BAGGERWERKEN DECLOEDT EN ZOON,CHENNAI V. DCIT INTERNATIONAL TAXATION 1(1), CHENNAI

ITTPA 69/CHNY/2018

AI Insights

The case revolves around the taxability of income received by the assessee, a foreign company, from the bareboat charter of dredgers to an Indian company, ISDPL. The Deputy Commissioner of Income Tax treated this income as royalty and business income, attributing it to a PE in India. The assessee contested this, arguing that the income should not be taxed as royalty under the India-Belgium DTAA and that it does not have a PE in India. The Tribunal examined the definitions of 'royalty' and 'PE' under the relevant DTAA and the Income Tax Act, along with the facts of the case, including the nature of the charter agreement and the control over the dredgers.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 472427 (ITAT-CHENNAI)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 25-02-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2014-2015
• Other Referred Cases: CIT v. Van Oord ACZ Equipment BV, DDIT v. Nederlandsche Overzee Baggermaatsehappiji BV, M/s. International Seaport Dredging Ltd v. The DCIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A. SASIKUMAR; IRS
• Assessee Lawyers: SRIRAM SESHADRI
• Keywords: Business income; Transfer pricing; International transaction; Question of law; Principle of natural justice; TDS; Double taxation relief; Permanent establishment
• Section: 143(3); 22; 113; 13; 133A; 92C; 5(2); 9(1); 9(1); 9(1); 20; 101

Judgement Text

" आयकर अपीलीय अिधकरण ‘डी’’ Ɋायपीठ चेɄई मŐ। IN THE INCOME TAX APPELLATE TRIBUNAL ‘D’ BENCH, CHENNAI माननीय ŵी मनोज क ुमार अŤवाल ,लेखा सद˟ एवं माननीय ŵी मनु क ुमार िगįर, Ɋाियक सद˟ क े समƗ। BEFORE HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM AND HON’BLE SHRI MANU KUMAR GIRI, JM आयकरअपील सं./ IT(TP) No.69/Chny/2018 (िनधाŊरणवषŊ / Assessment Year: 2014-2015) Baggerwerken Decloedt En Zoon, International Seaport Dredging Private Limited, 5th floor, Challan Tower, Old No.62, New No.133, Dr. Radhakrishna Salai, Chennai 600 004. [PAN: AAGCB 1343L] Vs. The Deputy Commissioner of Income Tax, International Taxation 1(1) Chennai. (अपीलाथȸ/Appellant) (Ĥ×यथȸ/Respondent) अपीलाथȸ कȧ ओर से/ Appellant by : Shri. Sriram Seshadri, C.A., Shri Ashik Shah, CA Ĥ×यथȸ कȧ ओर से /Respondent by : Shri. A. Sasikumar, IRS, CIT. सुनवाई कȧ तारȣख/Date of Hearing : 11.12.2024 घोषणा कȧ तारȣख /Date of Pronouncement : 25.02.2025 आदेश / O R D E R PER MANU KUMAR GIRI (Judicial Member) This appeal by the assessee is arising out of the final assessment order dated 26.10.2018, passed by the Deputy Commissioner of Income Tax, International Taxation 1(1), Chennai for the assessment year 2014-15 u/s.143(3) r.ws. 144C(13) 2 IT(TP)A No.69 /Chny/2018 of the Income Tax Act, 1961 (hereinafter the ‘Act’) in pursuant to the directions of the Dispute Resolution Panel-2, Bengaluru dated 28.09.2018. 2. The assessee has raised the following grounds of appeal:- ‘’1. Common Grounds The lower authorities have erred in finalizing an order of assessment which suffers from legal defects such as being passed in violation of principles of natural justice and the provisions of the Act and is devoid of merits and are contrary to facts on record and applicable law, and has been completed without adequate inquiries and as such is liable to be quashed. 1.2. The lower authorities have finalized their order with improper adjustments to the transaction of the Appellant, as a result of misapplying the provisions of the Act and by adopting faulty assessment procedure to finalize the adjustment, without considering the information, arguments and evidence provided by the Appellant. 2. Constitution of PE by the Appellant 2.1. The lower authorities have, in the facts and circumstances of the case and in law, erred in concluding that Appellant has PE in India based on conjectures and surmises, which are devoid of any merits. 2.2. The lower authorities have, in the facts and circumstances of the case and in law, failed in establishing that the Appellant has business connection in India as per section 9 of the Act, and hence, the income is not subject to tax under the provisions of the Act. 2.3. The lower authorities have, in the facts and circumstances of the case and in law, erred in relying on information collected and statements recorded during the survey conducted in the premises of ISDPL, failing to appreciate the fact that the same cannot be considered as corroborative or conclusive evidence. 2.4. The lower authorities have, in the facts and circumstances of the case and in law, erred in making references to functions performed by 'foreign company', 'DEME Group', and \"Tideway BV in 3 IT(TP)A No.69 /Chny/2018 the impugned order while concluding that Appellant has constituted PE in India. 2.5. The lower authorities have, in the facts and circumstances of the case and in law, erred in not identifying the nature of PE constituted by the Appellant as per the relevant provisions of the DTAA. 2.6. The lower authorities have, in the facts and circumstances of the case and in law, erred in adopting an arbitrary rate of 25% for attribution of profits, without appreciating the functions performed, assets employed, and risks assumed ('FAR Analysis') by the Appellant, which was accepted by TPO. 2.7. The lower authorities have gone beyond jurisdiction in concluding that Appellant has PE in India by contradicting the FAR Analysis accepted in the TP order’’. 3. Brief facts of the case are that Assessee Company is incorporated in Belgium providing construction and development of ports and harbours, artificial islands, estuarial dans, canala and inland waterways, dyke construction and reinforcement, beach replenishment and coastal protection, supply of dredged aggregates and salvage activities. The Assessee is one of the primary operating companies of the DEME Group. During Assessment Year ('AY') 2014- 15, the Assessee had let out one of its dredgers-\"Nile River\", to its Associated Enterprise (AE) [namely International Seaport Dredging Private Limited ('ISDPL)] for executing projects in India. The dredger was let out on bareboat charter basis, i.e., the crew was not included as part of the agreement. The charterer, ISDPL, was responsible for hiring the crew for the dredger. The Assessee had received consideration for letting its dredgers on hire on bareboat 4 IT(TP)A No.69 /Chny/2018 basis amounting to INR 105.67 crores. The Assessee filed its return of income on March 13, 2015 declaring NiI taxable income. The return filed by the Assessee was selected for scrutiny and case was referred to the Transfer Pricing Officer (TPO) to determine the arm's length price of the international transaction with ISDPL. The TPO confirmed that the hire charge received by the Assessee is at arm's length vide order under section 92CA(3) dated October 31, 2017. Subsequently, the Assessing Officer ('AO') issued a show-cause notice (SCN) on December 23, 2017, proposing to conclude that subject receipt of hire charges should be treated as royalty and business income in the hands of the Assessee, relying on statements recorded during survey carried out on the premises of ISDPL. The Assessee in the response dated December 27, 2017 highlighted that the transaction cannot be taxed as 'royalty' as per the relevant provisions of DTAA, and that the Assessee has no place of business in India. The AO completed the assessment and passed the draft assessment order under section 143(3) r.w.s 144C(1) of the Income-tax Act, 1961 ('the Act') dated December 31, 2017 concluding that the Assessee constitutes a PE in India and arbitrarily determined the attribution as 25 percent of hire charges and taxed the same at the rate of 40 percent. Aggrieved by the addition made by the AO, the Assessee filed its objections before the Dispute Resolution Panel - 2. Bengaluru (DRP) who upheld the order of the AO without objectively dealing with the contentions of the Assessee. The AO passed the final assessment order ('impugned order), incorporating the directions of the DRP, under section 143(3) read with 144C(13) of the Act, determining the income of 5 IT(TP)A No.69 /Chny/2018 the Assessee at INR 26.41 crores, and raised a demand amounting to INR 18.40 crores. Aggrieved by the order of the AO, the Assessee is on appeal before the Tribunal. 4. Before us, the ld. AR Shri. Sriram Seshadri, C.A. for the Assessee pointed out anomalies in AO’s contentions in the assessment order as under: In the entire assessment proceedings, the AO failed to take a firm stand on the taxability of the payments received under consideration, i.e., hire charges for bareboat dredgers. The AO classified the said income of the Appellant as “Royalty” as well as “Business Income”. The following table summarizes the findings of the AO. Table 1: Summary of AO’s contentions Sl. No. Nature of Income Reference AO’s contention 1. Equipment Royalty Page 4 to 7 of assessment order and Page 4 of DRP direction - As per India- Belgium DTAA, definition of royalty includes “Plant”. In section 43(3) of the Act plant includes ships. Therefore dredgers qualifies to be Plant. - The case of Poompuhar Shipping Corporation Ltd. (360 ITR 257 – Mad HC) is squarely applicable to this case. 2. Business Income – based on Business Connection Page 4 to 7 in assessment order Relying on the survey statements recorded at the premises of ISDPL: - Organization chart of ISDPL shows that the business relationship between DEME and Indian company is continuous and a close business connection is present. - ISDPL has artificially split the components of work by hiring dredger on bareboat basis and separately deputing crewmembers from various AEs. 3. Business Income – as a PE Page 6/29 of 30 6 IT(TP)A No.69 /Chny/2018 Sl. No. Nature of Income Reference AO’s contention - The Team India operations at Belgium controls and coordinates the projects executed by ISDPL in India. - ISDPL shares weekly progress report with DEME. - The entire control and coordination of dredging operation is with DEME. That the AO has taken conflicting stands on the same transaction, which highlights the intention of the AO to tax the transaction irrespective of its nature, and without appreciating the functions performed, assets utilized and risks (‘FAR’) undertaken by the Appellant. Further, the AO failed to establish business connection and constitution of PE as lay out under the law and Double Tax Avoidance Agreement (‘DTAA’) between India and Belgium. In fact, the AO has not provided cogent reasons for taxability of the Appellant’s income in India. The ld. AR Shri Sriram Seshadri, C.A. for the Appellant has presented following strong elaborate arguments with solid facts and important judgments to establish that the transaction does not fall under any cases mentioned above. 