DCIT, CHENNAI V. Sical Logistics Ltd., CHENNAI

ITA 1573/CHNY/2016

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3849 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2016
• Appeal Filed By: Department
• Bench Allotted: D
• Next Hearing Date: 29-09-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 30-05-2016
• Court: TRIBUNAL
• Department Lawyers: M SRINIVASA RAO
• Keywords: Business income; Double taxation relief; Rule of consistency; Deemed to accrue or arise in india; Permanent establishment; Non-deduction of tax
• Section: 201(1); 28

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI , . ' # , $ #% BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER . / ITA NOS. 1074,1075,1076,1077,1078 & 1079 /MDS/2015 / ASSESSMENT YEARS : 2002-03, 2003-04,2004-05,2005-06 , 2003-04 &2004-05 M/S. SICAL LOGISTICTS LTD., SOUTH INDIA HOUSE , 73, ARMENIAN STREET, CHENNAI - 600 001. PAN : AAACS3789B ( /APPELLANT) V. THE ASSISTANT DIRECTOR OF INCOME-TAX, INTERNATIONAL TAXATION, CHENNAI 600 034. (/ RESPONDENT) . / ITA NOS. 1573, 1574 & 1575/MDS/2015 / ASSESSMENT YEARS : 2006-07, 2003-04 & 2004-05 THE ASSISTANT DIRECTOR OF INCOME-TAX, INTERNATIONAL TAXATION, CHENNAI 600 034. ( /APPELLANT) V. M/S. SICAL LOGISTICTS LTD., SOUTH INDIA HOUSE , 73, ARMENIAN STREET, CHENNAI - 600 001. PAN : AAACS3789B (/ RESPONDENT) REVENUE BY : SHRI M. SRINIVASA RAO, CIT ASSESSEE BY : SHRI R.VIJAYARAGHAVAN,ADVOCATE SHRI S.SRIDHAR, ADVOCATE !' / DATE OF HEARING : 29.09.2016 #$ !' / DATE OF PRONOUNCEMENT : 14.12.2016 - - SICAL LOGISTICS L TD. 2 & / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THESE ARE APPEALS OF THE ASSESSEE AND REVENUE ARE DIRECTED AGAINST THE DIFFERENT ORDERS OF CIT(A) FOR THE ABOVE ASSESSMENT YEARS. 2. THE COMMON ISSUE IN ASSESSEES APPEALS IN ITA NOS.1074, 1075 & 1076/2015 AND REVENUES APPEALS IN ITA NOS.1573 TO 1575/MDS./2015, THE ASSESSEE DID NOT DE DUCT TAX AT SOURCE WHILE REMITTING CHARTER PAYMENTS (HIRE CHAR GES) TO FOREIGN SHIPPING COMPANIES (FSC IN SHORT). 3. THE ASSESSEE FILED APPEALS IN ITA NOS.1077 TO 1079/MDS./2015 ON THE SAME ISSUE STATING THAT THE L D.CIT(A) ERRED IN SUSTAINING THE ACTION OF THE AO IN TREATIN G THE ASSESSEE AS THE REPRESENTATIVE ASSESSEE ON THE APPLICATION O F SECTION 9(1)(VI) R.W.S.160/163 OF THE ACT WITHOUT ASSIGNING ANY REASONS AND JUSTIFICATIONS. ITA NO.1074 TO 1076/MDS./2015 4. THE FACTS AS NARRATED IN THE ASSESSMENT YEAR 20 02-03 ARE THAT THE ASSESSEE IS CARRYING ON THE BUSINESS OF TR ANSPORTING COAL BY TIME CHARTERING OF VESSELS. IN THE COURSE OF BU SINESS, THE - - SICAL LOGISTICS L TD. 3 ASSESSEE HAD AVAILED THE SERVICES OF VESSELS OWNED BY FOREIGN SHIPPING COMPANIES (FSC IN SHORT), AS WELL. THE ASSESSEE HAD PAID CHARGES TO THOSE FOREIGN COMPANIES FOR MOVING COAL FROM VARIOUS PORTS IN INDIA DESTINED TO CHENNAI AND TUTI CORIN PORTS. THE COAL IS BROUGHT TO TAMILNADU PORTS FOR THE CONS UMPTION OF TAMILNADU ELECTRICITY BOARD. ACCORDING TO THE AO, THE ASSESSEE HAD ENGAGED FSCS IN THE PREVIOUS YEAR RELEVANT TO T HE IMPUGNED ASSESSMENT YEAR FOR MOVING COAL AS STATED ABOVE AND PAID CHARGES FOR ENGAGING THOSE VESSELS. THE AO OB SERVED THAT THE FSCS HAVE NOT FILED ANY RETURN FOR THE INCOME A CCRUING AND ARISING IN INDIA. HE FURTHER OBSERVED THAT THE CHA RGES PAID BY THE TAXPAYER WAS ON ACCOUNT OF THE USE AND HIRE OF THE SHIP AND HENCE, IT WAS ROYALTY WITHIN THE MEANING OF SEC.9(1 )(VI) OF THE I.T.ACT, 1961 AND ARTICLE 12 OF THE RESPECTIVE TAX TREATIES. ACCORDINGLY, HE TREATED THE TAX PAYER AS ASSESSEE- IN-DEFAULT FOR NON-DEDUCTION OF TAX AT SOURCE WHILE REMITTING SUCH CHARGES. ON APPEAL, LD.CIT(A) CONFIRMED THE ADDITION MADE BY TH E AO. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 5. THE LD. AR SUBMITTED THAT SEC.172 OF THE ACT H AS BEEN APPLIED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT - - SICAL LOGISTICS L TD. 4 YEAR 2005-06 TO 2007-08. THE LD. AR RELIED ON THE DECISION OF THE MADRAS HIGH COURT IN THE CASE OF POOMPUHAR SHIP PING CORPORATION LTD. (282 ITR 003), WHEREIN IT WAS HELD THAT PAYMENT FOR CHARTER HIRE IS NOT PAYMENT FOR USE OF SHIP. IT IS ONLY BECAUSE OF SUBSEQUENT DECISION OF THE JURISDICTIONA L HIGH COURT RENDERED IN THE CASE OF POOMPUHAR SHIPPING CORPORAT ION LTD. (360 ITR 257)(MAD), PAYMENT U/S.172 HAS NOT BEEN AC CEPTED. HE ALSO SUBMITTED THAT EARLIER IN THE CASE OF ESSAR SHIPPING CORPORATION, REPORTED IN 47VST 209(MAD.) THE MADRAS HIGH COURT HAS HELD THAT SHIP CHARTER IS NOT FOR USE OF THE VESSEL, WHICH HAS BEEN OBSERVED IN THE CASE OF POOMPUHAR SH IPPING CORPORATION LTD.