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TMI Blog2024 (11) TMI 953X X X X Extracts X X X X X X X X Extracts X X X X ..... arious ports outside India.'Firstly, the impugned payment made by the assessee is not in the nature of Royalty under section 9(1)(vi) of the act as the payments were mere simplicitor freight charges. We note that the AO s conclusion in the Assessment order passed, referring to the explanation 2 of section 9(1)(vi) of the Act for treating the said consideration paid by the Respondent to HSC as Royalty towards to right to use of industrial, commercial or scientific equipment i.e., vessel, devoid of merits. As observed from the documents produced by the assessee and as per agreement entered into with HSC, the services does not confer any right to use of the equipment i.e. ship. The services relate only to logistic services, i.e., for movement of goods across various ports outside India and hence the contention of the Ld. FAO factually incorrect and wholly contrary to law. The claim of the assessee that the payment of ocean freight to a non-resident company does not tantamount to royalty. See A.P. Moller Maersk AS [ 2017 (2) TMI 993 - SUPREME COURT] DTAA between India Korea existing during the A.Y. 2015-16 - We note that the HSC does not have any place of business/office in India a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in deleting the disallowances made u/s. 40(a)(i) of the IT Act without appreciating the fact that the consideration paid to Hyupjin Shipping Co. Ltd, Korea fall within the ambit of provisions of Section 9(1)(vi) of the Act. 3. The Ld. CIT(A) erred in deleting the disallowances made u/s. 40(a)(i) of the IT Act without appreciating the fact that the ocean freight charges paid by the assessee company for availing those services falls under the definition of 'Royalty' as per article 12.3 of India-Korea DTAA. 4. The Ld. CIT(A) erred in deleting the disallowances made u/s. 40(a)(i) of the IT Act without appreciating the fact that the Ocean Freight Charges received by the Hyupjin. Shipping Co. Ltd, Korea was deemed to accrue or arise in India and the assessee is liable for deduction of tax on the said payments u/s. 195 of the Act. 5. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored. Further, the revenue has raised the following additional ground of appeal : Whether the Ld.CIT(A) NFAC erred in deleting the disallowance made u/s. 40(a)(i) of the Act re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. DR has relied on the orders of the AO and assailing the action of the ld.CIT(A) stated that deletion of disallowances made u/s. 40(a)(i) of the IT Act without appreciating the fact that the consideration paid to Hyupjin Shipping Co. Ltd, Korea fall within the ambit of provisions of Section 9(1)(vi) of the Act. Further, the Ld. CIT(A) erred in deleting the disallowances made u/s. 40(a)(i) of the IT Act without appreciating the fact that the ocean freight charges paid by the assessee company for availing those services falls under the definition of 'Royalty' as per article 12.3 of India-Korea DTAA. 6. The Ld.DR argued that the Ld.CIT(A) erred in deleting the disallowances made u/s. 40(a)(i) of the IT Act without appreciating the fact that the Ocean Freight Charges received by the Hyupjin Shipping Co. Ltd, Korea was deemed to accrue or arise in India and the assessee is liable for deduction of tax on the said payments u/s. 195 of the Act. The Ld.DR also drew our attention to order of Ld.CIT(A) NFAC and stated that disallowance made u/s. 40(a)(i) of the Act was wrongly deleted by relying on the order passed by Hon ble Tribunal in assessee s case for the A.Y. 2013-14 and 2014 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the business cannot be conducted without the same, which was allowed to be used by the agents of the assessee as well in order to enable them to discharge their role more effectively as agents, it is only a facility that was allowed to be shared by the agents. The Hon ble Chennai Tribunal in the case of Sical Logistics Ltd. v ADIT (2017) (78 taxmann.com 158) (Chennai Tribunal). The Hon ble Mumbai Tribunal in the case of Nan Lian Ship Management LLC v. ACIT(Int. Tax) (2023) 147 taxmann.com 524 (Mumbai Tribunal). The Hon ble Mumbai Tribunal in the case of Smit Singapore Pte Ltd. v. Dy.CIT [2021] 125 taxmann.com 349 (Mumbai Tribunal). 9. NO INCOME IS DEEMED TO ACCRUE OR ARISE OR RECEIVED IN THE HANDS OF HSC IN INDIA. 9.1 The Ld. AR argued that HSC does not have any place of business/office in India and no activities are being carried out by HSC in India, there exists no business connection for HSC in India. Therefore, no income arises through business connection in India under s. 9(1)(i). Further, as per the India-Korea tax treaty, the business profits of a foreign company would not be taxable in India if such company does not have a permanent establishment in India through which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erstwhile India- Korea tax-treaty, the freight income earned by HSC would be taxable only in Korea and no incidence of tax withholding would arise in India. Hence, the Ld.AR prayed for dismissing the appeal of the revenue. 11. We have heard the rival contentions, perused the orders, paper books and gone through the orders of lower authorities. The assessee is a resident Indian Company, is engaged in the business of manufacture / job work of boiler pressure parts, panels, header and coils and designing, building, installation and maintaining engineering plants relating to thermal and coal power plants. During the assessment year the assessee had incurred expenses towards freight charges paid to a non-resident logistic company - Hyupjin Shipping Co. Ltd., Korea ( HSC ). The Assessee had engaged HSC, a Korean logistics company for availing logistics services along with coordinating with port authorities for vessel berthing, loading, unloading, port clearances, approvals, licenses, permits etc. at various ports outside India. The charges paid to HSC comprises of the following: i. Freight charges for shipment of goods from various ports outside India to Chennai, India. ii. Cost-to-cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Ld. FAO factually incorrect and wholly contrary to law. 14. Further, the reliance of assessee on the following judicial pronouncements have supported the claim of the assessee that the payment of ocean freight to a non-resident company does not tantamount to royalty. DIT vs. A.P. Moller Maersk AS, Civil Appeal No.8040 of 2015, wherein the Hon ble Supreme Court observed that: 12. Pertinently, the Revenue itself has given the benefit of Indo- Danish DTAA to the assessee by accepting that under Article 9 thereof, freight income generated by the assessee in these Assessment Years is not chargeable to tax as it arises from the operation of ships in international waters. Once that is accepted and it is also found that the Maersk Net System is an integral part of the shipping business and the business cannot be conducted without the same, which was allowed to be used by the agents of the assessee as well in order to enable them to discharge their role more effectively as agents, it is only a facility that was allowed to be shared by the agents. - Sical Logistics Ltd.V. ADIT (2017) (78 taxmann.com 158) (Chennai Tribunal). - Nan Lian Ship Management LLC v. ACIT (Int. Tax) (2023) 147 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... national Taxation) v. Samsung Electronics Co. Ltd., reported in (2010) 320 ITR 209 (Kar), has been overruled by the Supreme Court in GE India Technology Centre P. Ltd. V. CIT, reported in (2010) 327 ITR 456 (SC). The Supreme Court held as under: This reasoning flows from the words sum chargeable under the provisions of the Act in Section 195(1). The fact that the Revenue had not obtained any information per se cannot be a ground to construe Section 195 widely so as to require deduction of TAS even in a case where an amount paid is not chargeable to tax in India at all. We cannot read Section 195, as suggested by the Department, namely, that the moment there is remittance the obligation to deduct TAS arises. If we were to accept such a contention it would mean that on mere payment income would be said to arise or accrue in India. Therefore, as stated earlier, if the contention of the Department was accepted it would mean obliteration of the expression sum chargeable under the provisions of the Act from Section 195(1). 18. In the present facts and circumstances of the case and relying on the decisions of the Hon ble courts (supra), since, HSC does not have any place of business/offic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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