4.1 Factual clarification to the AO’s contentions (Ground 2.1 and 2.4): In the impugned order, the AO has made certain factually incorrect statements and assumptions, while concluding that the Appellant has a PE in India. - The AO alleges that there is a continuous relationship between DEME and ISDPL on the basis of organizational reporting and weekly update reports sent to DEME 7 IT(TP)A No.69 /Chny/2018 At the outset, the Appellant wish to submit that providing status update to parent company is a normal business practice adopted by multinational companies. The purpose of sending weekly reports to DEME is to optimally utilize resources of the Group in an efficient manner. This was clearly stated in the survey statements by Mr. Filiep De Zutter (Question No. 5; page 11 of assessment order) and Mr. Peyron Amedeo Giuseppe (Question No. 8; page 26 of assessment order). Further, these are reports prepared by ISDPL for the clients, which is also forwarded to the DEME entity for the reason stated above. Further, the important point to be noted here is that, the AO only alleges that ISDPL reports to DEME (the ultimate parent company of the Group) on a regular basis. These reports were neither sent to the Appellant (who is a fellow subsidiary of ISDPL), nor is the Appellant in anyway involved in planning of ISDPL’s projects. The AO has failed to explain how the role played by DEME in managing ISDPL’s projects would establish a business connection for the Appellant in India. - The AO alleges that the Appellant has artificially split the components of work by hiring dredger on bare-boat basis and hiring crew members (incorrectly interchanged with seconded employees) separately from its AEs. Crew members hired from independent manpower agency: The Appellant has let out dredgers to ISDPL on bareboat basis and ISDPL is responsible for hiring the crew. ISDPL has appointed independent manpower agencies for recruiting crew members for each project. This was clearly stated in the survey statements by Mr. Peyron Amedeo Giuseppe (Question No. 5; page 26 of 8 IT(TP)A No.69 /Chny/2018 assessment order). The contract with manpower agency, Rock Equipment SA, is provided in the paper book pages 91 to 104. The Appellant has also provided a confirmation vide letter dated April 03, 2019, from Rock Equipment SA that the crew members for ‘Nile River’ were independently supplied by them and the crew members were not employees of the Appellant. Deputation is a normal business practice: The AO has misconstrued employees seconded to ISDPL with the crew members of the dredger. The Appellant has already clarified that, it had no involvement in deploying crew members for the dredger. With regard to secondment of employees, the Appellant submits that, it is a normal practice in the dredging industry to second employees from one company to another, depending on the requirement of manpower in a project and availability of skilled staff with the other group companies. During the year, the following employees of the Appellant were seconded to ISDPL: Table 2: Appellant’s employees seconded to ISDPL Employee name Designation 1) De Callatay Marc- Antoine Engineering Support 2) Struyf-Goemans Christophe DGM Finance 3) De Zutter Filiep Operations Manager 4) Coninx Philippe Technical Superintendent 5) Verhees Wim DGM Finance 6) Nazhi Nizar Technical Superintendent 7) Bert ASAERT Site Accountants 9 IT(TP)A No.69 /Chny/2018 During the course of business, even ISDPL deputes some of its employees in the projects of other group entities, on need-basis. The list of 18 employees seconded by ISDPL during the year is provided in pages 124 to 131 of the paper book. Further, out of the 8 seconded employees listed above only two were employees of the Appellant – De Zutter Filep and Verhess Wim. The employees seconded from the Appellant company were not be deployed in the dredger let out by the Appellant, as evident from the list of crew members provided by Rock Equipment SA. Secondment agreement: Without prejudice to the above, the secondment agreement (refer page 105 to 115 of the paper book) clearly states that these employees would be under the control and supervision of ISDPL during the tenure of secondment. Clause 2.1.1 of the secondment agreement (page 107 of paper book) clarifies that the seconded employee would work as an employee of ISDPL. - The AO has concluded that the Appellant has a PE in India, based on reference made to ‘DEME’, ‘Tideway BV’ and ‘foreign company’ The AO has made various references to ‘foreign company’ and ‘DEME’ in the impugned order while concluding that the Appellant constituted PE in India. The Appellant fails to understand how the detailed discussion on the functions performed by DEME, would lead to the conclusion that Appellant has PE in India. Further, the AO has not brought anything on record to prove that the Appellant has been involved in overseeing or supervising the dredging operations of the ISDPL in India. In the impugned order, the AO observed that there is an independent quality 10 IT(TP)A No.69 /Chny/2018 audit directly supervised by DEME CEO, and also acknowledges that the Appellant has no role to play in the quality audit. Hence the same cannot be the basis for concluding that the Appellant constituted PE in India.References were also made to the services of Tideway BV to ISDPL, which are not relevant factors in determining whether the Appellant has any PE in India. Further, Tideway BV has been separately assessed to tax in India. The Appellant also put forth the following submission on merits of the case: 4.2 Income from hire charges not “Equipment Royalty’: The AO in the show cause notice (‘SCN’ in short) dated December 23, 2017 issued to the Appellant, which is also reproduced in pages 3 to 7 of the final assessment order, alleged that the Appellant’s case squarely falls within the definition of ‘equipment royalty’ and hence the income from hire charges is in the nature of royalty, which is an income under section 9(1)(vi) of the Act. Further, as the definition of ‘Royalty’ in the India-Belgium DTAA includes the term “Plant”, the AO alleged that the said income also fell within the definition of royalty under the DTAA. Under the Act, as per section 9(1)(vi) of the Act, payment to non-residents towards bare-boat hire charges is taxable as “Royalty” for use of industrial, commercial or scientific equipment. Based on the above provisions of the Act, the Appellant agrees that the charges towards rental of dredgers would be taxable as “Royalty” under section 9(1)(vi) of the Act. However, under section 90(2) of the Act a non-resident 11 IT(TP)A No.69 /Chny/2018 can take recourse to the provisions of the DTAA with the country in which it is a resident, if the same is beneficial with respect to the scope and rate of tax in comparison to the domestic tax law. A.Taxability under the India-Belgium DTAA- Post Amendment w.r.e.f 1stApril, 1998 The subject payment of hire charges would not be liable to tax under Article 12 of the India-Belgium DTAA, which deals with taxability of payments in the nature of royalty and fees for technical services. The terms ‘Royalty’ as defined under the Article 12 of the India Belgium DTAA are reproduced below for reference. “(3) (a) 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, any copyright of literary, artistic or scientific work including cinematograph films, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience.” It is evident from the above definition that the term “Royalty” does not include payment for use or right to use industrial, commercial or scientific equipment, as mentioned by the AO in the SCN. Hence, hire charges paid to the non-resident lessors is not subject to tax in India as per India-Belgium DTAA. The Hon’ble Jurisdictional High Court in the case of CIT v. Van Oord ACZ Equipment BV (2015) 373 ITR 133 page 13 of Case Law Compilation (‘CLC’ in short), in the context of India-Netherlands DTAA, upheld that hire charges are not taxable as Royalty under Article 12 of India-Netherlands DTAA. The relevant extract of the decision is as follows – 19. W.e.f.1.4.1998, sub-clause 4 of Article 12 was also modified as follows: 12 IT(TP)A No.69 /Chny/2018 '(4) The term \"royalties\" as used in this Article means payment of any kind received as a consideration for the use of, or the right to use, any copyright to literary, artistic or scientific work including cinematography films, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific expression. …….. 24. However, clause (1) of Article 12 as modified w.e.f.1.4.1991 would show that the 'Royalties' and 'fees for technical services' arising in a Contracting State and paid to the resident of the other Contracting State may be taxed in that other State. In this modification, the category \"payments for the use of equipment\" does not figure. ….. 