(360 ITR 257) AT PARA 65 AS UNDER: IN FACT, IN THE DECISION REPORTED IN (2012) 47 VST 209 (MAD) (STATE OF TAMIL NADU V. ESSAR SHIPPING LIMITE D), TO WHICH ONE OF US WAS A PARTY (CHITRA VENKATRAMAN, J) , THIS COURT HAD AN OCCASION TO CONSIDER THE TAXABILITY ON THE CONSIDERATION PAID UNDER THE TIME CHARTER AGREEMENT IN THE CONTEXT OF SEC.3A OF THE TAMIL NADU GENERAL SALES T AX ACT. THIS COURT POINTED OUT THAT IN A TIME CHARTER , THERE IS NO TRANSFER OF EFFECTIVE CONTROL OF THE VESSEL. TH IS COURT ALSO REFERRED TO THE STATEMENTS BY SCRUTTON ON CHA RTER- PARTIES THAT IN A TIME CHARTER, THE CHARTERER HAS NO INTEREST IN THE SHIP AND THE SHIP OWNER HAS TO DO THE AGREED WORK WITH THE USE OF HIS VESSEL. NOT BEING DEMISE OF TH E SHIP, - - SICAL LOGISTICS L TD. 5 BUT A CONTRACT FOR HIRE OF SERVICES, THERE IS NO PO SSESSION GIVEN TO THE CHARTERER UNDER A TIME CHARTER PARTY, TO RESULT IN DELIVERY OR REDELIVERY, AS IS NORMALLY UNDERSTOO D AS THOUGH ON THE DELIVERY OF THE VESSEL, THE OWNER LOS T CONTROL TO RESUME THE SAME ON THE EXPIRY OF THE PERIOD OF T IME CHARTER. IN THE CONTEXT OF THE CHARGE CREATED UNDE R SECTION 3A, THIS COURT HELD THAT IN THE ABSENCE OF PASSING OF EFFECTIVE CONTROL TO THE CHARTERER, THE MERE FAC T THAT THE AGREEMENT HAD BEEN ENTERED INTO AND THAT THE ASSESS EE HAD PAID THE HIRE CHARGES, THE TRANSACTION, PER SE, WOULD NOT COME WITHIN THE SCOPE OF SECTION 3A OF THE TAMI L NADU GENERAL SALES TAX ACT. IN SO HOLDING, THIS COURT ALSO REFERRED TO THE DECISION REPORTED IN (2000) 119 STC 182(SC) (20 TH CENTURY FINANCE CORPN. LTD. V. STATE OF MAHARASHTRA) AND THE DECISION OF THE APEX COURT REP ORTED IN (1999) 113 STC 317 (AGGARWAL BROTHERS V. STATE O F HARYANA) FOR THE UNDERSTANDING OF THE EXPRESSION U SE OR RIGHT TO USE. THIS COURT ALSO REFERRED TO THE DEC ISION REPORTED IN (2005) 145 STC 91 (SC)(BHARAT SANCHAR NIGAM LTD. V. UNION OF INDIA) AND POINTED OUT TO TH E ATTRIBUTES IN RIGHT TO USE GOODS FOR THE PURPOSES O F ATTRACTING THE CHARGE TO HOLD THAT A TRANSFER OF RI GHT TO USE GOODS IMPLIED TRANSFER OF EFFECTIVE CONTROL FOR USE . IN THAT CONTEXT, GOING BY THE CHARGING PROVISIONS UNDER SEC TION 3A OF THE TAMIL NADU GENERAL SALES TAX ACT, THIS COURT HELD THAT IN A TIME CHARTER PARTY, THERE BEING NO TRANSF ER OF EFFECTIVE CONTROL FOR USE, THE TRANSACTIONS WOULD N OT ATTRACT SECTGION 3A OF THE TAMIL NADU GENERAL SALES TAX ACT . - - SICAL LOGISTICS L TD. 6 5.1 THE LD. A.R. FURTHER SUBMITTED THAT THE AS SESSEE CANNOT ANTICIPATE AND PAY BASED ON SUBSEQUENT HIGH COURT ORDER AND EXPLANATION 5 TO SEC.9(1)(VI) INTRODUCED IN 2012. TO SUPPORT HIS VIEW, HE RELIED ON THE DECISION OF THE AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF STERLING ABRAS IVE LTD. V. ACIT (140 TTJ 68) AND THE MUMBAI BENCH IN THE CASE OF CHANNEL GUIDE INDIA LTD. (20 ITR (TRIB) 438). ACCO RDING TO THE LD. AR, WHEN THE NON-RESIDENT ASSESSEE HAS BEEN ASS ESSED, PAYER IS NOT AN ASSESSEE IN DEFAULT AND THERE CAN B E NO DISALLOWANCE OF EXPENDITURE IN THE HANDS OF THE PAY ER U/S.40(A)(I) OF THE ACT, AS OBSERVED BY THE SUPREME COURT IN THE CASE OF HINDUSTAN COCA COLA BEVERAGES (293 ITR 226) . FURTHER, HE SUBMITTED THAT U/S.161(2) IF AN ASSESSE E IS ASSESSED AS A REPRESENTATIVE ASSESSEE, THEN IT CANN OT BE ASSESSED ON THE SAME INCOME UNDER ANY OTHER PROVISI ON OF THE ACT. ACCORDING TO THE LD. AR, SINCE THE ASSESSEE H AS ALREADY PAID 7.5% U/S.172, THIS AMOUNT HAS BEEN GIVEN CREDI T TO IN THE ASSESSMENT AS REPRESENTATIVE ASSESSEE. - - SICAL LOGISTICS L TD. 7 6. ON THE OTHER HAND, THE LD. DR SUBMITTED THAT LD .CIT(A) CONSIDERED THE DECISION TAKEN IN THE A.Y. 2007-08, IN THE CASE OF THE ASSESSEE BY THE TRIBUNAL, AND HE HAS TAKEN A DIFFERENT VIEW FOR THEN ASSESSMENT YEARS, WHICH IS DUE TO FOL LOWING TWO REASONS: 1. ON THE SIMILAR ISSUE THE MUMBAI HIGH COURT IN THE CASE OF CIT VS. ORIENT (GOA) (P) LTD (2010) 325 ITR 554 HAS TAKEN A DIFFERENT VIEW. IT IS SET OUT THAT TAX HAV ING NOT BEEN DEDUCTED AT SOURCE FROM PAYMENT TO FOREIGN SHIPPING COMPANY, S.40(A)(I) WAS CLEARLY ATTRACTED; ASSESSEE BEING A RESIDENT COMPANY, THERE WAS NO QUESTION OF INVOKING S.172. THIS DECISION WAS NOT BROUGHT TO NOTICE OF HONBLE ITAT. 2. THE JURISDICTIONAL HIGH COURT IN THE CASE OF POOMPUHAR SHIPPING CORPORATION LTD. VS. ITO (2014) 360 ITR 257 (MAD) HELD THAT THE INCOME FROM TIME CHARTERING OR USE OF SHIP BETWEEN THE PORTS OF INDI A, CONSTITUTES ROYALTY U/S.9(1)(VI) OF THE ACT. THIS IS A COMPREHENSIVE JUDGMENT DEALING WITH SEVERAL FACETS HIRING OF SHIP. FOR THE SAKE OF PROPER APPRECIATION, MY DECISION IS ORGANIZED IN TO 3 PARTS. THE PART 1 DEALS WITH THE STATUTORY PROVISION AND ITS APPLICATION, PART 2 DELINEATES TH E ISSUE OF TAX DEDUCTION IN CASE OF TIME CHARTERING OF VESSELS AND PART 3 CONTAINS APPELLANT SPECIFIC ISSUES. 6.1 ACCORDING TO THE LD. DR, THE SEC.195 SEEKS TO A VOID A REVENUE LOSS AS A RESULT OF TAX LIABILITY IN THE HANDS OF A FOREIGN RESIDENT, BY DEDUCTING THE SAME FROM PAYMENTS MADE TO THEM AT SO URCE AND THIS WILL OBVIATE THE DIFFICULTY IN CHASING SUCH FOREIGN NATIONALS/CONCERNS FOR RECOVERY OF THEIR TAX DUES SUBSEQUENTLY, DUE TO JURISDICTIONAL AND - - SICAL LOGISTICS L TD. 8 OTHER OPERATIONAL DIFFICULTIES. FURTHER, MOST SUCH FOREIGN ENTITIES ARE LIKELY TO HAVE NIL OR AT BEST VERY MEAGER ASSETS IN INDIA WHICH MAY BE TOTALLY INADE3QUATE TO RECOVER THE TAX DUES. ACCOR DING TO THE LD. DR, SEC.195 OF THE ACT, IS AN ANSWER TO THE ABOVE DIFFI CULTY AS IT PROVIDES THE MECHANISM FOR DEDUCTION OF TAX AT SOURCE. HE R ELIED ON THE JUDGEMENT IN THE CASE OF CIT & ORS. VS. SAMSUNG ELE CTRONICS CO. LTD. & ORS. (2010) 320 ITR 209 (KAR), THE KARNATAKA HIGH COURT HELD THAT WHILE U/S.195(1), AN OBLIGATION ON THE PART OF THE PERSON RESPONSIBLE FOR PAYING TO A NON-RESIDENT DOES ARISE IF AND ONLY IF THE PAYMENT PARTAKES THE CHARACTER OF INCOME PAYMENT. EVERY RESIDENT PAYER MAKING A PAYMENT TO A NON-RESIDENT RECIPIENT IN RESPECT OF ANY GOODS/SERVICE SUPPLIED BY THE NON-RESIDENT, WHI CH THE RESIDENT PAYER IS MAKING USE OF IN THE RUNNING OF ITS BUSINE SS OR ANY OTHER ACTIVITY INDULGED IN AS PART OF THE BUSINESS/PROFES SIONAL ACTIVITY OF THE RESIDENT RECIPIENT PRIMA FACIE BEARS THE CHARACTER OF AN INCOME RECEIPT AND THEREFORE, THE OBLIGATION UNDER SUB-SEC .