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TMI Blog2017 (2) TMI 1099X X X X Extracts X X X X X X X X Extracts X X X X ..... but also for the services of moving the goods by a fully manned ship. In the decision of Asia Satellite Telecommunications Co. Ltd. (2011 (1) TMI 47 - DELHI HIGH COURT ) the payment so made by the assessee cannot be treated as royalty for he use of industrial or commercial or scientific use of the equipment. The Id. CIT(A) should have appreciated that the case has only booked the freight space in the ship (time charter) and has not taken the vessel on hire, it is done under what is called “bare boat charter. Therefore, the payment made in this case would not constitute ‘royalty’ paid for the use of industrial, or commercial, or scientific equipments. The essence of the time charter agreement executed between the parties speaks clearly that the asessee can utilize the space in the vessel and not that the assessee is authorized to operate or exercise control over the vessel. In the case of CBDT vs. Chowgule & Co. Ltd. [1991 (6) TMI 53 - KARNATAKA High Court] and in the case of Kar and Lima Lettoa & Co. Ld. Vs. UOI [1967 (11) TMI 27 - GOA High Court] has held that section 172 is a complete code by itself. Thus, the amount paid by the assessee to the FSC on time charter agreement wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and arising in India. He further observed that the charges paid by the taxpayer was on account of the use and hire of the ship and hence, it was royalty within the meaning of sec.9(1)(vi) of the I.T.Act, 1961 and Article 12 of the respective tax treaties. Accordingly, he treated the tax payer as assessee-in-default for non-deduction of tax at source while remitting such charges. On appeal, Ld.CIT(A) confirmed the addition made by the AO. Against this, the assessee is in appeal before us. 5. The ld. AR submitted that sec.172 of the Act has been applied by the Tribunal in assessee s own case for assessment year 2005-06 to 2007-08. The ld. AR relied on the decision of the Madras High Court in the case of Poompuhar Shipping Corporation Ltd. (282 ITR 003), wherein it was held that payment for charter hire is not payment for use of ship. It is only because of subsequent decision of the jurisdictional High Court rendered in the case of Poompuhar Shipping Corporation Ltd. (360 ITR 257)(Mad), payment u/s.172 has not been accepted. He also submitted that earlier in the case of Essar Shipping Corporation, reported in 47VST 209(Mad.) the Madras High Court has held that ship charter is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral Sales Tax Act. 5.1 The ld. A.R. further submitted that the assessee cannot anticipate and pay based on subsequent High Court order and Explanation 5 to sec.9(1)(vi) introduced in 2012. To support his view, he relied on the decision of the Ahmedabad Bench of the Tribunal in the case of Sterling Abrasive Ltd. V. ACIT (140 TTJ 68) and the Mumbai Bench in the case of Channel Guide India Ltd. (20 ITR (Trib) 438). According to the ld. AR, when the non-resident assessee has been assessed, payer is not an assessee in default and there can be no disallowance of expenditure in the hands of the payer u/s.40(a)(i) of the Act, as observed by the Supreme Court in the case of Hindustan Coca Cola Beverages (293 ITR 226). Further, he submitted that u/s.161(2) if an assessee is assessed as a representative assessee, then it cannot be assessed on the same income under any other provision of the Act. According to the ld. AR, since the assessee has already paid 7.5% u/s.172, this amount has been given credit to in the assessment as representative assessee. 6. On the other hand, the ld. DR submitted that Ld.CIT(A) considered the decision taken in the A.Y. 2007-08, in the case of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the business/professional activity of the resident recipient prima facie bears the character of an income receipt and therefore, the obligation under sub-sec.(1) of sec.195 springs up. Therefore, he submitted that it is imperative for a payer to ensure that the provisions of sec.195 are strictly followed in all payments to non-residents. If the amount of income embedded in a payment cannot be ascertained, it is better to deduct based on the gross amount. In case of doubt, an application for mitigation of TDS u/s.195(2) to the payer s assessing officer must be made. The alternative route of the C A Certificate in form 15CB may also be used. Only where there is strong justification and judicial support in the respective jurisdiction this alternative may be used. 6.2 According to the ld. DR, sec.160 and sec.161 of the Act, are enabling sections. They enable the Revenue to make an assessment on the representative assessee instead of a direct assessment on the person beneficially entitled to the income. So long as receipt is falling u/s.9, provisions of sec.160 would stand attracted. U/s.160(1) of the Act, representative assessee means an agent of non-resident, including a person w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3) of the Act defines plant to include ships. There is a separate provision relating to income of shipping companies under Chapter XIIG of the Act. Sec.115V of the Act defines various terms like bare boat charter, bare boat charter-cumdemise, Director-General of Shipping, factory ship, fishing vessel, etc. Thus, with reference to sections 28 to 41 of the Act, as is evident from the inclusive definition in sec.43(3), the word plant is widely defined to include a ship. The ship is equipment, with which the assessees carried on their businesses, which they keep for employment in their business. The ld. DR, submitted that equipment , in whatever name called either as an apparatus or as plant or machinery, so long as they are employed for the purposes of one s income, the same shall stand covered by clause (iva) of Explanation 2 of sec.9. Thus, a ship is equipment of the business of a ship owner on a natural and ordinary meaning of the word, no justification was found to go by the definition under the Merchant Shipping Act. 6.8 The ld. DR, submitted that the moving ship has a place of business in the place where the ship is docked and the fact that the ship moved from one point ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shipping company, s.40(a)(i) was clearly attracted; assessee being a resident company, there was no question of invoking sec.172. 