the l....
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..... In the said case, it was inter alia observed by the Hon'ble High Court that though provisions of Sec. 9 of the Act would be applicable, however, considering the provisions of the DTAA if beneficial than the provisions of the IT Act, the provisions of DTAA would prevail. 17. In the backdrop of our aforesaid observations, we shall test the claim of the ld. A.R that the time charter receipts would not fall with the realm of the definition of 'royalty', as provided in Article 12 of the India-Singapore tax treaty. For a fair appreciation of the aforesaid issue we need to look into the relevant clauses of the aforesaid 'agreement', which reads as under: Clause 7 (a)(i) Subject to STCW code, The Master shall carry out his duties promptly and the Vessel shall render all reasonable services within her capabilities by day and by night and at such times and on such schedules as the Chatterers may reasonably require without any obligations of the Chatterers to pay to the Owners or the Master, Offices or the Crew of the Vessel any excess or overtime payment." Clause 7 (b) The Vessel's crew if required by, chatterers will con....
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....of services to Leighton India Contractor Pvt. Ltd., it could thus by no means be held as being in the nature of a contract of hiring of equipment by Leighton India Contractor Pvt. Ltd. from the assessee. Our aforesaid view that in a case where the control of the equipment throughout had remained with the assessee and did not get transferred to the charterer, the consideration therein received cannot be brought within the realm of the definition of the term 'royalty' is fortified by the judgment of the Hon'ble High Court of Delhi in the case of Technip Singapore Pte. Ltd. Vs. DIT, 70 taxman.com 233 (Del). In the said case, the Hon'ble High Court relying on its earlier judgment in the case of Asia Satellite Telecommunication company ltd. Vs. DIT (2011) 332 ITR 340 (Del), had observed as under: "34. As far as DTAA in the present case is concerned, the income earned by the Assessee would be treated as royalty only where it is received as consideration for the use of the equipment, i.e., industrial, commercial or scientific. It can also be for use of or the right to use any copyright or for information concerning industrial, commercial or scientific experience. ....
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....ded were an "integral part of the satellite" and remained "under the control of the satellite/transponder owner (like the appellant in this case) and it does not vest with the telecast operator/television channels." The Court rejected the plea that the payment made to ASTC could be 'royalty' within the meaning of Section 9 (1) (vi) of the Act. The Court reiterated that "the fact remains that there is no use of 'process' by the television channels. Moreover, no such purported use has taken place in India." 35.4 The Court has held that the concept of dominion or control is sine qua non use. Further Explanation 5 below Section 9 (vi), to the extent it is not beneficial to the Assessee, will have to in terms of Section 90 (2) of the Act, make way for the provision of the DTAA which is more beneficial to the Assessee. This aspect too has been clarified by the Court in Asia Satellite Telecommunications (supra). It was observed: "The effect of an agreement made pursuant to Section 90 is that if no tax liability is imposed under this Act, the question of resorting to agreement would not arise. No provision of the agreement can fasten a tax liability when t....
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....ents with various non-resident companies for chartering of their ships in the course of its business of moving of coal from various ports in India to a particular location in India. As per the agreements entered into between the assessee with the various non-resident companies, we find, that there were certain peculiar clauses viz. (i) the place of redelivery of ships was at the option of the charterer; (ii) the masters/captain and others working on the ships were at the disposal of the charterer; and (iii) the charterer had the right to use the ship, select the time and decide the route as per its requirement. We have given a thoughtful consideration to the facts involved in the aforesaid case before the Hon'ble High Court, and are in agreement with the claim of the ld. A.R that the facts therein involved are distinguishable as in comparison to those in the case before us, which can be briefly culled out as under: Sr. No In case of Madras HC ruling In case of assessee 1 Assessee was engaged in the business of moving coal from various ports in India to a particular location in India. Assessee was in the business of providing time charter services in connection....
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....unication company ltd. Vs. DIT (2011) 332 ITR 340 (Del), had observed, that there is a distinction between letting the asset and use of the asset by the owner for providing services. By drawing support from the aforesaid judgment of the High Court, it was observed by the Tribunal that the payment made for use of the asset by owner cannot tantamount to royalty. The Tribunal while concluding as hereinabove had observed as under: "We are also not in agreement in Department's contention that the payment made in time charter of vessels in this case constitutes 'royalty''. This perception seems to be misconceived. The Hon'ble Delhi High Court in the case of Asia Satellite Telecommunication Co. Ltd. vs. DCIT (supra) has held that two things are necessary to christen a payment as a 'royalty' under Explanation 2 appended to clause (vi), which speaks about possession and control of the vessel in the given case, the assessee neither has control nor possession over the vessels. The Captain/Master and the crew is instructed, directed and controlled by the ship owner only and not by the assessee. The assessee simply informs the description of the cargo to be ....
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....cate the same. As we have vacated the view taken by the A.O/DRP that the consideration received by the assessee from time charter of its vessel viz. 'Smit Borneo' was to be treated as 'royalty' as per Article 12 of the India-Singapore Tax Treaty, therefore, we refrain from adverting to the other contentions advanced by the ld. A.R to support its claim, which thus are left open. The Grounds of appeal No. 2 to 4 are allowed in terms of our aforesaid observations. 19. We shall now advert to the claim of the ld. A.R that the mobilisation fees of Rs. 17,80,500/- received by the assessee from Leighton India Contractor Pvt. Ltd. had wrongly been treated as royalty, both under Sec. 9(1)(iv) of the Act, and Article 12(3)(b) India-Singapore tax treaty. As noticed by us hereinabove, it was inter alia observed by the A.O/DRP that as the mobilisation of the vessel viz. 'Smit Borneo' formed an inextricable part of the time charter services rendered by the assessee, thus the fees therein received were also to be assessed as royalty. As we have concluded that the consideration received by the assessee from time charter of the vessel viz. 'Smit Borneo' would....