(1) OF SEC.195 SPRINGS UP. THEREFORE, HE SUBMITTED THAT IT IS IMP ERATIVE FOR A PAYER TO ENSURE THAT THE PROVISIONS OF SEC.195 ARE STRICT LY FOLLOWED IN ALL PAYMENTS TO NON-RESIDENTS. IF THE AMOUNT OF INCOME EMBEDDED IN A PAYMENT CANNOT BE ASCERTAINED, IT IS BETTER TO DEDU CT BASED ON THE - - SICAL LOGISTICS L TD. 9 GROSS AMOUNT. IN CASE OF DOUBT, AN APPLICATION FOR MITIGATION OF TDS U/S.195(2) TO THE PAYERS ASSESSING OFFICER MUST BE MADE. THE ALTERNATIVE ROUTE OF THE C A CERTIFICATE IN FORM 15 CB MAY ALSO BE USED. ONLY WHERE THERE IS STRONG JUSTIFICATION AND JUDICIAL SUPPORT IN THE RESPECTIVE JURISDICTION THIS ALTERNATIVE MAY BE USED. 6.2 ACCORDING TO THE LD. DR, SEC.160 AND SEC.161 OF THE ACT, ARE ENABLING SECTIONS. THEY ENABLE THE REVENUE TO MAKE AN ASSESSMENT ON THE REPRESENTATIVE ASSESSEE INSTEAD O F A DIRECT ASSESSMENT ON THE PERSON BENEFICIALLY ENTITLED TO T HE INCOME. SO LONG AS RECEIPT IS FALLING U/S.9, PROVISIONS OF SEC .160 WOULD STAND ATTRACTED. U/S.160(1) OF THE ACT, REPRESENTATIVE A SSESSEE MEANS AN AGENT OF NON-RESIDENT, INCLUDING A PERSON WHO IS TR EATED AS AN AGENT U/S.163 OF THE ACT IN RESPECT OF INCOME OF A NON-RE SIDENT SPECIFIED IN SUB-SEC.(1) OF SEC.9. 6.3 FURTHER, THE LD. DR, SUBMITTED THAT CHAPTER XV TITLES AS LIABILITY IN SPECIAL CASES. SEC.172 COMES UNDER SUB-TITLE H.-PROFITS OF NON-RESIDENTS FROM OCCASIONAL SHIPPI NG BUSINESS. TITLE OF SEC.172 IS SHIPPING BUSINESS OF NON-RESIDENTS. FOR BRINGING A - - SICAL LOGISTICS L TD. 10 CASE UNDER CHAPTER XV, H OF THE ACT, ONE HAS TO EST ABLISH A CASE OF PROFITS OF NON-RESIDENTS FROM OCCASIONAL SHIPPING B USINESS. 6.4 AS FAR AS ROYALTY IS CONCERNED, THE LD. DR SU BMITTED THAT EXPLANATION 2 TO SEC.9(1)(VI) DEFINES ROYALTY TO MEANS CONSIDERATION INCLUDING ANY LUMP SUM CONSIDERATION PAID FOR IMPAR TING ANY INFORMATION CONCERNING THE WORKING OF, OR THE USE O F, A PATENT, INVENTION, MODEL, DESIGN, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY AND ALSO THE IMPARTING OF ANY INFO RMATION CONCERNING TECHNICAL, INDUSTRIAL, COMMERCIAL OR SCIENTIFIC KNO WLEDGE, EXPERIENCE OR SKILL. BY THE FINANCE ACT, 2001, CL. (IVA) HAS BEEN INSERTED IN EXPLN.2 IN CL. 9(1)(VI) TO WIDEN THE DEFINITION OF THE EXPRESSION ROYALTY W.E.F. 1 ST APRIL, 2002. ACCORDING TO HIM, AS PER THIS CLAUS E, ROYALTY WOULD INCLUDE CONSIDERATION IN RESPECT OF THE USE OR RIGHT TO USE ANY INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPM ENT. 6.5 THE LD. DR SUBMITTED THAT IN THE CASE POOMPUHAR SHIPPING CORPORATION LTD. VS. ITO (INTERNATIONAL TAXATION (2 014)(350 ITR 257), IT IS HELD THAT PAYMENT MADE FOR USING SHIP O N TIME CHARTERED BASIS TO NON-RESIDENT SHIPPING COMPANY AMOUNTS TO ROYALTY SINCE SHIP IS EQUIPMENT. HENCE, SUCH AMOUNTS ARE ASSESSA BLE UNDER - - SICAL LOGISTICS L TD. 11 EXPLANATION 2(IVA) TO SEC.9(1)(VI) OF THE ACT. THU S, THE PAYMENTS ARE LIABLE FOR TDS DEDUCTION U/S.195 OF THE ACT. 6.6 FURTHER, THE LD. DR SUBMITTED THAT ROYALTY ME ANS THE CONSIDERATION PAID FOR THE USE OR RIGHT TO USE. THUS, WHEN THE USE OR RIGHT TO USE THE SHIP FOR AN ECONOMIC BENEFIT IS GIVEN TO THE ASSESSEE, THE CONSIDERATION FOR THE USE OF THE INDU STRIAL, COMMERCIAL AND SCIENTIFIC EQUIPMENT IS ROYALTY, ASSESSABLE U NDER EXPLANATION 2(IVA) TO SE.9(1)(VI) OF THE ACT. THEREFORE, HE SU BMITTED THAT FOR THE PURPOSES OF THE INCOME-TAX ACT, UNDER THE TIME CHAR TER, THE PAYMENT MADE BEING FOR THE USE OF THE SHIP, THE SAME COMES WITHIN THE MEANING OF THE WORD ROYALTY. 6.7 ACCORDING TO THE LD. DR, SHIP COULD BE CONSIDER ED AS AN EQUIPMENT AND SEC.43(3) OF THE ACT DEFINES PLANT TO INCLUDE SHIPS. THERE IS A SEPARATE PROVISION RELATING TO INCOME OF SHIPPING COMPANIES UNDER CHAPTER XIIG OF THE ACT. SEC.115V OF THE ACT DEFINES VARIOUS TERMS LIKE BARE BOAT CHARTER, BARE BOAT CHARTER-CUM- DEMISE, DIRECTOR-GENERAL OF SHIPPING, FACTORY SHIP , FISHING VESSEL, ETC. THUS, WITH REFERENCE TO SECTIONS 28 TO 41 OF THE ACT, AS IS EVIDENT FROM THE INCLUSIVE DEFINITION IN SEC.43(3), THE WORD PLANT IS - - SICAL LOGISTICS L TD. 12 WIDELY DEFINED TO INCLUDE A SHIP. THE SHIP IS EQUI PMENT, WITH WHICH THE ASSESSEES CARRIED ON THEIR BUSINESSES, WHICH TH EY KEEP FOR EMPLOYMENT IN THEIR BUSINESS. THE LD. DR, SUBMITTE D THAT EQUIPMENT, IN WHATEVER NAME CALLED EITHER AS AN A PPARATUS OR AS PLANT OR MACHINERY, SO LONG AS THEY ARE EMPLOYED FO R THE PURPOSES OF ONES INCOME, THE SAME SHALL STAND COVERED BY CLAUS E (IVA) OF EXPLANATION 2 OF SEC.9. THUS, A SHIP IS EQUIPMENT OF THE BUSINESS OF A SHIP OWNER ON A NATURAL AND ORDINARY MEANING OF T HE WORD, NO JUSTIFICATION WAS FOUND TO GO BY THE DEFINITION UND ER THE MERCHANT SHIPPING ACT. 6.8 THE LD. DR, SUBMITTED THAT THE MOVING SHIP HAS A PLACE OF BUSINESS IN THE PLACE WHERE THE SHIP IS DOCKED AND THE