TaxTMI 
TaxTMI 
2023 (6) TMI 576
X X X X Extracts X X X X
X X X X Extracts X X X X
....ome at Rs 25,56,83,055 as against returned income of Rs Nil; Taxability of receipts on hire of vessel on time charter basis of Rs 19,79,13,362 2. erred in holding that charges received on account of time charter services rendered by the Appellant for the vessel 'Smit Borneo' to Boskalis Offshore Contracting BV in India were rendered for the 'use' of industrial, commercial 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(4) 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 reimbursement of expenses of Rs 5,77,69,693 5. erred in holding that reimbursement of expenses on account of on-hire water, fuel, lubricants and repairs cost received by the Appellant amounting....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on 142(1) of the Act along with a detailed questionnaire were issued and duly served upon the assessee. During the assessment proceedings, the assessee was asked to show cause as to why the receipts amounting to Rs. 25,40,08,132 from BOC BV should not be taxable as Royalty. In response thereto, the assessee submitted that it earned revenue amounting to Rs. 19,79,13,362 on account of charter hire charges. It was further submitted that the assessee has chartered the vessel, Smit Borneo, to BOC BV on a time charter basis. Assessee's agreement with BOC BV is for the provision of vessel along with the crew. Thus the consideration received by the assessee was not on account of „use' or „right to use‟ of the aforesaid vessel, i.e. Smit Borneo, which in fact throughout remained with the assessee and was never transferred to BOC BV. It was further submitted that though the vessel, Smit Borneo, was used by the assessee for rendering services to BOC BV, but the same, as per the terms of the agreement was not used by BOC BV on an independent basis. It was also submitted that the control of the vessel throughout remain with the assessee and did not get transferred to BOC BV. A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rections rendered in the assessment year 2014-15 in assessee's own case, the learned DRP rejected the objections filed by the assessee. 8. In conformity with the directions issued by the learned DRP, the AO, vide impugned final assessment order dated 18/01/2023, assessed the receipts from chartering as Royalty. Being aggrieved, the assessee is in appeal before us. 9. During the hearing, the learned Authorised Representative ("learned AR") submitted that a similar issue has been decided in favour of the assessee by the decisions of the coordinate bench of the Tribunal rendered in assessee's own case for the preceding assessment years. The learned AR further submitted that the learned DRP did not grant relief to the assessee merely to keep the issue alive. 10. On the other hand, the learned Departmental Representative ("learned DR") by vehemently relying upon the orders passed by the lower authorities submitted that in the present case, the vessel was given on in time charter, while in the preceding year, the same was on voyage charter. By referring to the assessment order, the learned DR submitted that the charterer was given the right to make structural alterations to the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....9;, both as per the clause (iva) of the 'Explanation 2' to Sec. 9(1)(vi) of the Act, AND Article 12(3)(b) of the India-Singapore Tax Treaty. Before proceeding any further, it may be relevant to point out that the fact that the assessee during the year under consideration had not constituted any PE in India is not in dispute before us. For a fair appreciation of the issue under consideration, it would be relevant to cull out the definition of the term 'royalty' as contemplated in 'Explanation 2' to Sec. 9(1)(vi) of the Act, AND Article 12(3)(b) of the India-Singapore tax treaty. The term 'royalty' as defined in the 'Explanation 2' of Sec. 9(1)(vi) of the Act, reads as under: "Explanation 2.-For the purposes of this clause, "royalty means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head 'Capital gains") for- (i) the transfer of all or any rights (including the granting of a license) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property; (ii) the imparting o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....'right to use' of the said vessel to the charterer viz. Leighton India Contractor Pvt. Ltd, therefore, the consideration received in lieu thereof could not be held as royalty; and (ii) that, as the services provided by the assessee by time charter of its vessel viz. 