37. For the foregoing reasons, the appellate authority below has rightly considered Article 12(4) of the DTAA agreement between Netherlands 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.” The Hon’ble Mumbai Bench of the Tribunal in the case of DDIT v. Nederlandsche Overzee Baggermaatsehappiji BV (2010) 39 SOT 556 (Mum.)(page 23 of CLC) also upheld the view that bareboat hire charges is not taxable under Article 12 of India Netherlands DTAA: “18. From the above it is clear that under the DTAA agreement, the receipt of bare boat rentals, i.e., rent for use of or payment for use of equipment is not brought to tax as royalty consequent to the amendment. Thus, though under domestic law the charging section treats the receipts as royalty, yet under the treaty, royalty cannot be brought to tax in view of the amendments” made in Article 12 of the India-Netherlands DTAA. The above rulings though rendered in the context of India-Netherlands DTAA, it would squarely applicable the Appellant, as the term “Royalty” as defined under the amended Article 12 of India-Belgium DTAA dealing is pari-matria the same as that of India-Netherlands DTAA. The Appellant would also like to rely on this Hon’ble Tribunal’s decision in the case of M/s. International Seaport Dredging Ltd – ITA No. 418/Mds/2015 dated 22nd July, 2016 (page 1 of CLC), wherein it has upheld 13 IT(TP)A No.69 /Chny/2018 that the hire of bareboat charter would not constitute Royalty under the DTAA, if the definition of the term “Royalty” under DTAA does not include use or right to use industrial, commercial or scientific equipment. A. Decision of the Hon’ble jurisdictional High Court in the case of M/s. Poompuhar Shipping Corporation Ltd (supra) is not applicable to the Appellant’s case The Appellant submits that the decision of the Hon’ble jurisdictional High Court in the case of Poompuhar Shipping (page 75 of CLC) is factually distinguishable from the Appellant’s case, on the following lines: Table 3: Poompuhar Shipping vs. Appellant’s case Sl.No Facts of Poompuhar Shipping Facts of the Appellant 1 It was a time-charter arrangement of a ship (involving supply of vessel along with Crew) It is a bareboat charter of Dredger. No supply of crew is involved and operating responsibility is that of the charterer (i.e. ISDPL) 2 The payments are made to non- residents of Countries like Australia, France, Germany Norway, Singapore wherein the DTAA between India and these countries the definition of the term “Royalty” includes use or right to use industrial, commercial or scientific equipment. (refer page 89 of CLC) As per India-Belgium DTAA, the definition of the term “Royalty” does not include use or right to use industrial, commercial or scientific equipment.(refer page 83 of paper book) 14 IT(TP)A No.69 /Chny/2018 It is pertinent to note that the Hon’ble jurisdictional High Court in the case of Van Oord ACZ Equipment BV (supra) has specifically held that its decision in the case of Poompuhar Shipping Corporation Ltd would not be applicable in case of bareboat charter hire. The relevant extract of the decision is reproduced below: “31. The learned Standing counsel for the department would rely upon the judgment rendered in the case of Poompuhar Shipping Corpn. Ltd. (supra). The main question before the Division Bench in the above decision was whether the payment made for taking ship on time charted basis would constitute Royalty as defined under Sec.9(1)(vi)(b) of the Income-tax Act. …… 34…………In Poompuhar Shipping Corpn. Ltd's case (supra), referred supra, it was a case of hiring of ship on time-charter basis, whereas in the present case, dredging equipment is leased out on bareboat basis,namely, without Master and Crew. Therefore, on facts, the decision in Poompuhar Shipping Corpn.Ltd's. case (supra), is distinguishable” A. Considering the dredger to be “Plant” The word 'plant' mentioned in India-Belgium DTAA under Article 12 is a typographical error for 'Plan'. This is evident from NOTIFICATION S.O. 54 [NO. 20 (F. NO. 505/2/89-FTD)] DATED 19-1-2001 (refer page 83 of paper book). Thus Article 12(3) of India-Belgium DTAA does not include word plant, and AO has thus wrongly considered the dredger to be Plant. (refer page 83 of paper book) In view of the above submissions and the decision of the Hon’ble Jurisdictional High Court in the case of Van Oord ACZ Equipment BV, it is humbly submitted that the payments received from ISDPL for bareboat hire of dredger would not be taxable under the provisions of the Act, neither as business income nor Royalty. 15 IT(TP)A No.69 /Chny/2018 3. The Appellant does not have a Business Connection in India (Ground 2.2): The primary contention of the AO is that, the Appellant has a business connection in India. According to section 9(1)(i) of the Act, a foreign company shall pay taxes in India on income that is deemed to accrue or arise through a ‘business connection’ in India. The law provides an inclusive definition of business connection which includes any business activity carried out by a person on behalf of a foreign company. In the present case, the subject transaction does not involve such a scenario. Thus, the Appellant refers to the conditions laid down by the Hon’ble Apex Court for constitution of ‘business connection’. The Hon’ble Apex Court in the case of CIT Vs R.D. Aggarwal (56 ITR 20) laid down two principles for constitution of ‘business connection’, namely: 1. Relation between the businesses carried on by a non-resident which yields profits or gains and some activity in the taxable territories which contributes directly or indirectly to the earning of those profits or gains. 2. It predicates an element of continuity between the business of the non- resident and the activity in the taxable territories; a stray or isolated transaction is normally not to be regarded as a business connection. The Appellant would like to highlight that it fails to satisfy both the conditions mentioned above. - The main activity of the Appellant includes construction and development of ports and harbours, artificial islands, estuarial dams, canals and inland waterways, dyke construction and reinforcement, beach replenishment and coastal protection and salvage activities. The activity of the Appellant in India is limited to letting out its dredger on bareboat basis to ISDPL. The activity of letting out on hire is in no way, directly or indirectly connected to the Appellant’s main business as described above. 16 IT(TP)A No.69 /Chny/2018 - Further, the letting out activity does not contribute, directly or indirectly to earning profits or gains from the Appellant’s main business. For the above reasons, there is no continuity between the business of the Appellant and the activity carried out in India. From the above it is clear that Appellant has no business connection in India, and AO has without any discussion on the above principles arrived at a conclusion devoid of any merits. Further, the Hon’ble Supreme Court in the case of Carborandum Co. vs CIT (108 ITR 335) held that supply of technical personnel by a foreign company to Indian company will not amount to business connection. Further, it is an admitted position of the Appellant that the receipt of hire charges is taxable as royalty under section 9(1)(vi) of the Act. The same has been accepted by the AO (refer page 4 of the assessment order) and the DRP (refer page 4 of DRP order). The Appellant submits that, once the income is taxable under the specific clause of royalty in section 9(1)(vi) of the Act, the same cannot fall under the general clause in section 9(1)(i) of the Act. In this regard, the Appellant places reliance on the ruling of the Hon’ble Gujarat HC in the case of Meteor Satellite Ltd. vs ITO (121 ITR 311), wherein it was held that: “In our opinion, this contention must fail. Clause (vi) of section 9(1) deals with a specific type of income, namely, income by way of royalty, whereas clause (i) of section 9(1) is a more general provision, which deals with all income accruing or arising, whether directly or indirectly, through or from any business connection in India. Income by way of royalty is specific or one of the categories of a larger class mentioned in clause (i) of section 9(1) and hence, the specific instance having been provided by clause (vi), once we come across the question of royalty, we have only to look at that clause (vi) and not to the more general provision of clause (i) of section 9(1).” 