FACT THAT THE SHIP MOVED FROM ONE POINT TO ANOTHER IS THE RESULT OF THE NATURE OF BUSINESS CONTRACT. ALSO, THE SHIP MOVEMENT IS AN I NTEGRATED ONE HAVING BUSINESS AND GEOGRAPHICAL COHERENCE. ACCORD INGLY, THE FOREIGN ENTERPRISE HAS THE PLACE OF PERMANENT ESTAB LISHMENT IN INDIA. THE FOREIGN ENTERPRISE THUS SATISFYING THE PRESENCE OF A PE BUT THE CHARACTER OF THE RECEIPT WAS NOT BEING ATTRIBUT ED AS THE INCOME EARNED FROM THE PE. THEREFORE, THE LD. DR, SUBMIT TED THAT THE RECEIPTS TO BE ASSESSABLE AS BUSINESS PROFITS EARNE D BY ITS - - SICAL LOGISTICS L TD. 13 PARTICIPATION IN THE ECONOMIC BENEFIT OF INDIA, THE INCOME COULD NOT BE BROUGHT UNDER ARTICLE 7 OF THE TAX TREATY TO BE ASSESSED AS BUSINESS INCOME. EVEN THOUGH THE BERTH IS A PE OF THE FOREIGN ENTERPRISE YET THE ROYALTIES PAID NOT BEING EFFECTI VELY CONNECTED WITH OR ATTRIBUTED TO SUCH PE, THE PAYMENT WOULD FALL FO R CONSIDERATION ONLY UNDER ARTICLE 12 AND NOT UNDER ARTICLE 7 OF TH E TAX TREATY. FURTHER, THE LD. DR, SUBMITTED THAT THE HIGH COURT CONCLUDED THAT INCOME DEEMED TO ACCRUE OR ARISE IN INDIA. PAYMENT TO SHIPPING COMPANIES UNDER TIME CHARTER AGREEMENTS IS ROYALTY . ASSESSEE BEING ENGAGED IN SHIPPING BUSINESS, SHIP IS EQUIPME NT QUA BUSINESS AND THE FACILITY OF BERTHING AT AN INDIAN PORT GUAR ANTEED FOR FOREIGN SHIPS CHARTERED BY THE ASSESSEE TANTAMOUNT TO A PE OF THE FOREIGN SHIPPING COMPANIES AND THEREFORE, UNDER TIME CHARTE R AGREEMENTS WAS EXIGIBLE TO TAX U/S.9(1)(VI) AND SUBJECT TO TDS U/S.195. 6.9 THE LD. DR, FURTHER SUBMITTED THAT SEC.172 TAKE S EFFECT WHEN THE FOLLOWINGS CONDITIONS ARE FULFILLED: - THE ASSESSEE IS A SHIP BELONGING TO, OR CHARTERED BY A NON-RESIDENT - IT CARRIES PASSENGERS, LIVESTOCK, MAIL OR GOODS; - THE AFOREMENTIONED ARE SHIPPED BY THE SHIP TO A P ORT IN INDIA - MUST BE IN OCCASIONAL SHIPPING BUSINESS - - SICAL LOGISTICS L TD. 14 CONSIDERING THE MAGNITUDE OF THE VOYAGES UNDERTAKEN BY THE FREIGHT BENEFICIARY, THE LD. DR, SUBMITTED THAT THE FREIGHT BENEFICIARY IS NOT ENGAGED IN OCCASIONAL SHIPPING BUT IN REGULAR SHIPP ING BUSINESS AND HENCE WOULD BE OUTSIDE THE SCOPE OF SEC.172 AND THE SAME VIEW IS FOLLOWED BY THE TRIBUNAL IN THE CASE OF ITO V. INTE RNATIONAL TAXATION V. MARINE CONTAINERS SERVICES (INDIA) (P) LTD. (RAJ KOT) IN ITA NO.61/(RAJKOT)/ 2012. HE RELIED ON THE JUDGEMENT O F BOMBAY HIGH COURT IN THE CASE OF CIT VS. ORIENT (GOA) (P) LTD ( 2010) 325 ITR 554, IT IS SET OUT THAT TAX HAVING NOT BEEN DEDUCTE D AT SOURCE FROM PAYMENT OF DEMURRAGE CHARGES TO FOREIGN SHIPPING CO MPANY, S.40(A)(I) WAS CLEARLY ATTRACTED; ASSESSEE BEING A RESIDENT COMPANY, THERE WAS NO QUESTION OF INVOKING SEC.172. 6.10 ACCORDING TO THE LD. DR, THE ASSESSEE IS A COMPANY, INCORPORATED UNDER THE PROVISIONS OF INDIAN COMPANI ES ACT, 1956, IS AN ADMITTED POSITION. THE ASSESSEE CANNOT BE SAID TO BE NON- RESIDENT AND IN THE FACTS OF THE CASE, THE ASSESSEE CANNOT LAY FINGERS ON SEC.172. THE OTHER ASPECT, ACCORDING TO HIM, IS THAT SUCH PROFITS OF NON-RESIDENTS SHOULD BE FROM OCCASIONAL SHIPPING BUSINESS. IT IS NOT THE CASE THAT THE ASSESSEE HAS EARNED SOME PROF IT FROM - - SICAL LOGISTICS L TD. 15 OCCASIONAL SHIPPING AND IS A NON-RESIDENT. SEC.172 DOES NOT HAVE APPLICATION IN RELATION TO THE ASSESSEE AND THIS IS NOT A CASE OF TAX LIABILITY OF THE FOREIGN COMPANY. 6.11 THE LD. DR RELIED ON THE DECISIONS IN THE C ASE OF UNION OF INDIA V. GOSALIA SHIPPING PVT. LTD. (113 ITR 307)(S C), CIT V. HONGKONG OCEANS SHIPPING (238 ITR 955) AND CIT V. T AIYO GYOGYO KABUSHIKI KAISHA (244 ITR 177), DEALING WITH THE CA SES U/S.172 AND SUBMITTED THAT WHERE THE FACTS ARE COVERED BY CHART ER AGREEMENTS AND THE PAYMENT NOT BEING ONE FOR FREIGHT BUT FOR T HE USE OF THE SHIP, THE RECEIPTS ARE RIGHTLY BROUGHT UNDER THE DEFINITI ON OF ROYALTY. IN THE CASE OF GOSALIA SHIPPING P LTD., THE SUPREME COURT BASED ON TCA HELD THAT THE PAYMENT BY TIME CHARTERERS TO THE OWN ERS OF THE SHIP WAS NOT ONE PAYABLE ON ACCOUNT OF THE CARRIAGE OF G OODS, BUT WAS PAYABLE ON ACCOUNT OF THE USE AND HIRE OF THE SHIP. FURTHER, THE LD. DR SUBMITTED THAT THE FSCS WERE THE OWNERS OF THE S HIP HIRED BY THE ASSESSEE AND THERE WAS AN ELEMENT OF CONTINUITY OF ACTIVITY, HENCE, THERE WAS BUSINESS CONNECTION BETWEEN THE FSCS AND THE ASSESSEE. UNDER THE ACT AND THE TAX TREATIES, ROY ALTY MEANS CONSIDERATION THAT IS PAID FOR USE OR RIGHT TO US E. ACCORDING TO HIM, THE ASSESSEE HAS GIVEN THE RIGHT TO ITS USAGE AND H AS ACCESS TO THE - - SICAL LOGISTICS L TD. 16 USE OF THE VESSEL TO ITS ADVANTAGE, ECONOMICALLY; T HE CONSIDERATION PAID WOULD BE ROYALTY. 6.12 FURTHER, THE LD. DR SUBMITTED THAT THE HI RING WAS NOT AN OCCASIONAL FEATURE AND THE HIRING WAS FOR A CONTINU OUS PERIOD. THE MOVING SHIP HAS A PLACE OF BUSINESS IN THE PLACE WH ERE THE SHIP IS DOCKED AND THE FACT THAT THE SHIP MOVED FROM ONE PO INT TO ANOTHER IS THE RESULT OF THE NATURE OF BUSINESS CONTRACT. SHI P IS EQUIPMENT QUA BUSINESS AND THE FACILITY OF BERTHING AT AN INDIAN PORT TANTAMOUNT TO A PE OF THE FOREIGN SHIPPING COMPANIES AND THEREFORE, THE AMOUNT PAID BY THE ASSESSEE TO THE NON-RESIDENT SHIPPING COMPAN IES UNDER TIME CHARTER AGREEMENTS WAS EXIGIBLE TO TAX U/S.9(1)(VI) AND SUBJECT TO TDS U/S.195. SINCE THE RECEIPT IS FALLING U/S.9, P ROVISIONS OF SEC.160 WOULD BE ATTRACTED. THUS, THE ASSESSEE WAS CORRECT LY TREATED AS AN AGENT U/S.163 OF THE ACT IN RESPECT OF INCOME OF A NON-RESIDENT SPECIFIED IN SUB-SEC.