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2010 (9) TMI 553 - AT - Income TaxSurvey - TDS u/s 195 - ssessee is engaged in the business of marine dredging and port construction - The preamble of the agreement clearly describes that M/s Macon Asia BV, Netherlands as owner of the dipper dredger, Ave Caesar and the assessee as hirer - the dredger was hired by the assessee with two operators and charter co-ordinator - The agreement further clearly says that the crew will work under the management of the hirer as per the direction and instructions and responsibility of the hirer - it is a case of hiring an equipment namely dipper dredger by the assessee and not a case of execution of the work by the Netherlands company on behalf of the assessee when the assessee pays hire charges to Netherlands company, whether the tax has to be deducted u/s. 195 of the Act - Merely because the equipment hired by the assessee from the Netherlands company was used for dredging at Visakhapatnam Port Trust it does not mean that the dipper dredger would constitute a PE - Therefore, the assessee need not deduct any tax at source under s. 195 of the Act - Decided in the favour of the assessee
Issues Involved:
1. Whether the payment made by the assessee to the Netherlands companies constitutes hire charges or business income. 2. Whether the Netherlands company has a Permanent Establishment (PE) in India. 3. Whether the assessee is liable to deduct tax at source under Section 195 of the IT Act. Issue-wise Detailed Analysis: 1. Whether the payment made by the assessee to the Netherlands companies constitutes hire charges or business income: The assessee, engaged in marine dredging and port construction, hired the dipper dredger "Ave Caesar" from M/s Macon Asia BV, Netherlands, and later from M/s Shipyard de Donge, Netherlands, after the ownership transfer. The agreement indicated that the assessee hired the dredger along with operators and a charter coordinator. The contract clearly stated that the dredger was hired for a weekly rate, and the cost of insurance and other expenses were borne by the assessee. The Tribunal concluded that the payment made by the assessee was for hire charges and not for any business income, as the Netherlands company did not execute any work in India but merely leased the equipment. 2. Whether the Netherlands company has a Permanent Establishment (PE) in India: The Tribunal examined whether the dipper dredger "Ave Caesar" constituted a PE in India. The learned Departmental Representative argued that the dredger, equipped with living space and communication facilities, should be considered a PE. However, the Tribunal held that merely hiring equipment with operators and coordinators does not establish a PE. The Netherlands company did not have a fixed place of business in India to control its activities. The Tribunal referenced Article 5 of the DTAA between India and the Netherlands, which defines PE, and concluded that the dredger did not meet the criteria for a PE, as the equipment was used by the assessee under its control and responsibility. 3. Whether the assessee is liable to deduct tax at source under Section 195 of the IT Act: Section 195 mandates tax deduction at source for payments to non-residents if the income is chargeable under the Indian IT Act. The Tribunal determined that the payment made to the Netherlands company was not taxable in India due to the absence of a PE. The Tribunal also considered conflicting judicial opinions from the Karnataka High Court and the Delhi High Court. Following the Supreme Court's decision in CIT v. Vegetable Products Ltd., which states that in cases of conflicting views, the one favoring the assessee should be adopted, the Tribunal concluded that the assessee was not liable to deduct tax under Section 195. Conclusion: The Tribunal dismissed the Revenue's appeals, confirming that the payment made by the assessee to the Netherlands companies was for hire charges and not business income. It also ruled that the Netherlands company did not have a PE in India, and therefore, the assessee was not required to deduct tax at source under Section 195 of the IT Act.
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