17 IT(TP)A No.69 /Chny/2018 As stated earlier in section 3 of this submission, the AO has established a ‘continuous relationship’ between ISDPL and the ‘foreign entity’, based on the alleged activities carried out by the DEME. It is not the contention of the AO that the Appellant renders any services to ISDPL.Therefore, the Appellant does not have a business connection in India as required under section 9(1)(i) of the Act. 4. The Appellant does not have a Permanent Establishment in India (Ground 2.2): The Appellant makes the following submission that it does not constitute a PE in India: A. Business connection cannot be equated to PE The AO has misunderstood the concept of constitution of a PE and equated the same to the establishment of business connection. This is evident from order of the AO, wherein it is concluded that: “the relationship between all activities are continuous and hence the company has a PE in India..” The relationship between activities, continuity, etc. are principles for establishment of business connection, as discussed in the earlier section. No other reasoning or reliance was placed by the AO for arriving at the conclusion that the Appellant constitutes a PE in India. In this regard, the Hon’ble Apex court in the case of Ishikawajma-Harima Heavy Industries Ltd. Vs DIT (288 ITR 408), held that: “The concepts of profits of business connection and permanent establishment should not be mixed up. Whereas business connection is relevant for the purpose of application of section 9, the concept of permanent establishment is relevant for assessing the income of a non- resident under the DTAA.” 18 IT(TP)A No.69 /Chny/2018 Thus, the Appellant humbly submits that the AO’s conclusion that the Appellant is a PE in India is baseless, without any factual or legal backing. B. Type of PE constituted by the Appellant not stated by the AO As per Article 5 of India-Belgium DTAA, a PE can be constituted in any of the following manner: Fixed Place PE - Fixed place of business through which business of the enterprise is wholly or partly carried on; Construction/ Installation PE - A building site or construction, installation or assembly project or supervisory activities in connection therewith, where such site, project or activities (together with other such sites, projects or activities, if any) continue for a period of more than six months; or Agency PE - A person acting in a Contracting State on behalf of an enterprise if such person habitually conclude contracts on behalf of the enterprise or habitually maintains stock of goods or habitually secure orders exclusively for the enterprise. The AO has failed to classify the Appellant under any of the above mentioned clauses and has arbitrarily claimed that the Appellant has a PE in India. The AO has not concluded whether the Appellant has fixed place of business in India or has construction PE in India on account of supervisory activities or equipment PE in India on account of operating dredger in India. Without the knowledge on the category of PE allegedly constituted by the Appellant in India, the Appellant makes 19 IT(TP)A No.69 /Chny/2018 the following submission, demonstrating that the Appellant does not fall within any of the three PEs in the India-Belgium DTAA. a) Fixed Place PE: The Article 5 of India-Belgium DTAA, states that 'permanent establishment' means a fixed place of business through which the business of the enterprise is wholly or partly carried on. Article 5(2) contains an inclusive definition of PE to include a place of management, a branch, an office, a factory, a workshop or a warehouse, a mine, an oil or gas well, a quarry or any other place of extract of natural resources, a building site or construction or installation project, etc. Fixed place of business is again explained that the place need not be exclusively for that particular enterprise's business purpose only and it is enough that there is certain amount of space available at its disposal. The Organization for Economic Cooperation and Development (OECD) commentary on the Model tax Convention lays down the following conditions for establishment of a fixed place PE:  the existence of a \"place of business\", i.e. a facility such as premises or, in certain instances, machinery or equipment.  this place of business must be \"fixed\", i.e. it must be established at a distinct place with a certain degree of permanence;  the carrying on of the business of the enterprise through this fixed place of business. This means usually that persons who, in one way or another, are dependent on the enterprise (personnel) to conduct the business of the enterprise in the State in which the fixed place is situated. 20 IT(TP)A No.69 /Chny/2018 In the present case, the Appellant neither has a place of business in India, nor does it directly or indirectly carry on its business in India. The Appellant places reliance on Para 36 of the OECD Commentary2017 to Article 5 (page 38 of CLC), which specifically deals with leasing of equipment: “…If an enterprise of a State lets or leases facilities, ICS equipment, buildings or intangible property to an enterprise of the other State without maintaining for such letting or leasing activity a fixed place of business in the other State, the leased facility, ICS equipment, building or intangible property, as such, will not constitute a permanent establishment of the lessor provided the contract is limited to the mere leasing of the ICS equipment, etc. This remains the case even when, for example, the lessor supplies personnel after installation to operate the equipment provided that their responsibility is limited solely to the operation or maintenance of the ICS equipment under the direction, responsibility and control of the lessee.” Thus, from the above it is clear that in case of bareboat hire, the dredger will not constitute a PE, as the function of the Appellant is limited to mere supply of dredger. That would not change, even if the lessor (the Appellant) supplies personnel for operating the equipment, as long as the said personnel are under the control of the lessee (ISDPL). Without prejudice to the Appellant’s argument that the crew members for the ‘Nile River’ dredger was not supplied by the Appellant, even the agreement for secondment (in page 105 of paperbook) clearly states that the seconded employees from the Appellant to ISDPL are under the direct supervision and control of ISDPL during the tenure of secondment. Similarly, Para 44 of the Commentary (page 40 of CLC) states that: “….If the fixed place of business is leased to another enterprise, it will normally only serve the activities of that enterprise instead of the lessor's; in general, the lessor's permanent establishment ceases to exist, except where he 21 IT(TP)A No.69 /Chny/2018 continues carrying on a business activity of his own through the fixed place of business”. The above paragraph highlights that the Appellant is said to constitute a PE only when it carries its own business activities through such PE. In the present case, the Appellant does not carry on its business activities through the dredger in India, instead ISDPL carries on its dredging projects by hiring dredgers from the Appellant. Thus, from the above it is clear that the Appellant will not constitute a fixed place PE in India. The Appellant further relies on the Hon’ble Coordinate Bench ruling in the case of DDIT v. Nederlandsche Overzee Baggermaatsehappiji BV (supra), wherein it was held that: “As per article 5 of the India-Netherlands Tax Treaty, a PE means a fixed place of business through which business of an enterprise is wholly or partly carried out. Mere provision of a dredger on dry lease basis for carrying out dredging activity in India does not result in the assessee having a PE.” The Appellant also relies upon the ruling of the Delhi ITAT in the case of Maersk A/s (86 taxmann.com 77), wherein it was held as follows: “15. …………In our conclusion,firstly, the hiring of AHTS vessel of assessee by ONGC for its operation in India does not qualifyto make vessel a place of management for the assessee in India; secondly, the crew and master of thevessel do not belong to the assessee and lastly, in any case master and crew of the vessel did not havepower to make significant decision over the assessee, because they are under control and directive ofONGC as per the agreement.Even under Article 5(2)(j)which reads as under:— \"An installation or structure used for the exploration of natural resources provided that the activities are carried on for a period or period's of 183 days or more in any twelve month period.\" Thus, it cannot be held that assessee has some kind of PE, because the assessee's vessel cannot be reckoned as installation or structure used for exploration and exploitation of national resources as it is being done by the ONGC. The ONGC has only hired the vessel from assessee for carrying out exploration of oil and nature gases and therefore, under 22 IT(TP)A No.69 /Chny/2018 this clause also it cannot be held that the assessee's vessel/AHTS constitutes a PE in India. Thus, there existed no PE of assessee in India and, therefore, the revenue from ONGC could not be taxed in India in terms of article 7 of DTAA” Thus, the Appellant humbly submits that letting out dredger on a bareboat basis does not constitute a fixed place PE in India. a) Construction/ Installation PE The Appellant merely supplies dredger to ISDPL on hire on bareboat basis. It is pertinent to note that mere supply of bareboat charter would not be regarded as PE in India, which has been upheld by the Hon’ble Jurisdictional High Court in the case of Van Oord ACZ Equipment BV (supra). The relevant extracts of the decision is reproduced below: “35. The learned Standing Counsel for the department referring to paragraph (2) of Article 5 which states that an installation or structure used for the exploration of natural resources is a permanent establishment, provided that the activities continue for more than 183 days, pleaded that the stand of the department is justified. 