(1) OF SEC.9. 7. IN REPLY, THE LD.A.R SUBMITTED THAT SECTION 40( A) DISALLOWS ONLY THOSE EXPENSES WHICH ARE COVERED UNDER SECTION 30 T O 38 OF THE ACT. THE PAYMENTS MADE TO NON-RESIDENT COMPANY IN THE NA TURE OF DIRECT - - SICAL LOGISTICS L TD. 17 COST FOR EARNING THE PROFIT, THE SAME ARE NOT COVER ED BY SECTION 40(A), HENCE THIS EXPENDITURE NEEDS TO BE ALLOWED F ROM THE COSTS WHILE ARRIVING AT THE PROFIT AS DEFINED UNDER SECTI ON 28 AND THERE CANNOT BE ANY DISALLOWANCE UNDER SECTION 40(A)(I) I N RESPECT OF THIS EXPENDITURE. IT WAS VEHEMENTLY ARGUED THAT THE PAYM ENTS MADE TO FOREIGN SHIPPING COMPANIES ARE COVERED UNDER SECTIO N 172 AND HENCE THE PROVISIONS OF SECTION 195 DO NOT APPLY TO THIS CASE. IT WAS ARGUED THAT ONCE IT IS FOUND THAT THE PROVISIONS OF SECTION 195 ARE NOT APPLICABLE TO A SPECIFIC PAYMENT THEN THERE CANNOT BE ANY DISALLOWANCE UNDER SECTION 40(A)(I). THE LD.A.R REL IED ON THE TRIBUNAL ORDER IN ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2 005-06 & 2007- 08 AND ALSO THE JUDGMENT OF SUPREME COURT IN THE CA SE OF TRANSMISSION CORPORATION OF ANDHRA PRADESH LTD. REP ORTED IN [1999] 239 ITR 587 (SC) AND ALSO THE DECISION OF THE HONB LE SUPREME COURT WAS NOT CONSIDERED, AND SO ALSO THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF ASIA SATELLITE TELE COMMUNICATION CO. LTD. VS. DCIT REPORTED IN 332 ITR 340. 8. WE HAVE HEARD RIVAL SUBMISSIONS AND HAVE PERUSE D THE ENTIRE RECORD AVAILABLE BEFORE US. THE ASSSSEE HAD HIRED V ESSELS FROM - - SICAL LOGISTICS L TD. 18 FOREIGN SHIPPING COMPANIES (FSC) FOR THE TRANSPORTA TION OF COAL FOR KARANATAKA POWER CORPORATION LIMITED; BASED ON THE AVAILABILITY OF CARGO AND VESSELS. THE VESSELS WERE HIRED, ADMITTED LY, ON A TIME CHARTER BASIS. THE ASSESSEE PAID THE TIME CHARTER H IRE CHARGES AS AGREED BY THE VESSEL OWNER. THE CAPTAIN/MASTER OF T HE VESSEL, CREW AND OTHER STAFF OF THE SHIP ARE CONTROLLED BY THE S HIP OWNER, NAMELY FSC ONLY. THE ASSESSEE COMPANY WOULD INTIMATE THE A VAILABILITY OF THE CARGO AND FROM WHERE TO WHERE THE CARGO HAS TO BE MOVED. THE REPAIRS AND MAINTENANCE OF THE SHIP ARE ALL DONE AN D BORN BY THE OWNER OF THE SHIP. THE VESSEL IS ALSO TO BE INSURED BY THE OWNER. THE CARGO WAS BEING TRANSPORTED BETWEEN PARADEEP PORT A ND CHENNAI PORT AS AND WHEN SO REQUIRED. FOR DOING THIS WORK, THE VESSEL WAS CONVERTED FROM FOREIGN RUN VESSEL (FRV) TO COASTAL VESSEL AND THEN RECONVERT TO TIME CHARTER THEREAFTER. DURING T HE YEAR UNDER CONSIDERATION, THE ASSESSEE COMPANY HAD TAKEN THREE CHARTERERS I) M/S.GALWORTHY LTD.,LIBERIA II) M/S.SOMPOL TRADEING LTD., LIBERIA III) M/S.SATAF SAGET SA,FRANCE THESE VESSELS WERE TAKEN ON TIME CHARTER DURING THE RELEVANT PREVIOUS YEARS. THE DEPARTMENT HAS RELIED ON THE JU DGMENT OF - - SICAL LOGISTICS L TD. 19 MADRAS HIGH COURT IN THE CASE OF POMPHUHAR SHIPPIN G CORPORATION LTD. REPORTED IN 360 ITR 257(MAD.). 8.1 IN THAT CASE, THE ASSESSEE HAD FACILITY OF BER THING AT AN INDIAN PORT GUARANTEED FOR FOREIGN SHIP CHARTERED BY POMPH UHAR SHIPPING CORPORATION LTD. BASED ON THIS, THE TRIBUNAL HAD CO NCLUDED THAT THERE IS A PERMANENT ESTABLISHMENT (PE) FOR FOREIGN SHIPP ING COMPANIES. BUT, IN THE INSTANT APPEAL, THE ASSESSEE DOES NOT E NJOY ANY DEDICATED BERTHING FACILITY GUARANTEE FOR FOREIGN SHIPS. HENC E, THE CONTENTION OF THE DEPARTMENT THAT THE POMPHUHAR SHIPPING CORPORAT ION LTD CASE APPLIES TO THIS CASE IS NOT CORRECT TO OUR MIND. FU RTHER, IN THIS CASE, THE VESSEL RUNS IN INDIAN WATER ONLY FOR A SHORTER DURATION AS DISCUSSED ABOVE AND THUS, THE FSC DID NOT HAVE ANY PERMANENT ESTABLISHMENT IN INDIA. WE ARE ALSO NOT IN AGREEMEN T IN DEPARTMENTS CONTENTION THAT THE PAYMENT MADE IN TIME CHARTER OF VESSELS IN THIS CASE CONSTITUTES ROYALTY. THIS PERCEPTION SEEMS T O BE MISCONCEIVED. THE HONBLE DELHI HIGH COURT IN THE CASE OF ASIA SA TELLITE TELECOMMUNICATION CO. LTD. VS. DCIT (SUPRA) HAS HEL D THAT TWO THINGS ARE NECESSARY TO CHRISTEN A PAYMENT AS A ROYALTY UNDER EXPLANATION 2 APPENDED TO CLAUSE (VI), WHICH SPEAKS ABOUT POSSE SSION AND - - SICAL LOGISTICS L TD. 20 CONTROL OF THE VESSEL IN THE GIVEN CASE, THE ASSESS EE NEITHER HAS CONTROL NOR POSSESSION OVER THE VESSELS. THE CAPTAI N/MASTER AND THE CREW IS INSTRUCTED, DIRECTED AND CONTROLLED BY THE SHIP OWNER ONLY AND NOT BY THE ASSESSEE. THE ASSESSEE SIMPLY INFORMS TH E DESCRIPTION OF THE CARGO TO BE CARRIED ON AND FROM WHICH PORT TO W HICH PORT THE CARGO HAS TO BE TRANSPORTED. THUS, IT BECOMES CLEAR THAT THE ASSESSEE NEITHER HAS CONTROL NOR THE POSSESSION OVER THE VES SEL IN QUESTION. THE DECISION OF THE HONBLE SUPREME COURT IN THE CA SE OF BHARAT SANCHAR NIGAM LIMITED AND OTHERS VS. UOI (2006) 282 ITR 273 (SC), OF WHICH THE ID. AR HAS PLACED RELIANCE, THE HONBL E APEX COURT HAS LAID DOWN THE SIGNIFICANCE TO HOLD LICENSE REQUIRED TO BE OPERATED IN QUESTION. IT IS ONLY A PERSON BUT HOLDS REQUISITE L ICENSE AS REQUIRED BY THE STATUTE, WHO CAN BE STATED TO OPERATE, USE AND