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2024 (6) TMI 868 - AT - Income TaxTDS u/s 195 - Disallowance of bare-boat charter hire payments u/s. 40(a)(i) - Scope of DTAA between India and Belgium - HELD THAT - The expression use of industrial, commercial or scientific equipments has been excluded from the purview of royalty under the amended treaty. The Hon ble High Court of Madras in the case of CIT vs. Van Oord ACZ Equipment BV 2014 (11) TMI 605 - MADRAS HIGH COURT has also considered the revised definition of Royalty in Article 12 between India and Netherland and held that the appellate authority below has rightly considered Article 12(4) of the DTAA agreement between Netherlands and India and is right in holding that the amount received by the assessee for hiring out Dredgers to an Indian Company of the same name for use in Indian Ports is not taxable in India and the substantial question of law is answered against the Revenue / appellant. Therefore, considering the facts of the case, we would hold that the assessee is not liable to deduct tax on the hire charter payments made to Belgium based companies. The impugned disallowance stand deleted. The corresponding grounds raised by the assessee stands allowed. TP Adjustment in relation to payment for hire of dredgers and vessels - Selection of MAM - TPO rejected the benchmarking under CUP and aggregated the transaction for benchmarking under entity level TNMM observing that the valuation certificate issued by Bureau Veritas is not an uncontrolled transaction - HELD THAT - The assessee has benchmarked the payment made for hire of dredgers and vessels to its AEs by adopting CUP method. However, the TPO has rejected the CUP method and adopted entity level TNMM method, proposing adjustment of Rs. 23.46 Crores. The Mumbai Tribunal in the case of Van Oord Dredging and Marine Contractor BV 2019 (5) TMI 1978 - ITAT MUMBAI on identical facts, has accepted assessee s benchmarking of international transaction of charter hire paid to AE using CUP method, based on independent valuer certificate for bench marking. The bench, on the principle of consistency, allowed the appeal. We find that similar facts exist before us. The TPO in assessee s own case for AY 2010-11 to 2012-13 has accepted the CUP method adopted by the assessee based on the valuation certificate issued by Bureau Veritas and has not made any adjustment. In view of the above, as the assessee s case is squarely covered by the decision of Hon ble ITAT, Mumbai (supra), the ALP adjustment made by AO is deleted. The aggregation approach adopted by Ld. TPO is rejected. The corresponding grounds raised by the assessee stands allowed. TP adjustment in relation to the payment of availing technical services - AR has submitted that the TPO has failed to appreciate that the assessee has agreed for consideration amounting to 3% of the project turnover and not the amended turnover - HELD THAT - On identical facts, this issue has been decided by Tribunal against the assessee in AY 2010-11 2016 (7) TMI 1699 - ITAT CHENNAI wherein as held DRP has only computed the correct fee payable by the assessee to its AE in accordance with the rate prescribed towards the eligible turnover while as the assessee had computed the fee according to their convenience and advantage disregarding the agreement with its AE. For the irrational payment made by the assessee over and above the terms of the agreement between the assessee and its AE the DRP/TPO has revised the profit of the assessee by downward adjustment. Therefore, we do not find it necessary to interfere with the orders of the learned DRP and the learned Assessing Officer. Accordingly, this issue is decided against the assessee. Short-credit of TDS - CIT(A) has not given any direction and hence, the grievance of the assessee. In this regard, we direct Ld. AO to verify the claim of TDS and allow the credit in accordance with law. The corresponding grounds of appeal stand allowed for statistical purposes.
Issues Involved:
1. Taxability of hire charges received by non-resident lessors under the bare charter arrangement as 'Royalty' and disallowance under Section 40(a)(i) of the Income Tax Act, 1961. 2. Transfer Pricing (TP) adjustment related to the payment for hire of dredgers and vessels by applying the TNMM method instead of the CUP method adopted by the assessee. 3. TP adjustment concerning excess fees paid for technical services. Detailed Analysis: 1. Disallowance of Bare-Boat Charter Hire Payments u/s 40(a)(i): The assessee made payments to Belgium-based entities for hiring dredgers, excavators, and ships without deducting TDS, arguing that these payments were not taxable as royalty under the amended India-Belgium DTAA. The AO disagreed, treating the payments as royalty under Section 9(1)(vi) and Article 12 of the DTAA, leading to disallowance under Section 40(a)(i). Upon appeal, it was clarified that the term "Royalty" in the amended DTAA (effective 01.04.1998) excluded payments for the use of industrial, commercial, or scientific equipment. The Tribunal referenced its own decision in the assessee's case for AY 2010-11 and the Madras High Court ruling in CIT vs. Van Oord ACZ Equipment BV, concluding that the payments were not taxable as royalty and the assessee was not liable for TDS. Consequently, the disallowance under Section 40(a)(i) was deleted. 2. Transfer Pricing Adjustment for Hire of Dredgers and Vessels: The assessee benchmarked the hire charges using the CUP method based on independent valuation certificates from Bureau Veritas. The TPO rejected this method, stating that the certificates did not represent uncontrolled transactions, and instead applied entity-level TNMM, proposing an adjustment of Rs. 23.46 Crores. The Tribunal noted that in subsequent years, the TPO accepted the CUP method based on similar valuation certificates. Citing the principle of consistency and the Mumbai Tribunal's decision in Van Oord Dredging and Marine Contractor BV, the Tribunal upheld the CUP method for the impugned year, rejecting the TNMM approach and deleting the TP adjustment. 3. TP Adjustment for Excess Fees Paid for Technical Services: The assessee paid technical fees to its AE, Tideway BV, based on project turnover, which was higher than the 3% stipulated in the agreement. The TPO recalculated the fee based on the turnover in the Profit & Loss Account, proposing a downward adjustment for the excess payment. The Tribunal referenced its previous decision for AY 2010-11, where it upheld the TPO's adjustment for similar facts, concluding that the assessee's payment exceeded the agreed terms. Therefore, the TP adjustment for excess fees paid was confirmed. 4. Short-Credit of TDS: The assessee claimed that the AO granted TDS credit of Rs. 773.08 Lacs instead of Rs. 1121.01 Lacs. The Tribunal directed the AO to verify and allow the correct TDS credit in accordance with the law. Conclusion: The appeal was partly allowed, with the Tribunal deleting the disallowance under Section 40(a)(i) and the TP adjustment for hire charges, while confirming the TP adjustment for excess fees paid for technical services. The issue of short-credit of TDS was remanded for verification.
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