36. We are not inclined to accept such a plea, as in the case on hand the dredging equipment was leased out on bareboat basis viz., without Master and Crew. Therefore, it will not come under the permanent establishment and the entire control over the equipment was not with the Foreign company, but with the Indian Company. Therefore, the above said plea is not accepted.” (Emphasis supplied) The Appellant further submits that the scope of construction/installation PE under the Article 5(2)(j) of India- Belgium DTAA is a restricted one as it excludes a “Dredger”. The relevant portion is extracted below: “building site or construction, installation or assembly project or supervisory activities connection therewith, where such site, project or activities (together with other such sites, projects or activities, if any) continue for a period of more than six months, or…” 23 IT(TP)A No.69 /Chny/2018 The Appellant submits that the Belgium’s DTAA with Hong Kong and Macao only list “dredging projects” as examples of projects that constitute a PE. Article 5(3) of Belgium–Hong Kong DTAA reads as follows: “An enterprise shall be deemed to have a permanent establishment in a contracting party and to carry on business through that permanent establishment if: (a) It carries on supervisory activities in that Party for more than 6 months in any 12 month period in connection with a building site, or construction, assembly, installation, or dredging project which is being undertaken in that Party; or” (Emphasis supplied) It can be observed that the treaty with Hong Kong and Macao specifically includes dredging projects, but the same has been excluded in case of treaty with India, thus highlighting that there was conscious effort and negotiation behind framing the same clause in two different ways. As the DTAA with India does not include dredging projects, thus dredging project of ISDPL cannot constitute a PE for the Appellant in India. b) Dependent Agent PE The term \"dependent agent\" is a concept for determining whether a non- resident has a PE in a country by carrying on business through a person who acts on behalf of the non-resident. In the present case, the dredging projects are in the name of the Indian entity (ISDPL)and ISDPL does not conclude contracts on behalf of the Appellant, nor do they secure any order exclusively for Appellant, thus failing to satisfy the conditions to constitute a dependent agent PE. 24 IT(TP)A No.69 /Chny/2018 c) Service PE The AO’s contentions with respect to services rendered by seconded employees, the reporting structure of employees of ISDPL, etc. indicates that the AO could be alleging that the Appellant has formed a “Service PE” in India. However, it is pertinent to note that Article 5 of India-Belgium treaty, does not contain a clause for Service PE and therefore the contention of the AO cannot be accepted. 5. Attribution of Profits to the PE (Ground 2.6 and 2.7): Without prejudice to the Appellant’s argument that it does not constitute a PE in India, the Appellant makes the following submission: Upon constitution of a PE, the income should be attributed to the PE in a systematic manner, based on FAR ofthe Appellant and performing benchmarking exercise by selecting comparable situation(s). Article 7 of India- Belgium DTAA states that: “there shall be attributed to such permanent establishment the profits which it might be expected to derive if it were an independent enterprise engaged in the same or similar activities under the same or similar conditions and dealing at arm’s length with the enterprise of which it is a permanent establishment”. (Emphasis supplied) Interpreting the above, the Hon’ble Supreme Court in the case of DIT vs. Morgan Stanley & Co (292 ITR 416), held that, once a transaction has been established to be at arm’s length in accordance with the TP provisions under the Act, it extinguishes any further attribution of profits to such PE. Thus, the law of the land is settled that, any attribution of profit to a PE has to satisfy the arm’s length test. The relevant extract is reproduced below: 25 IT(TP)A No.69 /Chny/2018 “Under the impugned ruling delivered by the AAR, remuneration to MSAS was justified by a transfer pricing analysis and, therefore, no further income could be attributed to the PE (MSAS). In other words, the said ruling equates an arm’s length analysis (ALA) with attribution of profits. It holds that once a transfer pricing analysis is undertaken; there is no further need to attribute profits to a PE. The impugned ruling is correct in principle insofar as an associated enterprise, that also constitutes a PE, has been remunerated on an arm’s length basis taking into account all the risk-taking functions of the enterprise. In such cases nothing further would be left to be attributed to the PE.” (Emphasis supplied) Thus, the Hon’ble Apex Court has equated the attribution of profit to a PE to determination of arm’s length price for the transaction. In the Appellant’s case, the AO referred the matter to the TPO on May 26, 2016 for determining arm’s length price of all international transactions reported in Form 3CEB, which is letting out of dredgers on hire. The TPO, after analyzing the FAR analysis of the Appellant vis-à-vis its AE – ISDPL, passed the transfer pricing order on October 31, 2017, upholding that the international transaction of the Appellant was at arm’s length. Thus, respectfully following the ruling of the Hon’ble Apex Court, the Appellant prays that no further attribution can be made the Appellant as the international transaction has been held to be at arm’s length. The Appellant submits that section 92CA(4) of the Act mandates the AO to complete the assessment proceedings in conformity with the order issued by the TPO. The AO’s action of re-determining the FAR of the Appellant and ISDPL and attributing income to the PE, even after the transaction has been held to be at arm’s length is violative of the section 92CA(4) of the Act and the ruling of the Hon’ble Supreme Court. 26 IT(TP)A No.69 /Chny/2018 Additionally, the Appellant submits that conducting a FAR analysis and determination of the arm’s length nature of an international transaction is the domain of a TPO, as provided by section 92C of the Act, Rule 10B(2) and 10C(2) of the Income-tax Rules, 1962 (‘the Rules’). The AO does not have any jurisdiction to make a transfer pricing adjustment. Though the AO has power to determine arm’s length as per the provisions of the Act, the same has been restricted by section 92CA(4), which is reiterated in Instruction 3 of 2016 dated March 10, 2016 issued by the CBDT, for better administration of the Act. The relevant extract of the Instruction is provided below: For cases referred to TPO – Appellant’s case “5. Role of the AO after Determination of ALP by the TPO Under sub-section (4) of section 92C (read with sub-section (4) of section 92CA), the AO has to compute the total income of the assessee in conformity with the ALP determined by the TPO under sub-section (3) of section 92CA.” For cases not referred to TPO “3.7 For administering the transfer pricing regime in an efficient manner, it is clarified that though AO has the power under section 92C to determine the ALP of international transactions or specified domestic transactions, determination of ALP should not be carried out at all by the AO in a case where reference is not made to the TPO.” In summary, irrespective of whether a reference has been made to the TPO or not, the AO has no jurisdiction to make a transfer pricing adjustment. Thus, the impugned order of the AO making an attribution (which is equated to a transfer pricing adjustment by the Hon’ble Supreme Court) is beyond the jurisdiction of the AO, as the same is contrary to the provisions of the Act and instruction issued by the CBDT which is binding on the AO. 27 IT(TP)A No.69 /Chny/2018 Further, the critical information relied upon by the AO for re-determining the FAR of the Appellant and ISDPL is the statements recorded during survey. The Appellant submits that the survey was conducted in the premises of ISDPL on February 17, 2017, whereas the TP order was passed by the TPO only on October 31, 2017, which is eight and a half months after the survey was conducted. Thus, the survey statements were very much available with the AO while determining the FAR and arm’s length of the Appellant’s international transaction. Thus, the AO is not justified in re-determining the FAR analysis based on the survey statements, which was already available with the Department at the time of TP scrutiny and no adjustment was proposed by the TPO to the Appellant’s international transaction. Without prejudice to the above, the AO failed to conduct analysis of independent parties to determine the arm’s length attribution as required under the DTAA, and attributed to the appellant, 25 percent of the Appellant’s income to the PE on an ad- hoc basis. 6. Reliance on information collected during survey (Ground 2.3): The AO has placed extensive reliance on the information collected and statements recorded during the survey conducted in the premises of ISDPL and concluded that Appellant has PE in India. The statement recorded during the survey formed the backbone of the entire assessment. The Appellant submits that the same are not admissible evidences and thus, dependence on documents which are non-corroborative in nature, fails the very purpose of assessment proceedings. In this context, the Appellant relies on the decision of the Hon’ble Supreme Court in 28 IT(TP)A No.69 /Chny/2018 the case of CIT v. S. Khader Khan Son (2013) 352 ITR 480 (SC) (page 111 of CLC) affirming the decision of the Hon’ble Madras High Court (Page 113 of CLC) wherein it was held that the materials collected and the statement recorded during the survey under section 133A are not conclusive piece of evidence by itself. The relevant extract of the principles culled out from the decision is reproduced below: “An admission is an extremely important piece of evidence but it cannot be said that it is conclusive and it is open to the person who made the admission to show that it is incorrect and that the Assessee should be given a proper opportunity to show that the books of account do not correctly disclose the correct state of facts, vide decision of the Apex court in Pulkngode Rubber Produce Co. Ltd. v. State of Kerala [1973] 91 ITR 18. In contradistinction to the power under section 133A, section 132(4) of the Income-tax Act enables the authorised officer to examine a person on oath and any statement made by such person during such examination can also be used in evidence under the Income-tax Act. On the other hand, whatever statement is recorded under section 133A of the Income-tax Act is not given any evidentiary value obviously for the reason that the officer is not authorised to administer oath and to take any sworn statement which alone has evidentiary value as contemplated under law, vide Paul Mathews and Sons v. CIT [2003] 263 ITR 101 (Ker.). Finally, the word \"may\" used in section 133A(3)(iii) of the Act, viz., \"record the statement of any person which may be useful for, or relevant to, any proceeding under this Act\", as already extracted above, makes it clear that the materials collected and the statement recorded during the survey under section 133A are not conclusive piece of evidence by itself.” Thus, the adjustment in the impugned order made by solely relying on the information collected and statements recorded during the survey conducted in the premises of ISDPL cannot be considered to be corroborative evidence and thus the order is considered not sustainable. 