CONTROL THE EQUIPMENT WHATEVER IT MAY BE. 8.2 IN THIS CASE, THE REQUISITE APPROVALS HAVE TO BE OBTAINED FROM MARITIME AUTHORITIES TO HOLD AND OPERATE THE VESSEL S. IT IS NOT THE CASE THAT ANYBODY OR EVERYBODY CAN OPERATE A VESSEL. THE POWERS OF CHARTERER (IN THIS CASE THIS ASSESSEE) UNDER THE TI ME CHARTER AGREEMENT IS EXTREMELY LIMITED LIKE THE CHARTERER C ANNOT DRY-DOCK THE - - SICAL LOGISTICS L TD. 21 VESSEL AND THE VESSEL IS OPERATED BY ITS CAPTAIN/MA STER AND ITS CREWS, WHO ARE APPOINTED BY THE SHIP OWNER AND NOT BY THE CHARTERER (THE ASSESSEE). THERE IS A DISTINCTION BETWEEN LETTING THE ASSET AND USE OF ASSET BY THE OWNER FOR PROVIDING SERVICES. THE PAYMENT MADE FOR THE USE OF ASSET BY OWNER FOR THE PURPOSES CANNOT B E TANTAMOUNT TO A ROYALTY. IN THIS CASE, THE CONSIDERATION IS NOT F OR USE OF THE SHIP ONLY, BUT ALSO FOR THE SERVICES OF MOVING THE GOODS BY A FULLY MANNED SHIP. IN THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF ASIA SATELLITE TELECOMMUNICATIONS CO. LTD. (SUPRA), THE PAYMENT SO MADE BY THE ASSESSEE CANNOT BE TREATED AS ROYALTY FOR HE USE OF INDUSTRIAL OR COMMERCIAL OR SCIENTIFIC USE OF THE EQUIPMENT. T HE ID. CIT(A) SHOULD HAVE APPRECIATED THAT THE CASE HAS ONLY BOOK ED THE FREIGHT SPACE IN THE SHIP (TIME CHARTER) AND HAS NOT TAKEN THE VESSEL ON HIRE, IT IS DONE UNDER WHAT IS CALLED BARE BOAT CHARTER. THEREFORE, THE PAYMENT MADE IN THIS CASE WOULD NOT CONSTITUTE ROY ALTY PAID FOR THE USE OF INDUSTRIAL, OR COMMERCIAL, OR SCIENTIFIC EQU IPMENTS. THE ESSENCE OF THE TIME CHARTER AGREEMENT EXECUTED BETW EEN THE PARTIES SPEAKS CLEARLY THAT THE ASESSEE CAN UTILIZE THE SPA CE IN THE VESSEL AND NOT THAT THE ASSESSEE IS AUTHORIZED TO OPERATE OR EXERCISE CONTROL OVER THE VESSEL. THE HONBLE KARNATAKA HIGH COURT I N THE CASE OF - - SICAL LOGISTICS L TD. 22 CBDT VS. CHOWGULE & CO. LTD. 192 ITR 40 AND IN THE CASE OF KAR AND LIMA LETTOA & CO. LD. VS. UOI 70 ITR 518 HAS HE LD THAT SECTION 172 IS A COMPLETE CODE BY ITSELF. THUS, THE AMOUNT PAID BY THE ASSESSEE TO THE FSC ON TIME CHARTER AGREEMENT WOULD NOT AMOUNT TO ROYALTY NEITHER UNDER EXPLANATION 2 OR UNDER SECT ION 9(1)(B)(II) OR UNDER THE DTAA AND IN THIS CASE ONLY SECTION 172 AP PLIES. THIS, NO TAX IS NEEDED TO BE DEDUCTED AT SOURCE UNDER SECTIO N 195 AS THE AMOUNT PAID DOES NOT AMOUNT TO ROYALTY. THEREFORE , THE DISALLOWANCE UNDER SECTION 40(A)(I) FOR NON-DEDUCTION AT SOURCE ON THE AMOUNT PAID TO FSC FOR THE TIME CHARTER HIRE IS ERRONEOUS. 8.3 FURTHER, IT IS TO BE NOTED THAT IN ASSESSEE'S O WN CASE FOR THE ASSESSMENT YEAR 2005-06 IN ITA NO.920/MDS./2010, TH E SIMILAR ISSUE IN DISPUTE CAME FOR CONSIDERATION BEFORE THIS TRIBU NAL WHILE DECIDING THE ISSUE BY WAY OF CHALLENGING THE ORDER OF CIT PA SSED U/S.263 OF THE ACT. THE TRIBUNAL ITA NO.920/MDS./2010 VIDE OR DER DATED 17.04.2012 OBSERVED THAT PROVISIONS OF THE SECTION 195 IS NOT APPLICABLE TO THIS HIRE CHARGES PAID TO FOREIGN SHI PPING COMPANY, THEN THERE CANNOT BE ANY DISALLOWANCE U/S.40(A)(I) OF TH E ACT. EVEN THIS WAS ONCE AGAIN AFFIRMED BY THE TRIBUNAL WHILE DISPO SING OFF MISCELLANEOUS PETITION FILED BY THE REVENUE IN MA N O.130/MDS./2012 - - SICAL LOGISTICS L TD. 23 DATED 11.10.2012. FURTHER FOR ASSESSMENT YEAR 2007 -08, SIMILAR ISSUE CAME FOR CONSIDERATION BEFORE THIS TRIBUNAL I N ITA NO.1206 & 779/MDS./2011 VIDE ORDER DATED 04.10.2011 FOR ASSES SMENT YEAR 2007-08 HELD AS UNDER:- 13. WE HAVE HEARD RIVAL SUBMISSIONS AND HAVE PERUSE D THE ENTIRE RECORD AVAILABLE BEFORE US. THE ASSSSEE HAD HIRED V ESSELS FROM FOREIGN SHIPPING COMPANIES (FSC FOR THE TRANSPORTAT ION OF COAL FOR KARANATAKA POWER CORPORATION LIMITED; BASED ON THE AVAILABILITY OF CARGO AND VESSELS. THE VESSELS WERE HIRED, ADMITTED LY, ON A TIME CHARTER BASIS. THE ASSESSEE PAID THE TIME CHARTER H IRE CHARGES AS AGREED BY THE VESSEL OWNER. THE CAPTAIN/MASTER OF T HE VESSEL, CREW AND OTHER STAFF OF THE SHIP ARE CONTROLLED BY THE SHIP OWNER, NAMELY FSC ONLY. THE ASSESSEE COMPANY WOULD INTIMAT E THE AVAILABILITY OF THE CARGO AND FROM WHERE TO WHERE T HE CARGO HAS TO BE MOVED. THE REPAIRS AND MAINTENANCE OF THE SHIP A RE ALL DONE AND BORN BY THE OWNER OF THE SHIP. THE VESSEL IS AL SO TO BE INSURED BY THE OWNER. THE CARGO WAS BEING TRANSPORTED BETWE EN PARADEEP PORT AND CHENNAI PORT AS AND WHEN SO REQUIRED. FOR DOING THIS WORK, THE VESSEL WAS CONVERTED FROM FOREIGN RUN VES SEL (FRV) TO COASTAL VESSEL AND THEN RECONVERT TO TIME CHARTER T HEREAFTER. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE C OMPANY HAD TAKEN ONE CHARTERER FROM A VESSEL FROM LONDON SHIPP ING COMPANY AND ONE FROM A DENMARK BASED SHIPPING COMPANY NAMEL Y HAZI TRADING AND SHIPPING LIMITED, LONDON AND M/S. ATLAS SHIPPING, A/S, DENMARK. THE VESSELS TAKEN ON TIME CHARTER DURING T HE RELEVANT PREVIOUS YEARS ARE NAMELY M.V. LOK MAHESHWARI AND M .V. NONI. THE VESSEL M.V. LOK MAHESHWARI WAS TAKEN ON TIME CH ARTER ON FOUR TIEMS FOR A TOTAL PERIOD OF 37.31 DAYS AND THE OTHE R VESSEL M.V. - - SICAL LOGISTICS L TD. 24 NONI WAS TAKEN ON TIME CHARTER ONLY ONCE FOR A PERI OD 21.28 DAYS. THE DEPARTMENT HAS RELIED ON THE JUDGMENT OF THIS B ENCH IN THE CASE OF POMPHUHAR SHIPPING CORPORATION LTD. REPORTE D IN 109 LTD 226, WHICH WAS ALSO APPLIED IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2002-03 AND 2004-05 AGAINST THE PR OCEEDINGS INITIATED UNDER SECTION 201(1) OF THE ACT. THE ISSU E IN THAT CASE WAS DIFFERENT AND THE BENCH RELIED ON POMPHUHAR SH4PPIN G CORPORATION LTD., WHICH WAS RENDERED ON DIFFERENT FACTS. IN THA T CASE, THE ASSESSEE HAD FACILITY OF BERTHING AT AN INDIAN PORT GUARANTEED FOR OREIGN SHIP CHARTERED BY POMPHUHAR SHIPPING CORPORA TION LTD. BASED ON THIS, THE RIBUNAL HAD CONCLUDED THAT THERE IS A PERMANENT ESTABLISHMENT (FE) FOR FOREIGN S IPPING COMPANIES. BU T, IN THE INSTANT APPEAL, THE ASSESSEE DOES NOT ENJOY ANY DE ICATED BERTHING FACILITY GUARANTEE FOR FOREIGN SHIPS. HENCE, THE CO NTENTION OF THE DE ARTMENT THAT THE POMPHUHAR SHIPPING CORPORATION LTD CASE APPLIES TO THIS CASE IS NOT CORRECT TO OUR MIND. FURTHER, I N THIS CASE, THE VESSEL RUNS IN INDIAN WATER ONLY FOR A SHORTER DURA TION AS DISCUSSED ABOVE AND THUS, THE FSC DID NOT HAVE ANY PERMANENT ESTABLISHMENT IN INDIA. WE ARE ALSO NOT IN AGREEMEN T IN DEPARTMENTS CONTENTION THAT THE PAYMENT MADE IN TI ME CHARTER OF VESSELS IN THIS CASE CONSTITUTES ROYALTY. THIS PE RCEPTION SEEMS TO BE MISCONCEIVED. THE HONBLE DELHI HIGH COURT IN TH E CASE OF ASIA SATELLITE TELECOMMUNICATION CO. LTD. VS. DCIT (SUPR A) HAS HELD THAT TWO THINGS ARE NECESSARY TO CHRISTEN A PAYMENT AS A ROYALTY UNDER EXPLANATION 2 APPENDED TO CLAUSE (VI), WHICH SPEAKS ABOUT POSSESSION AND CONTROL OF THE VESSEL IN THE GIVEN C ASE, THE ASSESSEE NEITHER HAS CONTROL NOR POSSESSION OVER THE VESSELS . THE CAPTAIN/MASTER AND THE CREW IS INSTRUCTED, DIRECTED AND CONTROLLED BY THE SHIP OWNER ONLY AND NOT BY THE ASSESSEE. THE ASSESSEE SIMPLY INFORMS THE DESCRIPTION OF THE CARGO TO BE C ARRIED ON AND - - SICAL LOGISTICS L TD. 25 FROM WHICH PORT TO WHICH PORT THE CARGO HAS TO BE T RANSPORTED. THUS, IT BECOMES CLEAR THAT THE ASSESSEE NEITHER HA S CONTROL NOR THE POSSESSION OVER THE VESSEL IN QUESTION. THE DEC ISION OF THE HONBLE SUPREME COURT IN THE CASE OF BHARAT SANCHAR NIGAM LIMITED AND OTHERS VS. UOL (2006) 282 ITR 273 (SC), OF WHICH THE ID. AR HAS PLACED RELIANCE, THE HONBLE APX COURT H AS LAID DOWN THE SIGNIFICANCE TO HOLD LICENSE REQUIRED TO BE OPERATE D IN QUESTION. IT IS ONLY A PERSON BUT HOLDS REQUISITE LICENSE AS REQ UIRED BY THE STATUTE, WHO CAN BE STATED TO OPERATE, USE AND CONT ROL THE EQUIPMENT WHATEVER IT MAY BE. IN THIS CASE, THE REQ UISITE APPROVALS HAVE TO BE OBTAINED FROM MARITIME AUTHORITIES TO HO LD AND OPERATE THE VESSELS. IT IS NOT THE CASE THAT ANYBODY OR EVE RYBODY CAN OPERATE A VESSEL THE POWERS OF CHARTERER (IN THIS C ASE THIS ASSESSEE) UNDER THE TIME CHARTER AGREEMENT IS EXTRE MELY LIMITED LIKE THE CHARTERER CANNOT DRY-DOCK THE VESSEL AND T HE VESSEL IS OPERATED BY ITS CAPTAIN/MASTER AND ITS CREWS, WHO A RE APPOINTED BY THE SHIP OWNER AND NOT BY THE CHARTERER (THE ASSESS EE). THERE IS A DISTINCTION BETWEEN LETTING THE ASSET AND USE OF ASSET BY THE OWNER FOR PROVIDING SERVICES. THE PAYMENT MADE FOR THE USE OF ASSET BY OWNER FOR THE PURPOSES CANNOT BE TANTAMOUN T TO A ROYALTY. IN THIS CASE, THE CONSIDERATION IS NOT F OR USE OF THE SHIP ONLY, BUT ALSO FOR THE SERVICES OF MOVING THE GOODS BY A FULLY MANNED SHIP. IN THE DECISION OF THE HONBLE DELHI H IGH COURT IN THE CASE OF ASIA SATELLITE TELECOMMUNICATIONS CO. LTD. (SUPRA), THE PAYMENT SO MADE BY THE ASSESSEE CANNOT BE TREATED A S ROYALTY FOR HE USE OF INDUSTRIAL OR COMMERCIAL OR SCIENTIFIC US E OF THE EQUIPMENT. THE ID. CIT(A) SHOULD HAVE APPRECIATED T HAT THE CASE HAS ONLY BOOKED THE FREIGHT SPACE IN THE SHIP (TIME CHARTER) AND HAS NOT TAKEN THE VESSEL ON HIRE, IT IS DONE UNDER WHAT IS CALLED BARE BOAT CHARTER. THEREFORE, THE PAYMENT MADE IN THIS CASE - - SICAL LOGISTICS L TD. 26 WOULD NOT CONSTITUTE ROYALTY PAID FOR THE USE OF INDUSTRIAL, OR COMMERCIAL, OR SCIENTIFIC EQUIPMENTS. THE ESSENCE O F THE TIME CHARTER AGREEMENT EXECUTED BETWEEN THE PARTIES SPEA KS CLEARLY THAT THE ASESSEE CAN UTILIZE THE SPACE IN THE VESS EL AND NOL THAT THE ASSESSEE IS AUTHORIZED TO OPERATE OR EXERCISE CONTR OL OVER THE VESSEL. THE HONBLE KARNATAKA HIGH COURT IN THE CAS E OF CBDT VS. CHOWGULE & CO. LTD. 192 ITR 40 AND IN THE CASE OF K AR AND LIMA LETTOA & CO. LD. VS. UOI 70 ITR 518 HAS HELD THAT S ECTION 172 IS A COMPLETE CODE BY ITSELF. THUS, THE AMOUNT PAID BY T HE ASSESSEE TO THE FSC ON TIME CHARTER AGREEMENT WOULD NOT AMOUNT TO ROYALTY NEITHER UNDER EXPLANATION 2 OR UNDER SECTION 9(1 )(B )(II) OR UNDER THE DTAA AND IN THIS CASE ONLY SECTION 172 APPLIES. THIS, NO TAX IS NEEDED TO BE DEDUCTED AT SOURCE UNDER SECTION 195 A S THE AMOUNT PAID DOES NOT AMOUNT TO ROYALTY. THEREFORE, THE D ISALLOWANCE UNDER SECTION 40(A)(I) FOR NON-DEDUCTION AT SOURCE ON THE AMOUNT PAID TO FSC FOR THE TIME CHARTER HIRE IS ERRONEOUS AND THE SAME IS SET ASIDE. 