6.10 According to the Ld. DR, the assessee is a company, incorporated under the provisions of Indian Companies Act, 1956, is an admitted position. The assessee cannot be said to be nonresident and in the facts of the case, the assessee cannot lay fingers on sec.172. The other aspect, according to him, is that such profits of non-residents should be from occasional shipping business. It is not the case that the assessee has earned some profit from occasional shipping and is a non-resident. Sec.172 does not have application in relation to the assessee and this is not a case of tax liability of the foreign company. 6.11 The ld. DR relied on the decisions in the case of Union of India v. Gosalia Shipping Pvt. Ltd. (113 ITR 307)(SC), CIT v. Hongkong Oceans Shipping (238 ITR 955) and CIT v. Taiyo Gyogyo Kabushiki Kaisha (244 ITR 177), dealing with the cases u/s.172 and submitted that where the facts are covered by charter agreements and the payment not being one for freight but for the use of the ship, the receipts are rightly brought under the definitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere cannot be any disallowance under section 40(a)(i). The ld.A.R relied on the Tribunal order in assessee's own case for assessment year 2005-06 2007- 08 and also the judgment of Supreme Court in the case of Transmission Corporation of Andhra Pradesh Ltd. reported in [1999] 239 ITR 587 (SC) and also the decision of the Hon ble Supreme Court was not considered, and so also the decision of the Hon ble Delhi High Court in the case of Asia Satellite Telecommunication Co. Ltd. vs. DCIT reported in 332 ITR 340. 8. We have heard rival submissions and have perused the entire record available before us. The assssee had hired vessels from Foreign Shipping Companies (FSC) for the transportation of coal for Karanataka Power Corporation Limited; based on the availability of cargo and vessels. The vessels were hired, admittedly, on a time charter basis. The assessee paid the time charter hire charges as agreed by the vessel owner. The Captain/Master of the vessel, crew and other staff of the ship are controlled by the ship owner, namely FSC only. The assessee company would intimate the availability of the cargo and from where to where the cargo has to be moved. The repairs and maintena ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Hon ble Supreme Court in the case of Bharat Sanchar Nigam Limited and others vs. UOI (2006) 282 ITR 273 (SC), of which the Id. AR has placed reliance, the Hon ble Apex Court has laid down the significance to hold license required to be operated in question. It is only a person but holds requisite license as required by the statute, who can be stated to operate, use and control the equipment whatever it may be. 8.2 In this case, the requisite approvals have to be obtained from Maritime Authorities to hold and operate the vessels. It is not the case that anybody or everybody can operate a vessel. The powers of charterer (in this case this assessee) under the time charter agreement is extremely limited like the charterer cannot dry-dock the vessel and the vessel is operated by its Captain/Master and its crews, who are appointed by the ship owner and not by the charterer (the assessee). There is a distinction between letting the asset and use of asset by the owner for providing services. The payment made for the use of asset by owner for the purposes cannot be tantamount to a royalty . In this case, the consideration is not for use of the ship only, but also for the services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10.2011 for assessment year 2007-08 held as under:- 13. We have heard rival submissions and have perused the entire record available before us. The assssee had hired vessels from Foreign Shipping Companies (FSC for the transportation of coal for Karanataka Power Corporation Limited; based on the availability of cargo and vessels. The vessels were hired, admittedly, on a time charter basis. The assessee paid the time charter hire charges as agreed by the vessel owner. The Captain/Master of the vessel, crew and other staff of the ship are controlled by the ship owner, namely FSC only. The assessee company would intimate the availability of the cargo and from where to where the cargo has to be moved. The repairs and maintenance of the ship are all done and born by the owner of the ship. The vessel is also to be insured by the owner. The cargo was being transported between Paradeep Port and Chennai Port as and when so required. For doing this work, the vessel was converted from Foreign Run Vessel (FRV) to Coastal Vessel and then reconvert to time charter thereafter. During the year under consideration, the assessee company had taken one charterer from a vessel from London Shipping ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee neither has control nor the possession over the vessel in question. The decision of the Hon ble Supreme Court in the case of Bharat Sanchar Nigam Limited and others vs. UOl (2006) 282 ITR 273 (SC), of which the Id. AR has placed reliance, the Hon ble Apx Court has laid down the significance to hold license required to be operated in question. It is only a person but