29 IT(TP)A No.69 /Chny/2018 5. Per contra, the ld.DR relied upon the assessment order and pointed out following references to bolster his arguments: i. Survey report; ii. Statement of Filip Dezulter; iii. Statement of Peyron Amedeo iv. Question Nos. 5 & 7 etc; v. Organisational chart; vi. TDS survey on ISDPL date 17.02.2017. The ld.DR relied upon the orders of the ld.DRP and ld. AO and contended that there is a continuous organic relationship between assessee and ISDPL. 6. We have heard the rival submissions, perused the paper books and case laws and gone through the relevant provisions of the DTAA between India-Belgium and Income tax Act, 1961. Firstly, we will curl out the relevant paras of the judgments referred by the ld.AR of the assessee. 7. The Co-ordinate bench in the case of M/s International Seaport Dredging Ltd. Vs The DCIT [ITA No.416/Mds/2015 for AY 2010-11 dated 22.07.2016 held as under: ‘’4.1 The learned Assessing Officer in its draft assessment order has observed that the assessee has made payment of 50,80,13,185/- to M/s. Societe De Dragage International, France for bare boat charter hire rental charges for dredger antigoon, relevant to Dhamra Project without deducting TDS. On query, why the provisions of TDS will not be applicable, the assessee explained that protocol 7 of the treaty between India and France restricts the scope of the treaty to the extent of any protocol signed after 1.9.1989 between India and a third State which is a member of the OECD. He further explained that though Article 13 of the treaty between India and France includes payment for use of equipments to be taxed in the 30 IT(TP)A No.69 /Chny/2018 contracting state, Article 12 of the treaty between India and Sweden excludes the same. Therefore, as per protocol 7 of the treaty between India and France, the assessee would not be liable to deduct tax at source because such income will not be taxable in India. However, the learned Assessing Officer was of the view that protocol 7 of the treaty only speaks about adoption of lower rate in case of use of equipment and payment made thereof and accordingly tax has to be deducted at source. Since the assessee has not deducted tax at source, the learned Assessing Officer invoked the provisions of section 40(a) (i) of the Act and disallowed the payment made towards bare boat charter hire rental charges. 4.2 The learned DRP confirmed the order of the learned Assessing Officer by observing as under: \"3.2.4 Even the DTAA between India and France also clarifies that the bare boat hire charges are in the nature of \"royalty\". Hence the above bareboat hire charges amounts to \"royalty\" for the purpose of Income Tax and becomes assessable to tax in India in the hands of the recipient. Therefore, the assessee, being the remitter of the amounts, is under the obligation of withholding the tax before making the payments. 3.2.5 The next claim of the assessee is that as per the protocol 7 of the India- France treaty, any subsequent treaty with any OECD country after 1/09/1989 in which the scope of definition of Royalty is narrower than the India-France treaty, such narrow definition of royalty shall be applicable to the India-France treaty. There was subsequent treaty between India-Sweden (entered on 25 December 1997), where there was a restrictive definition of royalty which does not specifically include \"use of equipment\" within its purview. Therefore the assessee claimed that the bareboat hire charges will not form part of the royalty. 3.2.6 The above claim of the assessee is not correct. Article 13 of India-France clearly defined the words Royalties and fees for technical services and payments for the use of equipment. The term \"payments for the use of equipment\" as used in this Article means payment of any kind received as a consideration for the use of, or the right to use industrial, commercial, or scientific equipment. These payments are in the nature of royalty. Further, in the case of India-Sweden treaty, there was no specific restrictive clause excluding the equipment hire charges from the scope of royalty. Therefore, as per treaty charging provision of the India-France treaty, the hire charges of the above equipment should be considered as Royalty payments \"for the use of or the right to use of industrial, commercial or scientific equipment\". Hence, the assessee's bareboat hire charges clearly forms royalty u/s.9(1)(vi) of the Income Tax Act and accordingly the payments come under the purview of Section 195. 31 IT(TP)A No.69 /Chny/2018 3.2.7 Further, as observed by the Assessing Officer, the protocol of the treaty is not categorically speaking about scope for restriction only. It also tells about adoption of lower rate in case of use of equipment and payments made thereof. Therefore, in the presence of existence of charging article already available in the India-France treaty as per article 13(5), assessee can adopt for tower rate of deduction. In the instant case, assessee has not at all deducted tax at source. 3.2.8 Therefore, for the reasons detailed by the Assessing Officer in his draft order, we are on the considered opinion that the above bareboat charges are within the meaning of \"royalty\" under the provisions of section 9(1)(vi) of the Act as well as under the DTAA between India and France. Hence the assessee is under the obligation to withhold tax u/s.195 of the Act. As the assessee failed to withhold any tax, there was a violation u/s.40(a)(i) r.w.s.195 of the Act. Therefore, the action of the Assessing Officer proposing to disallow the above bareboat hire charges u/s.40(a)(i) r.w.s.195 of the Act, is as per the Act and needs no interference. The assessee fails in its objections in this regard.\" 4.3 Before us, the learned Authorized Representative argued by reiterating his submissions made before the Revenue Authorities on earlier occasions, while as the learned Departmental Representative argued in support of the orders of the Revenue. 4.4 We have heard the rival submissions and carefully perused the materials available on record. On perusing the Indo-France treaty protocol 7, we are of the view that the contentions of the learned Authorized Representative have merit. The relevant protocol is reproduced herein below for reference: 7. In respect of articles 11(Dividends), 12 (interest) and 13(Royalties, fees for technical services and payments for the use of equipment), if under any Convention, Agreement or Protocol signed after 01.09.1989, between India and a third State which is a member of OECD, India limits its taxation at source on dividend, interest, royalties, fees for technical services or payments for the use of equipment to a rate lower or a scope more restricted than the rate of scope provided for in this Convention on the said items of income, the same rate of scope as provided for in that Convention, Agreement or Protocol on the said items income shall also apply under this Convention, with effect from the fate on which the present convention or the relevant Indian Convention, Agreement or Protocol enters into force, whichever enters into force later.\" 4.5 From the above, it is clear that payments for use of equipments under Article 13 of the treaty between India and France, if any convention or agreement or protocol are signed after 01.09.1989 between India and a third State which is a member of OECD, then for the purpose of taxation in India, the scope of taxation shall be restricted to such treaty signed after 01.09.1989 if its terms are beneficial to the assessee and as rightly pointed out by the assessee India has signed a treaty with 32 IT(TP)A No.69 /Chny/2018 Sweden subsequently wherein payments made for hiring equipments are excluded from taxing in the contracting State. Therefore, as claimed by the assessee income arising out of the payment made by the assessee towards hiring equipments will not be taxable in India, accordingly assessee will not be liable 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’. 8. Similarly, Hon’ble Jurisdictional High Court in the case of CIT Vs Van Oord ACZ Equipment BV held as under: ‘’34. While considering the DTAA that is applicable to the present case and the DTAA that was considered in Poompuhar Shipping Corpn. Ltd's. case (supra), referred supra, we find that the amendment to Clause 4 of Article 12 with effect from 1.4.1998 by deleting the term \"payments for the use of the equipment\" from the definition of \"royalties\" makes the present case distinguishable on facts. In Poompuhar Shipping Corpn. Ltd's case (supra), referred supra, it was a case of hiring of ship on time-charter basis, whereas in the present case, dredging equipment is leased out on bareboat basis, namely, without Master and Crew. Therefore, on facts, the decision in Poompuhar Shipping Corpn. Ltd's. case (supra), is distinguishable. 35. The learned Standing Counsel for the department referring to paragraph (2) of Article 5 which states that an installation or structure used for the exploration of natural resources is a permanent establishment, provided that the activities continue for more than 183 days, pleaded that the stand of the department is justified. 