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TMI Blog2024 (6) TMI 868X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh the assessee has raised 22 grounds of appeal, it essentially involves three grounds which could be tabulated as under for ease of adjudication: - 1. Whether the Ld. CIT(A) was justified to hold that hire charges received by the non-resident lessors under the bare charter arrangement is not taxable as Royalty as per the applicable provisions of the relevant treaty and erred in disallowing the hire charges for non withholding of taxes in India u/s. 40(a)(i) of the Act. 2. Whether the Ld. CIT(A) was justified to hold in confirming the transfer pricing adjustment of Rs. 23.46 Crores in relation to payment for hire of dredgers and vessels by applying TNMM methods rejecting the CUP method adopted by the assessee. 3. Whether the Ld. CIT(A) was justified to uphold the TP adjustment of Rs. 2,90,19,118/- in respect of excess fee paid for technical services. 3. The Ld. AR advanced arguments and placed on record issue-wise charts. The Ld. CIT-DR also made arguments in support of impugned order. Having heard rival submissions and upon perusal of case records, our adjudication would be as under. The assessee being resident corporate assessee is stated to be engaged in providing dredging and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entities. 4.3 The Transfer pricing (TP) adjustment as proposed by Ld. TPO was on account of payment of hire charges of dredgers and vessels by the assessee to its AEs. The assessee made payment of Rs. 1145.71 Lacs as Hire charges for dredgers and another payment of Rs. 7083.20 Lacs for hire of vessels. These transactions along with various other transactions viz. receivables from renting of vessels, sale of fixed assets, payment for technical services were benchmarked using Comparable Uncontrolled Price (CUP) method. The assessee adopted external CUP and relied on valuation given by independent Bureau Veritas. The Ld. TPO held that the same was not a valid CUP as per Rule 10B(1)(a), The assessee has to benchmark the transactions with comparable uncontrolled transactions. The certificate issued by independent valuer could not be considered as uncontrolled transactions. Therefore, the aforesaid method was rejected. 4.4 The assessee received payment of Rs. 77.76 Lacs on account of deputation of personnel and made payment of Rs. 126.68 Lacs on account of support services. These transactions were aggregated and benchmarked using Transactional Net Margin Method (TNMM) method. The assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. CIT(A) held that hire charges were to be considered as royalty payments for the use of or the right to use of industrial, commercial and scientific equipment. Such payments would be covered u/s 9(1)(vi) which would require TDS u/s 195. Accordingly, the grounds urged by the assessee were rejected. 5.2 The Ld. CIT(A) also upheld the conclusion of Ld. TPO that independent valuer certificate could not be accepted as valid CUP for the purpose of benchmarking. Therefore, the TP adjustments were also confirmed. Aggrieved, the assessee is in further appeal before us. Our findings and Adjudication 6. Disallowance of bare-boat charter hire payments u/s. 40(a)(i) 6.1 We find that the assessee has made impugned payments to Belgium based entities. The AO held the payment to be royalty under Article 12 and Sec. 9(1)(vi) of the Act and relied on the decision of Hon ble Tribunal in the case of West Asia Maritime Ltd. Vs. ITO [2008] 111 ITD 155 (Chny). However, it is admitted position that India- Belgium Treaty applies to the impugned payments. As per the submissions of Ld. AR, the AO has applied the old provisions of DTAA between India and Belgium wherein payment for use of equipment was char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble for deducting tax at source. Needless to mention that protocol will form an integral part of the convention and it has to be duly respected as the same is signed between two countries under agreement for avoidance of double taxation. Therefore, the assessee succeeds in its appeal on this issue. 6.3 The DTAA between India and Belgium has been revised vide Notification No.54(E)/2001 dated 19.01.2001 in the line of DTAA between India and Sweden in which definition of term Royalty in Article 12 Paragraph-3 sub-paragraph (a) has been revised as under: And whereas in the Convention between India and Sweden which became effective on the 1st April, 1998, in the case of India, and on the 1st January, 1998, in the case of Sweden, which state is a member of the Organisation for Economic Co-operation and Development, the Government of India has limited the taxation at source on royalties and fees for technical services to a rate lower and a scope more restricted than that provided in the Agreement between India and Belgium on the said items of income ; Now, therefore, in exercise of the powers conferred by section 90 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lands 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. 38. In the result, the appeal is dismissed and order of the Income Tax Appellate Tribunal Chennai 'A' Bench, dated 29.3.2007 made in ITA No. 1894/Mds/2005 for the assessment year 2003-2004 is confirmed. No costs. 6.5 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. 7. Transfer Pricing (TP) Adjustment in relation to payment for hire of dredgers and vessels 7.1 We find that the assessee had entered into hire agreements with its Associated Enterprises for leasing out their vessels and dredgers and benchmarked the said transaction under the CUP method based on valuation certificates issued by an independent valuer. The TPO rejected the benchmarking under CUP and aggregated the transaction f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. The agreement requires payment of fee amounting to 3% of project turnover of assessee. The assessee has paid Rs. 12.58 Crores to TBV which represents 3.9% of accounted turnover. The assessee has benchmarked the above transaction using CUP method. However, the TPO has re-computed their fee based on the turnover as per Profit Loss Account at Rs. 9.68 Crores (3% of the turnover of Rs. 322.79 Crores) and proposed downward adjustment towards the payment made in excess of 3% of the accounted turnover (Rs. 12.58 Cr. Rs. 9.68 Cr.). The assessee has submitted that has made payment for technical services as the percentage of the project turnover. The project as per agreement has been defined to mean dredging project/charter hire/sub contracting works outside India. The project turnover is thus, represented by the invoices raised by the assessee on third party. 8.2 The Ld. 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. However, it is admitted position that, on identical facts, this issue has been decided by Tribunal against the assessee in AY 2010-11 as under: - 5.3 ..... 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