2021 (8) TMI 329 - AT - Income Tax

Taxability of receipts on hire of vessel on time charter basis - non existence of PE - receipts from the time charter of the vessel Smit Borneo brought to tax in its hands as royalty - charges received on account of time charter services rendered by the Appellant for the vessel 'Smit Borneo' to Leighton India Contractors Private Limited in India were rendered for the 'use' of industrial, commercial or scientific equipment, thereby treating the same as Royalty under section 9(1)(vi) - Whether 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')? - HELD THAT - As decided in own case 2020 (11) TMI 415 - ITAT MUMBAI 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. As such, we herein not being able to subscribe to the view taken by the lower authorities, to the extent they had concluded that the amounts received by the assessee for time charter of its vessel viz. 'Smit Borneo' was to be treated as royalty under Article 12(3)(b) of the India-Singapore tax treaty, therein vacate 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 We fallow the judicial precedence and of the substantive view that the receipts from the charter of vessel 'Smit Borneo' cannot be treated as royalty and direct the assessing officer to delete the addition as per the ratio of the decision discussed in the above paragraphs and allow the grounds of appeal in favour of the assessee. Taxability of reimbursement of expenses received by the assessee in respect of 'Smit Borneo' vessel and the contractors - HELD THAT - We find that the relevant details and allocations are to be verified. Accordingly, we remit the disputed claim to the file of the assessing officer for limited purpose to verify and examine the facts with the evidences. The assesses should be provided adequate opportunity of hearing and shall cooperate in submitting the information and allow the grounds of appeal for statistical purpose Additional TDS credits - HELD THAT - As assesses has submitted the supporting claim of evidences before the A.O. We are of the opinion that the assessee should not be deprived of its legitimate right for TDS credits. Accordingly, the assessing officer is directed to verify and examine the documents filed in support of TDS claim.

Summary

Issues Involved:
1. Assessment of total income.
2. Taxability of receipts on hire of vessel on time charter basis.
3. Taxability of revenues received on account of provision of services through time charter of vessel when the vessel is outside India.
4. Taxability of reimbursement of expenses.
5. Levy of surcharge and education cess.
6. Short granting of credit in respect of tax deducted at source (TDS).
7. Levy of interest under section 234B.
8. Initiation of penalty proceedings under section 271(1)(c).

Detailed Analysis:

1. Assessment of Total Income:
The assessee contested the assessment of its total income at ?13,64,81,159 against a returned income of NIL. The assessment was conducted under section 143(3) read with section 144C(13) of the Income Tax Act, 1961, following the directions of the Dispute Resolution Panel (DRP).

2. Taxability of Receipts on Hire of Vessel on Time Charter Basis:
The primary issue was whether the charges received for time charter services rendered by the assessee for the vessel 'Smit Borneo' to Leighton India Contractors Private Limited were to be treated as "Royalty" under section 9(1)(vi) of the Income Tax Act and Article 12 of the India-Singapore DTAA. The tribunal referred to the assessee's own case for the AY 2014-15, where it was decided that the receipts from the charter of the vessel could not be treated as royalty. The tribunal followed the judicial precedence and directed the AO to delete the addition.

3. Taxability of Revenues When the Vessel is Outside India:
The assessee argued that the charter hire fees earned during the period when the vessel was outside India should not be taxable as "Royalty" under the Act and the DTAA. The tribunal, following the decision in the previous assessment year, held that the receipts from the charter of the vessel could not be treated as royalty and directed the AO to delete the addition.

4. Taxability of Reimbursement of Expenses:
The tribunal noted that the relevant details and allocations of the reimbursement of expenses needed verification. The issue was remitted to the AO for a limited purpose to verify and examine the facts with evidence. The AO was directed to provide a reasonable opportunity of hearing to the assessee and to allow the grounds of appeal for statistical purposes.

5. Levy of Surcharge and Education Cess:
The assessee contended that the rate of 10% prescribed under the India-Singapore DTAA is inclusive of surcharge and education cess. The tribunal did not specifically address this issue in the detailed analysis.

6. Short Granting of Credit in Respect of TDS:
The assessee claimed additional TDS credits in the assessment proceedings. The tribunal directed the AO to verify and examine the documents filed in support of the TDS claim, ensuring the assessee is not deprived of its legitimate right for TDS credits.

7. Levy of Interest under Section 234B:
The tribunal noted that the ground of appeal regarding the chargeability of interest under section 234B is consequential in nature and does not require specific adjudication.

8. Initiation of Penalty Proceedings under Section 271(1)(c):
The tribunal dismissed the ground of appeal on the penalty proceedings initiated under section 271(1)(c) as it was raised prematurely by the assessee.

Conclusion:
The tribunal partly allowed the appeal for statistical purposes, directing the AO to delete the addition relating to the charter of the vessel and to verify the reimbursement of expenses and TDS claims. The issues concerning surcharge, education cess, and penalty proceedings were either not specifically addressed or dismissed. The order was pronounced on 20.07.2021.