36. We are not inclined to accept such a plea, as in the case on hand the dredging equipment was leased out on bareboat basis viz., without Master and Crew. Therefore, it will not come under the permanent establishment and the entire control over the equipment was not with the Foreign company, but with the Indian Company. Therefore, the above said plea is not accepted. 37. For the foregoing reasons, the appellate authority below has rightly considered Article 12(4) of the DTAA agreement between Netherlands 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. 9. In the case of Deputy Director of Income Tax, (International Taxation)-3(2) Mumbai Vs Nederlandsche Overzee Baggermaatsehappiji bv, the Mumbai Bench of Tribunal [2010] 39 SOT 556 (Mumbai)[14-05-2010] at para 23 held as under: ‘’23. The assessee has no personnel located in India for the purpose of the contract entered by it with HAM. The assesses does not have any responsibility beyond the 33 IT(TP)A No.69 /Chny/2018 provision of a dredger on charter hire. The dredger was operated by personnel appointed by HAM and was used by HAM for the purpose of business. Mere dry lease of an equipment does not result in a PE. Thus, we uphold the findings of the first appellate authority on this issue and dismiss the appeal of the revenue on this ground’. 10. The order of Tribunal in the case of Maersk 86 Taxmann.com 77 (Delhi) as under: ‘’11. We have heard rival submissions and perused the relevant. finding given in the impugned order as well as material placed. on record. The main issue here in this case is, whether the revenue receipts from charterer hire of AHTS for exploration and exploitation by ONGC in offshore areas of operation in India would be taxable in the hands of the assessee in India or not under Article 7 of the Treaty by holding that the assessee has a PE in India within the meaning of Article 5(2) of India Dutch and India UK DTAA. The relevant facts have already been discussed above. However to appreciate the nature of agreement between the assessee-company and ONGC some important clauses needs to be highlighted. Under the terms of the agreement, the charterer, i.e. ONGC wants to hire AHTS vessel for its operation of exploration and exploitation of oil and natural gas in the offshore areas of operation in India. The contractor/owner, i.e., the assessee-company is the owner of the AHTS vessel, that is, the assessee-company has agreed to provide to supply the vessel along with crew and master and operate and maintain the AHTS on the terms and conditions mentioned in the agreement. The relevant terms enumerated in various clauses are briefly discussed as under:— ♦ Clause 1.3 deals with the definition the term \"Charterer's operations\" and sets the various assignments/ services to be undertaken by the vessel along with master & crew, as per scope of the work has been set out in Schedule B. ♦ The scope of work includes anchor handling operations, supply operations between base and offshore, towing operations etc This being a supply vessel hence it cannot be a fixed place as contemplated for it under Treaty to be a PE. ♦ Clause 1.11 describes the 'Charterer' to means ONGC. Clause 1.12 describes the \"Owner\" to mean, the Contractor with whom the Charterer has entered into agreement for charter hire of the vessel. ♦ Clause 1.13 describes 'On hire' to mean, the duration when the vessel is deployed for charterer's operations after due clearance from all regulatory authority. ♦ Clause 1.16 describes the vessel as the AHTS of the required specification specified as per Schedule A of the Agreement and equipped with the required personnel and equipment as set out in Schedule C. ♦ Clause 6.1 provides for the obligation of the Owner (i.e., the assessee) while the vessel is in operation. It relates to supply at the cost of the owner, all equipment machinery fitted in vessel, personnel as listed in Schedule C, maintenance of vessel, work wire, Mooring lines, etc. ♦ Clause 6.2 requires the assessee to ensure efficient complement of personnel on ship, 34 IT(TP)A No.69 /Chny/2018 ♦ Clause 6.3 deals with personnel on ship where the details of the Crew such as all particulars / bio-data including passport, etc. is required to be submitted to the Charterer. Any change in the appointment will require prior approval of Charterer. ♦ Clause 6.4 enables the charterer to replace any member of the crew while the owner would be obliged to accept such request for replace of the crew. This means that the charterer has total control of the personnel, ♦ Clause 6.6 sets out that subject to right of the Master only to determine and advice for reasons of safety of vessel during adverse weather conditions as to whether a navigation mover can or cannot be undertaken which advice shall be considered by the charterer, the deployment and operation of the vessel shall be under the direction of the charterer. The owner shall ensure the vessel is available for operations as per the directions of the charter. ♦ Clause 6.7 The members of the crew shall maneuver the vessel and operate the vessel for cariying out the charters operation. The Master and Crew, although appointed by the contractor, shall be under the orders and directions of the Charterer (i.e. ONGC) as regard deployment of the vessel and carrying out Charterer's operations. The charterer will furnish to the Master all instructions and sailing directions. The vessel thus will be in control of the charterer. ♦ Clause 6.8 contains assurance from the Owner, i.e. assessee that the vessel shall carry out functions and duties in accordance with the Charterer's directives, ♦ Para 12 sets out the obligations of the charterer (i.e. ONGC) ♦ Clause 12.1 requires to provide free of cost following to the Owner; supply of all lubricants, greases. However, in the event of non-availability of any lubricants/grease, the Owner could procure the same on reimbursable basis at actual cost; and supply of fuels and water required by the vessel. However the Charterer will recover towards cost of fuel, lubricants, greases and water when the vessel is under repair beyond the permissible downtime. Further the following clauses relating to warranty and indemnity also are relevant to substantiate that the agreement is for hire of a vessel as against a service agreement:— ♦ Warranty clause as set out in clause 3.2 wherein the assessee shall at the date of commencement date (delivery of the vessel) and thereafter throughout the terms of the agreement shall provide the vessel that fulfil the description, particulars and capabilities. This suggests that the contract is for hire of vessel and equipment on board and does not relate to services as the services are performed per the direction of the charterer. ♦ Similarly the indemnity clause 21.6 also suggests that the contract is for hire of vessel and not for the services. ♦ Clause 21.7 provides that Owner (i.e. the assessee) or their employees are not responsible for loss of cargo of the Charterer loaded upon or carried by the vessel. 12. From the aforesaid clauses specifically various sub-clauses of clause 6, it can be seen that it is purely a hire agreement for AHTS vessel for exploitation and exploration of oil and natural gas by ONGC in respect of their services performed on the AHTS. Not only the vessel but also the Master and the Crew were under the 35 IT(TP)A No.69 /Chny/2018 direction and control of the ONGC. It has also been brought on record before us that, now it is amply settled in the case of the assessee that Master and the Crew on board of the vessel given or hire to ONGC were not the employees of the assessee, albeit were procured from RAPM, a group company. This matter has been settled by the Tribunal in assessee's own case as referred to by the Id. Sr. counsel. The relevant observation of the Tribunal in this regard reads as under:— \"11. Apropos the payment aspect, the salary paid to the expatriate sonnet was not borne by MCL. MCL was also not haying any permanent establishment in India. The Income of the expatriate personnel was assessed in. Demark. That being so, article 16(3) of the Indo- Denmark DT'AA was applied. The expatriate personnel were employees of RAPM. 'They were tax residents of Denmark. It has not been established by the department that their contention that it was MCL who was actually controlling the work of the expatriate personnel while on services in India, stands buttressed or substantiated by any material on record. It has also failed to prove that it was MCL which was responsible for the entire operations of the PSV. It has not been shown that MCL was having right on the work produced and bearing the relative responsibility and risks of the services of the expatriate personnel........