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TMI Blog2021 (8) TMI 329X X X X Extracts X X X X X X X X Extracts X X X X ..... in 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 reimbu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellant; Taxability of revenues received on account of provision of services through time charter of vessel during the period when the vessels outside India: ₹ 2,02,53,777/- 5. without prejudice to the above, erred in holding that an amount of ₹ 2,02,53,777 representing charter hire fees earned during the period when the vessel Smit Borneo was outside India shall be taxable as Royalty under the Act as well as under Article 12 of the India-Singapore DTAA. 6. without prejudice to the above, erred in not appreciating the fact that the aforesaid income was neither received nor deemed to be received in India nor accrued or arisen in India or deemed to accrue or arise in India and accordingly, the same ought not to be taxable in India. 7. without prejudice to the above, erred in not applying the special deeming - provisions of section 44BB of the Act, wherein 10% of the gross receipts shall be deemed to be income of the Appellant Taxability of reimbursement of expenses of ₹ 1,09,187/- 8. erred in holding that reimbursement of expenses on account of on-hire water, fuel, lubricants and repairs cost received by the Appellant amountin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has chartered the vessel for carrying out certain activities of exploration or extraction of mineral oils. The assessee has filed the return of income for A.Y 2015-16 on 30.09.2015 with total income of Rs. Nil. Subsequently, the case was selected for scrutiny and notice u/s. 143(2) and 142(1) of the Act are issued. In compliance, the Ld. AR of the assessee appeared from time to time and furnished the details and the case was discussed. The A.O scrutinized the details supporting the return of income filed. The assessee was called to explain the reasons for not offering any income to tax u/s. 44BB of the Act and notice was issued. The assessee has submitted that the period of charter hire in F.Y 2014-15 was 81 days i.e from 1st April 2014 to 20th June 2014 and as per the Article 5 of the Indo-Singapore DTAA the threshold for constituting the permanent establishment (PE) is 183 days in a fiscal year where the services and facilities are in connection with exploration and extraction of mineral oils in India. The contentions of the Ld. AR that they do not have any PE in India and accordingly revenue is no taxable. 3. The Assessee was issued the notice u/s. 142(1) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are read as under: 14. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements relied upon by them. As observed by us hereinabove, the assessee had sought our indulgence for adjudication of three issues viz. (i) that, as to whether or not the consideration received by the assessee from time charter of its vessel 'Smit Borneo' had rightly been assessed as 'royalty' by the A.O/DRP under clause (iva) of the 'Explanation 2' to Sec. 9(1)(vi) of the Act, and also Article 12(3)(b) of the India-Singapore tax treaty; (ii) that, as to whether or not the A.O/DRP are right in law and the facts of the case in treating the mobilisation fees received by the assessee as 'royalty', both under the Act, as well as the India-Singapore tax treaty; and (iii) that, as to whether or not the A.O/DRP are justified in treating the consideration received by the assessee towards reimbursement of expenses from Leighton India Contractor Pvt. Ltd., as royalty. 15. In our considered view, the genesis of the controversy involved in the present a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) the rendering of any services in connection with the activities referred to in sub-clauses (i) to (iv), (iva) and (v) Further, the term 'royalty' has been defined as per Article 12 of the India-Singapore tax treaty, as under: 3. The term royalties as used in this Article means payments of any kind received as a consideration for the use of, or the right to use: (a) any copyright of a literary, artistic or scientific work, including cinematograph films or films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right, property or information; (b) any industrial, commercial or scientific equipment, other than payments derived by an enterprise from activities described in paragraphs 4(b) or 4(c) of Article 8. As observed by us hereinabove, the assessee in order to impress upon us that its case does not fall within the meaning of the term 'royalty' as defined in 'Explanation 2' to Sec. 9(1)(vi) of the Act, had came forth w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Contractor Pvt. Ltd., and had at no stage given or parted with the 'use' or 'right to use' of the said vessel to the charterer, viz. Leighton India Contractor Pvt. Ltd., the same thus could not be treated as royalty in the hands of the assessee. On a perusal of the records, we find substantial force in the claim of the assessee that the nature of 'agreement' entered into by it with Leighton India Contractor Pvt. Ltd., was for providing of time charter services, and not for hiring of any equipment. As such, there is substance in the claim of the ld. A.R that the assessee had only time chartered its vessel viz. 'Smit Borneo' along with the crew to Leighton India Contractor Pvt. Ltd., and had at no stage passed over the 'use' or 'right to use' of the said vessel to the charterer. But then, we cannot remain oblivious of the fact that the ld. A.R could not dislodge the claim of the revenue that as per 'Explanation 5' to Sec. 9(i)(vi) of the Act, the fact as to whether the possession or control of the right or property was with the payer or the right or property was used directly by the payer, would have any bearing on the characte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the aforesaid 'agreement', which reads as under: Clause 7 (a)(i) Subject to STCW code, The Master shall carry out his duties promptly and the Vessel shall render all reasonable services within her capabilities by day and by night and at such times and on such schedules as the Chatterers may reasonably require without any obligations of the Chatterers to pay to the Owners or the Master, Offices or the Crew of the Vessel any excess or overtime payment. Clause 7 (b) The Vessel's crew if required by, chatterers will connect and disconnect electric cables, fuel, water and pneumatic hoses when placed on board the Vessel for loading and unloading cargoes, and will hook and unhook cargo on board the Vessel when loading or discharging alongside offshore units. Clause 7(d) The entire operation, navigation, and management of the vessel shall be in the exclusive control and command of the Owners, their Masters, Officers and Crew. The Vessel will be