holds requisite license as required by the statute, who can be stated to operate, use and control the equipment whatever it may be. In this case, the requisite approvals have to be obtained from Maritime Authorities to hold and operate the vessels. It is not the case that anybody or everybody can operate a vesseL The powers of charterer (in this case this assessee) under the time charter agreement is extremely limited like the charterer cannot dry-dock the vessel and the vessel is operated by its Captain/Master and its crews, who are appointed by the ship owner and not by the charterer (the assessee). There is a distinction between letting the asset and use of asset by the owner for providing services. The payment made for the use of asset by owner for the purposes cannot be tantamount to a royal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f shares as giving rise to STCG in assessment completed under section 143(3). The facts and circumstances in the present assessment year and the assessment years referred to above were identical. Though the rule of res judicata is not applicable but the principle of consistency will definitely apply and on that basis the claim of the assessee should be held to be proper . ii) DCIT vs. Lokenath Saraf Securities (P.) Ltd., 73 Taxmann.com 234 (Kolkata) has held that Though the principle of res judicata does not apply to income tax proceedings, the principle of consistency cannot be given a go by. Reliance in this regard is placed on the decision of the Hon ble Apex Court in the case of Radhasoami Satsang v. CIT (1992) 193 ITR 321/60 Taxman 248. iii) CIT v. Gopal Purohit in [2010] 188 Taxman 140(Bombay) has held that though principle of res judicata is not applicable to assessment proceedings, yet there ought to be uniformity in treatment and consistency when facts and circumstances are identical iv) H.A.Shah Co. v. CIT, 30 ITR 618 (Bombay), has held that though the rule of res judicata is also known as estoppel by record. Courts have been generally inclined not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Merilyn Shipping and Transports v. Addl. CIT [2012] 16 ITR (Trib) 1 (Visakhapatnam) [SB] wherein held that when the expenses is not outstanding at the end of the close of the financial year, provisions of the section 40(a)(ia) of the Act cannot be applied. Following that proposition, in our opinion, when the hire charges of shipping is not outstanding at the end of the close of financial year and it was already paid by the assessee, there cannot be any disallowance of that expenditure in these assessment years. Accordingly, this ground raised by the assessee in its appeals is allowed and ground in the Revenue appeals is disallowed. 8.5 In the result, the appeals of assessee in ITA Nos.1074,1075 1076/Mds./2015 ae allowed and the appeal of Revenue in 1573 to 1575/Mds./2015 are dismissed. 9. Next we take up assessee s appeals in ITA No.1077 to 1079/Mds./2015. 10. The common issue in assessee s appeals in ITA Nos.1077, 1078 1079/2015 is that the Ld.CIT(A) erred in sustaining the action of the AO in treating the assessee as the representative assessee and consequently erred in sustaining the re-assessment in bringing to tax the hire charges earned by the shipping ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts to FSCs under sec.195. The Tribunal found that the payments made by the assessee to FSCs were not in the nature of royalty and therefore, sec.195 does not apply as such and there cannot be any disallowance of expenditure under sec.40(a)(ia). 14. A portion of the order of the Tribunal reflected in pages 14 and 15 is reproduced below to make the matter clear :- It is not the case that anybody or everybody can operate a vessel. The powers of charter (in this case this assessee) under the time charter agreement is extremely limited like the charterer cannot drydock the vessel and the vessel is operated by its Captain/Master and its crews, who are appointed by the ship owner and not by the charterer (the assessee). There is a distinction between letting the asset and use of asset by the owner providing services. The payment made for the use of asset by owner for the purposes cannot be tantamount to a royalty . In this case, the consideration is not for use of the ship only, but also for the services of moving the goods by a fully manned ship. In the decision of the Hon ble Delhi High Court in the case of Asia Satellite Telecommunications Co. Ltd. (supra), the payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontinued business and in case of a person leaving India. The assessments are made in the previous year itself. In that special scheme, the tax on ships leaving Indian ports is calculated at a presumptive rate. Once the tax is paid on the basis of that presumptive rate, the liability of the foreign ship leaving the ports is discharged. In the present case, the tax has been paid under sec.172, thereby the FSCs have discharged their liabilities towards Indian income-tax. When the FSCs themselves have discharged their liabilities towards tax by complying with the provisions of sec.172, there is no question of any further liability in their hands. When there is no such tax liability in their hands, there is no justification in making the assessment again in the hands of the assessee company in the status of representative assessee , which tantamount to double assessment, which is not permissible under the law. The payment of tax made by the FSCs. undersec.172 tantamount to discharging of tax liability of those companies and there is no reason why those companies again be assessed. When the principal itself does not make any liability, the agent cannot be fastened with any liability. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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