\" 13. Further we find that the issue, whether the employee belong to assessee- company or not has also been settled by the Hon'ble Uttarakhand High Court vide judgment and order dated 23.11.2012 in ITA No. 28/Del/2011, wherein the revenue has challenged the aforesaid finding and order of the Tribunal and the said appeal of the revenue has been dismissed by the Hon'ble High Court. In view of this fact, the arguments of the Id. DR that employees belong to the assessee stands negated by the Tribunal in assessee's own case and also affirmed by the Hon'ble High Court. Whence the employees do not belong to the assessee; nor are they within the direction and control of the assessee, then it cannot be reckoned that these employees constitute a PE in terms of either 'Service PE' or the assessee is rendering its activities through its employees in India for a period of 183 days or more. 14. Now, coming to the main contention of the revenue that vessel operated under the agreement forms a \"place of management\" in terms of Article 5(2)(a) and therefore, the business profit of the assessee should be taxed under Article 7. Here in this cannot be disputed that the management of the assessee-companies is either in Denmark or in UK where the decisions relating to the. business arc taken. The concept of control and management of the business alludes to a concept of a place where controlling and directive power rests, that is, where the head and brains of the enterprise is situated and where the decisions are being taken. The 'place of management' must have power to make significant decision. The eminent author Arvid A. Skaar in his books Permanent Establishment has commented as under:— 'To decide whether the \"place of management\" exists, the nature of business activities performed in the place is significant. Clearly, the performance of business activities or ownership of property does not qualify for a \"place of management\". On the other hand, a \"place of management\" does not have to be the head office. However, the place must have power to make significant decisions. It is not sufficient that the activity has a managerial character. For example, payroll functions 36 IT(TP)A No.69 /Chny/2018 pertaining to construction work performed at an onsite office are not \"management\" in this respect. This is particularly relevant for enterprises engaged in hiring out of labour where payroll functions are sometimes the only activities performed by the hiring-out company in the host country. Moreover, \"management\" in this respect is more than the-day-to-day carrying out of instructions by the head office abroad.' Thus, the main emphasis has been given a place where there must be power to make significant decisions and it has to be some kind of fixed place of management. UN Model also incorporates several provisions of Article 5 of OECD Model Convention and has incorporated commentary of OECD for explaining the concept of place of business.as used in Article 5. The relevant-para 8 of OECD as accepted by the UN Model reads as under:— \"Where tangible property such as facilities, industrial. commercial or scientific/ (ICS) equipment, buildings, or intangible property such as patents, procedures and similar property, are let or leased to third parties through a fixed place of business maintained by an enterprise of a Contracting State in the other State, this activity will, in general, render the place of business a permanent establishment. The sam.e applies if capital is made available through a fixed place of business. If an enterprise of State lets or leases facilities, ICS equipment, building or intangible property, as such, will not constitute a permanent establishment of the lessor provided the contract is limited to the mere leasing of the ICS equipment, etc. This remains the case even when, for example. the lessor supplies personnel after installation to operole the equipment provided that their responsibility is limited solely to the operation or maintenance of the ICS equipment under the direction, responsibility and control of lessee. If the personnel have wider responsibilities, for example participation in the decisions regarding the work for which the equipment is used, or if they operate, service, inspect and maintain the equipment under the responsibility and control of the lessor, the property, the activity of the lessor, the activity of the lessor may go beyond the mere leasing of ICS equipment and may constitute an entrepreneurial activity. In such a case a permanent establishment could be deemed to exist if the criterion of permanency is met ........\" 15. Thus, if any facility, equipment or building or any intangible property is leased out to a third party through a fixed place of business maintained by an enterprise of contracting state in other state, then it will constitute a permanent establishment. However, if a contract is limited to mere leasing out of such facility equipments etc., then it will not constitute a PE if the contract is limited to mere leasing of equipment. Here in this case also vessel given on hire by the assessee-company to ONGC, for ONGC's operation will not qualify for a 'place of management' for the assessee as contemplated in Article 5(2)(a), because such a leasing/hiring has to be through fixed place of business. The vessel here in this case cannot be reckoned either as 'fixed place of business' or 'a place cf management'. We have already discussed in detail above that firstly, personnel do not belong to the assessee and secondly, in any case the personnel are under the control and directions of ONGC and qua the assessee these personnel do not have any wide responsibility in participation of the decisions of hiring, therefore, it cannot be held that the activity of the lessor/assessee is done by these personnel or it constitute an entrepreneurial 37 IT(TP)A No.69 /Chny/2018 activity which can be reckoned as PE. The reliance placed by the Assessing Officer and the Id. CIT (A) on the UN Model is thus not only misplaced but is based on misinterpretation of the UN commentary. Thus, in our conclusion, firstly, the hiring of AHTS vessel of assessee by ONGC for its operation in India does not qualify to make vessel a place of management for the assessee in India; secondly, the Crew and Master of the vessel does not belong to the assessee as settled by the Hon'ble High Court in assessee's own case; and lastly, in any case Master and Crew of the vessel do not have power to make significant decision over the assessee, because they are under control and directive of ONGC as per the agreement discussed above. Even under Article 5(2)(j) which reads as under:— \"An installation or structure used for the exploration of natural resources provided that the activities are carried on for a period or period's of 183 days or more in any twelve month period.\" It cannot he held that assessee has some kind of.PB, because the assessee vessel cannot be reckoned as installation or structure used for exploration and exploitation of national resources as it is being done by the ONGC. The ONGC has only hired the vessel from a.ssessee for carrying out exploration of oil and natural gases and therefore, under this clause aiso it cannot be held that the assessee's vessel/ AHTS constitute a PE in India. Thus, in our view there exists no PE of assessee in India and therefore, the revenue from ONGC cannot be taxed in India in terms of Article 7 of DTAA. On this ground alone the assessee gets relief from taxation. 11. We find that on facts the Appellant merely supplies dredger to ISDPL on hire on bareboat basis. As evident from Article 12 of India-Netherlands DTAA that term ‘Royalty’ does not include payments for the use or right to use industrial, commercial or scientific equipment, as mentioned by the AO in the SCN. The judgment in the case of Van Oord ACZ Equipment BV and orders of the Tribunal in the case of DDIT v. Nederlandsche Overzee Baggermaatsehappiji BV (2010) 39 SOT 556 (Mum.)(page 23 of CLC) and M/s International Seaport Dreding Ltd (ITA No.418/Mds/2015 dated 22.07.2016 (Pg 1 of CLC) referred supra also strengthen the argument of the assessee that hire charges of bareboat charter would not constitute “Royalty’ and hence, not taxable as ‘Royalty’ under Article 12 of India-Netherlands DTAA. We also note that the word ‘plant’ in India-Beligium DTAA under Article 12 is a typographical error for word ‘plan’. This factual error has 38 IT(TP)A No.69 /Chny/2018 been acknowledged in the Notification S.O.54 [NO.20 (F.NO.505/2/89-FTD] Dated 19.01.2001 [refer Pg 83 of Paper Book]. Hence, we are of the considered view that hire charges of bareboat charter does not fall under the garb of definition “Royalty’ and hence, not taxable as ‘Royalty’ under Article 12 of India-Belgium DTAA. 12. We have gone through the judgments of the Hon’ble Apex Court in the cases of CIT Vs R.D. Aggarwal, Carborandum Co. Vs CIT, Ishikawajma-Harima Heavy Industries Ltd. Vs DIT, Hon’ble Gujrat High Cout in the case of Metror Sattellite Ltd. Vs ITO and Netherlandsche Overzee Baggermaatsehappiji BV all referred supra and also taking guidance therefrom, it is clear from the above facts that the appellant has no business connection in India or PE. We also find that the AO without adherence to the principles laid by the Hon’ble Courts in above referred cases has held that assessee has business connection and PE in India is devoid of merit. 13. Since, assessee does not constitute a PE in India, therefore attribution of profits to PE does not arise. 14. The issues in controversy revolve and hinges upon the survey carried out on M/s International Seaport Dredging Private Limited on 17.02.2017 and statements recorded. It is settled by the Hon’ble Supreme Court in the case of CIT v. S. Khader Khan Son (2013) 352 ITR 480 (SC) (page 111 of CLC) affirming the decision of the Hon’ble Madras High Court (Page 113 of CLC) that the materials collected and the statement recorded during the survey under section 133A are not conclusive piece of evidence by itself. We also find that the persons whose 39 IT(TP)A No.69 /Chny/2018 statements were recorded by the revenue have not passed the muster of cross examination by the assessee. Hence, what has been stated in the statement made u/s 133A of the Act in the case of other assessee cannot be treated as gospel truth. Therefore, we refrain ourselves to endorse the same. 15. Before parting with the order, we must make it clear that we have somehow avoided reproducing the sections, case laws and facts again. We have already narrated the sections, case laws and facts while dealing with submissions of the parties. 16. In result, the appeal of the assessee is allowed. Order pronounced in the open Court on 25th day of February, 2025 at Chennai. Sd/- Sd/- (मनोज क ुमार अŤवाल) (मनु क ुमार िगįर) (MANOJ KUMAR AGGARWAL) लेखा सद˟ / ACCOUNTANT MEMBER (MANU KUMAR GIRI) Ɋाियक सद˟ / JUDICIAL MEMBER चेɄई Chennai: िदनांक Dated : 25-02-2025 KV आदेश कȧ ĤǓतͧलͪप अĒेͪषत /Copy to : 1. अपीलाथŎ/Appellant 2. ŮȑथŎ/Respondent 3. आयकरआयुƅ/CIT, Chennai. 4. िवभागीयŮितिनिध/DR 5. गाडŊफाईल/GF "