operated and the services hereunder will be rendered as requested by the Chatterers, subject always to the exclusive Right of the Owners or the Master of the Vessel to determine whether operation of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g on its earlier judgment in the case of Asia Satellite Telecommunication company ltd. Vs. DIT (2011) 332 ITR 340 (Del), had observed as under: 34. As far as DTAA in the present case is concerned, the income earned by the Assessee would be treated as royalty only where it is received as consideration for the use of the equipment, i.e., industrial, commercial or scientific. It can also be for use of or the right to use any copyright or for information concerning industrial, commercial or scientific experience. It is clear from the contract itself that the control of the equipment throughout remained with the Petitioner and did not get transferred to IOCL. 35.1 In this context, it is necessary to refer to the decision of this Court in Asia Satellite Telecommunications Co. Ltd. (supra). The facts were that the Assessee in that case, Asia Satellite Telecommunications Co. Ltd. (ASTC), a company incorporated in Hong Kong, was carrying on the business of private satellite communications and broadcasting facilities and was the lessee of a satellite called AsiaSat 1 which was launched in April 1990 and was the owner of a satellite called AsiaSat 2 which was launched in November 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial to the Assessee, will have to in terms of Section 90 (2) of the Act, make way for the provision of the DTAA which is more beneficial to the Assessee. This aspect too has been clarified by the Court in Asia Satellite Telecommunications (supra). It was observed: The effect of an agreement made pursuant to Section 90 is that if no tax liability is imposed under this Act, the question of resorting to agreement would not arise. No provision of the agreement can fasten a tax liability when the liability is not imposed by this Act. If a tax liability is imposed by this Act, the agreement may be resorted to for negativing or reducing it. In case of difference between the provisions of the Act and of an agreement under section 90, the provisions of the agreement shall prevail over the provisions of the Act and can be enforced by an appellate authority or the court. However, as provided by sub-section (2), the provisions of this Act will apply to the assessee in the event they are more beneficial to him. Where there is no specific provision in the agreement, it is the basic law, i.e., the Income-tax Act which will govern the taxation of income. 36. For the payment to be char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the Hon'ble High Court, and are in agreement with the claim of the ld. A.R that the facts therein involved are distinguishable as in comparison to those in the case before us, which can be briefly culled out as under: Sr. No In case of Madras HC ruling In case of assessee 1 Assessee was engaged in the business of moving coal from various ports in India to a particular location in India. Assessee was in the business of providing time charter services in connection with prospecting, extraction or production of mineral oil in India. 2 The place of re-delivery of ships was at the option of the assessee (i.e charterer or the lessee). The place of delivery and redelivery of the vessel was at the location of the assessee (i.e the owner or the lessor) in Singapore (refer Box No. 7 8 of the agreement). 3 The masters/captains and others working in the ships are at the disposal of the assessee (i.e charterer or lessee. The entire operation, navigation and mana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement in Department's contention that the payment made in time charter of vessels in this case constitutes 'royalty''. This perception seems to be misconceived. The Hon'ble Delhi High Court in the case of Asia Satellite Telecommunication Co. Ltd. vs. DCIT (supra) has held that two things are necessary to christen a payment as a 'royalty' under Explanation 2 appended to clause (vi), which speaks about possession and control of the vessel in the given case, the assessee neither has control nor possession over the vessels. The Captain/Master and the crew is instructed, directed and controlled by the ship owner only and not by the assessee. The assessee simply informs the description of the cargo to be carried on and from which port to which port the cargo has to be transported. Thus, it becomes clear that the assessee neither has control/nor the possession over the vessel in question. Apart from that, we find that a similar view had also been arrived at by the ITAT Ahmedabad bench 'I' in the case of DCIT, International Taxation, Baroda Vs. Bombardier Transportation India Pvt. Ltd. (2017) 162 ITD 586 (Ahd). In the said case, it was observed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d observations. 19. We shall now advert to the claim of the ld. A.R that the mobilisation fees of ₹ 17,80,500/- received by the assessee from Leighton India Contractor Pvt. Ltd. had wrongly been treated as royalty, both under Sec. 9(1)(iv) of the Act, and Article 12(3)(b) India-Singapore tax treaty. As noticed by us hereinabove, it was inter alia observed by the A.O/DRP that as the mobilisation of the vessel viz. 'Smit Borneo' formed an inextricable part of the time charter services rendered by the assessee, thus the fees therein received were also to be assessed as royalty. As we have concluded that the consideration received by the assessee from time charter of the vessel viz. 'Smit Borneo' would not fall within the realm of the definition of the term 'royalty' as contemplated in Article 12 of the India-Singapore tax treaty, therefore, the mobilisation fees, which as observed by the A.O/DRP formed an inextricable part of such time charter services has to be similarly construed. As such, we vacate the treatment of the mobilisation fees received by the assessee as royalty by the lower authorities. The Grounds of appeal No. 5-7 are allowed in terms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bility of reimbursement of expenses received by the assessee in respect of 'Smit Borneo' vessel and the contractors. 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. 8. We find the assessee has claimed additional TDS credits in the Assessment proceedings. The 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. 9. The ground of appeal of chargeability of interest u/s. 234B of the Act is consequential in nature and does not require any specific adjudication. 10. The assessee has assailed ground of appeal on the penalty proceedings initiated u/s. 271(1)(c) of the Act. The ground of appeal is raised ..... X X X X Extracts X X X X X X X X Extracts X X X X
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