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TMI Blog2012 (4) TMI 186X X X X Extracts X X X X X X X X Extracts X X X X ..... this survey action, the officers impounded a number of books, etc., including a copy of Standard Charter Agreement i.e., 'Baltime 1939' signed by the assessee-company and EMPL. The Assessing Officer discussed in his order about the copies of three agreements between the assessee and EMPL. Based on the statements recorded from one Shri A.P. Vithal and K. Ramesh of the assessee-company and material found during the course of survey, the Assessing Officer held that the subsequent two agreements were not authentic and it was only the first agreement found during the course of survey that was acted upon by the assessee. Hence, the Assessing Officer held that the assessee-company was liable to deduct TDS before making payment to M/s. EMPL, Singapore in accordance with the provisions of section 195 of the Act. Accordingly he held the assessee company as an assessee in default in respect of the alleged tax which ought to have been deducted by the assessee-company and paid to the Government account which was computed at Rs. 5,294,910. The Assessing Officer also imposed interest amounting to Rs. 1,449,236 under the provisions of section 201(1A) of the Act. 3. In the impugned order the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the CIT(A) that even if the Assessing Officer's finding that the assessee paid higher charges to EMPL was assumed to be correct, it did not follow that the payments made by the assessee to EMPL were royalty. The learned counsel for the assessee elaborated on the meaning of 'royalty' and the various decisions wherein the meaning of royalty has been discussed. 7. The learned counsel for the assessee argued that through out the period of sub-contract dredger Ketam remained in the control and possession of EMPL. It was operated by the personnel of EMPL who were answerable to EMPL and not to the assessee. It was for this reason that the assessee had emphasised that what it did was to assign a work contract to EMPL. It did not make any difference whether the payments to EMPL are measured as per the quantity of work done as claimed by the assessee or for the period during which work was done as contended by Assessing Officer. Whether the payments to EMPL were measured in terms of quantity of output or length of time the essential fact remained the same that the assessee assigned the job work or work contract to EMPL. By disputing the claim of the assessee on the basis of variations in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company was awarded the work of dredging for channel at Visakhapatnam Port Trust. He held that the contract given to EMPL was in the nature of sub-contract to undertake on behalf of the assessee's dredging work of Visakhapatnam Port with the equipment and manpower of EMPL and for that purpose the EMPL brought at work site their dredger in the name and style of 'Ketam' along with a set of 18 crew for 24 hours operation. M/s. EMPL also brought one unit of 'anchor boat' as a part of the dredger. The CIT(A) held that the payments made by the assessee to EMPL are contractual payments for execution of work contract assigned to them. Since at the work site the entire dredging operation was carried out by EMPL and all equipments remained in-charge and custody of EMPL at their own risk. 10. The CIT(A) pointed out to clause 3(a) of Article 12 of the treaty which defines the term royalty and also clause 3(b) which specifies any industrial, commercial or scientific equipment. The CIT(A) held as follows: "In the instant case the equipment has been used by East Marine under their custody and control by their personnel under their supervision and instruction of the appellant. Thus the appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the invoice where Rs. 340 lakhs has been raised to charter of one unit dredger Ketam from 28.5.2006 to 27.6.2006. As per Charter Agreement the invoice has been raised by M/s. EMPL for an amount of Rs. 340.00 lakhs. He also pointed out to the supply of manpower in for the month of May 2006 and invoice of $ 8000 has been raised. 14. The learned DR, therefore, contended that though it was agreed under the 'Dredging Contract' that EMPL would be remunerated either dredging charges SGD 340,000 per calendar month or SGD 2 per cum of dredged material in a month, whichever is higher, the payment to EMPL was made based on the agreed minimum guaranteed charges @ SGD 340,000 per calendar month or on pro-rata minimum guaranteed charges. The payment on the basis of agreed minimum guarantee, means that the EMPL was paid the charges as agreed regardless of whether or not any output generated by the dredger during its deployment in the Visakhapatnam Project. The EMPL was guaranteed to receive payments at agreed minimum charges regardless of whether the dredger is put to any use or not by Dharti. On the basis of above, it is clear that the payments made by Dharti are in the nature of hire/charte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e payment as business receipt of the EMPL it has to be established that there is a permanent establishment of EMPL in India which is not possible since the dredger Ketam has been operated in India for less than 183 days. The liability u/s 195 to deduct TDS depends upon chargeability of tax in the hands of recipient. In the present case, the entire dredging operation was carried out by East Marine Pte. Limited, Singapore and payment made to M/s East Marine is a contractual payment for execution of works contract assigned to them. It is admitted fact that equipment used by M/s East Marine was under the custody and control by them and under their supervision and instructions of the assessee. The assessee did not use the dredger or any part thereof on its own, nor had apparent acquired any right to use it from East Marine. Further, clause 3(a) of Article 12 of the Treaty defines the term 'Royalty" as payments of any kind received as a consideration for the use of or the right to use, any copyright of literary, artistic or scientific work including cinematograph films, or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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