'Smit Borneo' were inextricably connected with prospecting, extraction and production of mineral oils, the consideration therein received from the charterer being in the nature of amounts referred to in Sec. 44BB of the Act, would thus fall within the exclusion carved out in the definition of the term 'royalty' as contemplated in clause (iva) of the Explanation 2' to Sec.9(1)(vi) of the Act. We shall first deal with the second limb of the aforesaid contention advanced by the Id. A.R before us. As observed by us hereinabove, it is the claim of the assessee that as the time charter receipts were covered by Sec. 44BB of the Act, the same would thus fall within the exclusion carved out in the definition of the term 'royalty' as contemplated in clause (iva) of the 'Explanation 2' to Sec. 9(1)(vi) of the Act. We are unable to persuade ourselves to accept the aforesaid claim of the a....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... 9(1)(vi) of the Act. In fact, it was the claim of the Id. A.R, that the consideration received on time charter of the vessel, viz. 'Smit Borneo' did not fall within the realm of the definition of the term 'royalty' within the meaning of Article 12 of the India-Singapore tax treaty, and thus, the same as per Sec. 90(2) could not be brought to tax under the Act. Before proceeding any further, we may herein observe, that as held by the Hon'ble High Court of Delhi in the case of Asia Satellite Telecommunications Co. Ltd. Vs. DIT (2011) 332 ITR 340 (Del), the effect of a tax treaty made pursuant to Sec. 90 is that if no tax liability is imposed under the Act, the question of resorting to the tax treaty would not arise. Further, no provision of the tax treaty can fasten a tax liability when the liability is not imposed by the Act. But then, if a tax liability is imposed by the Act, the agreement may be resorted to for negativing or reducing it. Further, as observed by the Hon'ble High Court, in case of difference between the provisions of the Act and of a tax treaty under Sec. 90, the provisions of the tax treaty shall prevail over the provisions of the Act and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Clause 8 (a) The owners shall provide and pay for all provisions of Vessel crew during mobilization and demobilization voyages, all, wages and all other expenses of the Master, officers and Crew: all maintenance and repair of the Vessel's bull, machinery and equipment as specified in ANNEX "A". Clause 46 (c) of the agreement which provides as under: Owner shall Barge/Marine/ Maintenance crew adequate for 24 (Twenty /four) hours operation. (Emphasis supplied by us) On a perusal of the aforesaid extract of the 'agreement', we find, that the consideration received by the assessee was not on account of 'use' or 'right to use' of the aforesaid vessel viz. 'Smit Borneo', which in fact had throughout remained with the assessee and was never transferred to the charterer viz. Leighton India Contractor Pvt. Ltd. As such, the vessel viz. 'Smit Borneo' was though used by the assessee for rendering services to Leighton India Contractor Pvt. Ltd., but the same, as per the terms of the agreement' was not used by Leighton India Contractor Pvt. Ltd. on an independent basis. In our considered view th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e's satellite to relay their signals. The customers had their own relaying facilities, which were not situated in India. From these facilities, the signals were beamed in space where they were received by a transponder located in the assessee's satellite. 35.2 The process of transmission of TV programmes started with TV channels (customers of ASTC) uplinking the signals containing the television programmes; thereafter the satellite received the signals and after amplifying and changing their frequency relayed it down in India and other countries where the cable operators caught the signals and distributed them to the public. Any person who had a dish antenna could also catch the signals relayed from these satellites. The role of ASTC was that of receiving the signals, amplifying them and after changing the frequency relaying them on the earth. For this service, the TV channels paid ASTC. 35.3 The Court held that ASTC was the operator of the satellites and in control of the satellite. It had not leased out the equipment to the customers. ASTC had merely given access to a broadband width available in a transponder which could be utilized for the purpose of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....equipment had actually been used by IOCL. There is a