The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has held that vessel hire charges not royalty under India-Singapore Double Tax Avoidance Agreement (DTAA).
The bench of Anubhav Sharma (Judicial Member) and M. Balaganesh (Accountant Member) has observed that the payments received by the assessee are business receipts and the assessee does not have a PE in India. Therefore, the assessee is entitled to be benefitted of the DTAA provisions. Now, merely because of the fact that the assessee had applied for lower deduction certificate under section 197 of the Income Tax Act, that in itself cannot be a basis for imposing a tax liability as no admission against the interest of person is conclusive as far as it can be explained.
The assessee filed return of income which was selected for scrutiny and the AO examined the receipts of the assessee from M/s J Ray Mcdermott SA which was on account of the provision of S-89 uniform project time charter party for offshore services vessel.
The AO observed that the hire charges earned by the assessee from provision of vessels fall within the definition of royalty as prescribed under section 9(1)(vi) of the Income Tax Act or Article 12 of the Tax Treaty and if the assessee wanted to be governed by the provisions of Tax Treaty, the revenue earned by the assessee would be taxable as per Article 12 of the Tax Treaty.
On the other hand, taxability of the income earned by the assessee was held to be falling within the ambit of section 115A if the assessee doesn’t have a PE in India/section 44DA if the assessee has a PE in India. T
he AO observed that as the vessel was provided by the assessee company for the purpose of providing services/facilities for extraction or production of mineral oil in India, therefore, such services fall within the provisions of section 44BB of the Income Tax Act and that this section does not embargo any addition on the assessee to have earned for PE in India.
The AO has taken into consideration a letter issued from the assessee for withholding tax certificate under section 197 of the Income Tax Act in which the assessee had claimed applicability of section 44BB. Therefore, the amount of Rs.30,50,33,034 was held to be received for provision of offshore services and taxable under section 44BB of the Income Tax Act.
The assessee contended that the department does not dispute the fact that the number of days for which the vessel stayed in India was from 5th January, 2019 to 25th February, 2019 and that makes it 52 days. When there is admittedly no PE of the assessee in India, the receipt in the form of hire charges of the vessel constitutes a business income which is not taxable under the India-Singapore DTAA. The AO has contradicted himself by holding the receipts as royalty and also considering the same to be business income for taxing under section 44BB of the Income Tax Act.
The department contended that the assessee himself admits on the basis of invoices that the services are provided throughout the year. The provisions of section 44BB are squarely applicable on assessee’s own acknowledgement of the facts when application under section 197 of the Income Tax Act was moved.
The tribunal while allowing the appeal held that determination of income and tax liability of a person cannot be decided based on concession given by any party at any stage of proceedings. If the assessee, in order to be cautious has sought this certificate u/s 197 of the Act, that cannot act as an estoppel. Thus, on that basis alone any adverse inference by the tax authorities below were not justified.
Case Details
Case Title: Kreuz Challenger Pte Ltd. Versus ACIT
Case No.: ITA No.2373/Del/2022
Date: 09.12.2024
Counsel For Appellant: Salil Kapoor
Counsel For Respondent: C. Chandra Kanta