difference between the use of the equipment by the Petitioner 'for' IOCL and the use of the equipment 'by' IOCL Since the equipment was used for rendering services to IOCL, it could not be converted to a contract of hiring of equipment by IOCL." 18. On a perusal of the orders of the lower authorities, we find, that they in order to support their view that the consideration received by the assessee was liable to be assessed as 'royalty' had relied on the judgment of the Hon'ble High Court of Madras in the case of Poompuhar Shipping Corporation Vs. ITO (I.T)-II Chennai (2014) 360 ITR 257 (Mad). In the said case, the Hon'ble High Court had held that by giving possession to the hirer who has control and custody of the vessel the condition of 'use' or 'right to use' is satisfied. In other words, the Hon'ble High Court was of the view that as long as the hirer is given the right to use (with a right to put the ship for a beneficial use for itself) and use the ship to its advantage, the requirement for 'use' or 'right to use' is met. We have perused the aforesa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pendent contractor and the charterers (i.e Leighton India) were concerned only with the results at the time of the services performed. (Refer clause 7(d) of the agreement). Accordingly, we are of the considered view, that unlike the facts involved in the aforesaid case before the Hon'ble High Court, in the case before us the control of the ship had throughout remained with the assessee, and the charterer viz. Leighton India Contractor Pvt. Ltd. was only concerned with the services and had no control over the vessel or its crew members. As such, we find that the reliance placed by the lower authorities on the judgment of the Hon'ble High Court of Madras in the case of Poompuhar Shipping Corporation Vs. ITO (I.T)-II Chennai (2014) 360 ITR 257 (Mad), being distinguishable on facts, would thus not assist the case of the revenue. In fact, our aforesaid view stands fortified by order of a co- ordinate bench of the Tribunal i.e ITAT, Chennai in the case of Sical Logistics Ltd. Vs. ADIT (I.T) Chennai [ITA No. 1074-1079/Mad/2015, dated 14.12.2016]. In the said case, the tribunal had distinguished the facts involved in the case before its jurisdictional High Court in the cas....
X X X X Extracts X X X X
X X X X Extracts X X X X
....milar view had also been taken by the ITAT Hyderabad Bench 'A' in the case of DDIT (IT)-1, Hyderabad Vs. Dharti Dredging & Infrastructure Ltd. (2012) 146 TTJ 283 (Hyd). In the said case, it was observed by the Tribunal that as the assessee before them had only hired the dredger simpliciter from the foreign company viz. EMPL, and had neither used the same or any part thereof on its own nor was it given any right to use the same by the foreign company, the payment therein made could thus not be treated as royalty. On the basis of our aforesaid observations, we are of the considered view that as can be gathered from a perusal of the relevant extracts of the 'agreement' (as reproduced by the DRP in its order), it can safely be concluded that as the assessee had received charges on account of time charter services rendered by its vessel 'Smit Borneo' along with the crew to Leighton India Contractor Pvt. Ltd., and not for allowing the latter the 'use' or 'right to use' of industrial, commercial, or scientific equipment, the same therein cannot be treated as 'royalty' within the meaning of Article 12(3)(b) of the India-Singapore tax treaty. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bunal in assessee's own case in Smit Singapore Pte Ltd. V/s DCIT, in ITA No. 6588/Mum/2018, vide order dated 20/07/2021, for the assessment year 2015-16 rendered similar findings, following the decision of the coordinate bench for the assessment year 2014-15. 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. Thus, respectfully following the orders passed by the coordinate bench of the Tribunal in assessee's own case cited supra, we uphold the plea of the assessee and delete the addition in respect of receipts on hire of vessel on a time charter basis. Accordingly grounds no.2 and 3 raised in assessee's appeal are allowed. 14. Ground no.4, raised in assessee's appeal, is raised on without prejudice basis. Therefore in view of our aforesaid findings, the same needs no separate adjudication. 15. The issue arising in grounds no.5 and 6, raised in assessee's appeal, is pertaining to the taxability of reimbursement of expenses. 16. The brief facts of the case, pertaining to this issue, are: During the year under consideration, t....