8.4 IN VIEW OF THE ABOVE EARLIER ORDER OF CO-ORDIN ATE BENCH IN ASSESSEE'S OWN CASE, THE ISSUE TO BE DECIDED IN FAV OUR OF THE ASSESSEE. FURTHER, JUDICIAL DISCIPLINE REQUIRES CO NSISTENCY IN ITS PROCEEDINGS. THOUGH PRINCIPLE OF RES JUDICATA IS NOT APPLICABLE TO THE ASSESSMENT PROCEEDINGS, YET THERE OUGHT TO BE UNIFO RMITY IN TREATMENT AND CONSISTENCY WHEN FACTS AND CIRCUMSTAN CES ARE IDENTICAL. FOR THIS PURPOSE WE PLACE RELIANCE ON THE FOLLOWING JUDGEMENTS:- - - SICAL LOGISTICS L TD. 27 I) DCIT V. K.B.CAPITAL MARKETS (P.) LTD., 71 TAXMA NN.COM 354 (KOLAOTTA), HAS HELD THAT IN ASSESSMENT YEARS 2006- 07 & 2007-08 THE ASSESSING OFFICER ACCEPTED THE PLE A OF THE ASSESSEE AND ASSESSED INCOME DECLARED ON PURCHA SE AND SALE OF SHARES AS GIVING RISE TO STCG IN ASSESS MENT COMPLETED UNDER SECTION 143(3). THE FACTS AND CIRCUMSTANCES IN THE PRESENT ASSESSMENT YEAR AND TH E ASSESSMENT YEARS REFERRED TO ABOVE WERE IDENTICAL. THOUGH THE RULE OF RES JUDICATA IS NOT APPLICABLE B UT THE PRINCIPLE OF CONSISTENCY WILL DEFINITELY APPLY AND ON THAT BASIS THE CLAIM OF THE ASSESSEE SHOULD BE HELD TO B E PROPER. II) DCIT VS. LOKENATH SARAF SECURITIES (P.) LTD., 73 TAXMANN.COM 234 (KOLKATA) HAS HELD THAT THOUGH THE PRINCIPLE OF RES JUDICATA DOES NOT APPLY TO INCOME TAX PROCEEDINGS, THE PRINCIPLE OF CONSISTENCY CANNOT BE GIVEN A GO BY. RELIANCE IN THIS REGARD IS PLACED ON THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF RADHASOAMI SATSANG V. CIT (1992) 193 ITR 321/60 TAXMAN 248. III) CIT V. GOPAL PUROHIT IN [2010] 188 TAXMAN 140( BOMBAY) HAS HELD THAT THOUGH PRINCIPLE OF RES JUDICATA IS NOT APPLICABLE TO ASSESSMENT PROCEEDINGS, YET THERE OUG HT TO BE UNIFORMITY IN TREATMENT AND CONSISTENCY WHEN FAC TS AND CIRCUMSTANCES ARE IDENTICAL IV) H.A.SHAH & CO. V. CIT, 30 ITR 618 (BOMBAY), HA S HELD THAT THOUGH THE RULE OF RES JUDICATA IS ALSO KNOWN AS ESTOPPEL BY RECORD. COURTS HAVE BEEN GENERALLY INC LINED - - SICAL LOGISTICS L TD. 28 NOT TO DISTURB THE FINDING GIVEN IN A PARTICULAR AS SESSMENT IN SUBSEQUENT YEARS. HOWEVER, IF FRESH FACTS COME TO LIGHT THEN BOTH THE INCOME TAX OFFICER AND THE TAXPAYER A RE FREE TO AGITATE THE MATTER AFRESH. V) THE MADRAS HIGH COURT IN THE CASE OF T.M.M.SANK ARLINGA NADAR & BROTHER V. CIT, 4 ITC 226 HAS HELD THAT WHE RE ANY QUESTION RELATING TO ASSESSMENT DOES NOT VARY WITH THE INCOME EVERY YEAR BUT DEPENDS ON THE NATURE OF THE PROPERTY OR ANY OTHER QUESTION ON WHICH THE RIGHTS OF THE PARTIES TO BE TAXED ARE BASED, E.G. WHETHER A CERTA IN PROPERTY IS TRUST PROPERTY OR NOT, IT HAS NOTHING T O DO WITH THE FLUCTUATION IN THE INCOME; SUCH QUESTION IF DEC IDED BY A COURT ON A REFERENCE MADE TO IT WOULD BE RES JUDICA TA IN THAT THE SAME QUESTION CANNOT BE SUBSEQUENTLY AGITA TED. BUT, IF THE QUESTION IS DECIDED BY A COURT ON A REF ERENCE, WHICH DEPENDS ON CONSIDERATIONS WHICH MAY VARY FROM YEAR TO YEAR, E.G. THE CASE IN WHICH THE AVERAGE VA LUATION HAS TO BE TAKEN, THERE COULD BE NO QUESTION OF RES JUDICATA. VI) THE SUPREME COURT IN THE CASE OF M.M.IPOH & OR S. V. CIT, 67 ITR 106, WHEREIN IT WAS HELD THAT THOUGH RE S JUDICATA DOES NOT APPLY TO TAXING STATUTES THE FIND ING OF FACT IN ONE YEAR IS A GOOD AND COGENT EVIDENCE IN SUBSEQ UENT YEARS. VII) THE DELHI HIGH COURT IN THE CASE OF CIT VS. E SCORTS LTD. REPORTED IN [2011] 338 ITR 435 (DEL) WHEREIN HELD T HAT: - - SICAL LOGISTICS L TD. 29 ALTHOUGH PRINCIPLE OF RES JUDICATA DID NOT APPLY T O THE INCOME TAX PROVISIONS, THE REVENUE CANNOT ALLOW TO CHANGE ITS VIEW WITH REGARD TO FUNDAMENTAL ASPECT OF TRANSACTIONS, TAKEN IN EARLIER ASSESSMENT YEAR UNLESS IT IS ABLE TO DEMONS TRATE A CHANGE IN CIRCUMSTANCES IN A SUBSEQUENT ASSESSMENT YEAR. IT ALSO HELD THAT WHERE THE FUNDAMENTAL ASPECT PERMEAT ING THROUGH THE DIFFERENT ASSESSMENT YEARS HAS BEEN FOU ND AS A FACT ONE WAY OR THE OTHER, THE PARTIES ARE ALLOWED THAT POSITION TO BE SUSTAINED BY NOT CHALLENGING THE ORDER, IT WO ULD NOT BE AT ALL APPROPRIATE TO ALLOW THE POSITION TO BE CHANGED IN A SUBSEQUENT YEAR 8.5 IN VIEW OF THE ABOVE, WE ARE INCLINED TO DECIDE THE ISSUE RELATING TO THE DISALLOWANCE OF HIRE CHARGES PAID B Y THE ASSESSEE TO THE FOREIGN COMPANY BY INVOKING THE PROVISIONS OF T HE SECTION 40(A)(I) OF THE ACT IN FAVOUR OF THE ASSESSEE AND AGAINST TH E REVENUE. 8.6 WITHOUT PREJUDICE TO THE ABOVE FINDINGS, THE I SSUE IN DISPUTE IS SQUARELY COVERED BY THE ORDER OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPING AND TRANSPORTS V. ADDL. CIT [2012] 16 ITR (TRIB) 1 (VISAKHAPATNAM) [SB] WHEREIN HELD THAT WHEN THE EXPENSES IS NOT OUTSTANDING AT THE END OF THE CLOSE OF THE FINANCIA L YEAR, PROVISIONS OF THE SECTION 40(A)(IA) OF THE ACT CANNOT BE APPLIED. FOLLOWING THAT PROPOSITION, IN OUR OPINION, WHEN THE HIRE CHARGES OF SHIPPING IS NOT OUTSTANDING AT THE END OF THE CLOSE OF FINANCIAL YE AR AND IT WAS ALREADY PAID BY THE ASSESSEE, THERE CANNOT BE ANY DISALLOWANCE OF THAT EXPENDITURE IN THESE ASSESSMENT YEARS. ACCORD INGLY, THIS GROUND - - SICAL LOGISTICS L TD. 30 RAISED BY THE ASSESSEE IN ITS APPEALS IS ALLOWED AN D GROUND IN THE REVENUE APPEALS IS DISALLOWED. 8.5 IN THE RESULT, THE APPEALS OF ASSESSEE IN ITA NOS.1074,1075 & 1076/MDS./2015 AE ALLOWED AND THE APPEAL OF REVENUE IN 1573 TO 1575/MDS./2015 ARE DISMISSED. 9. NEXT WE TAKE UP ASSESSEES APPEALS IN ITA NO.10 77 TO 1079/MDS./2015. 10. THE COMMON ISSUE IN ASSESSEES APPEALS IN ITA NOS.1077, 1078 & 1079/2015 IS THAT THE LD.CIT(A) ERRED IN SUS TAINING THE ACTION OF THE AO IN TREATING THE ASSESSEE AS THE REPRESENT ATIVE ASSESSEE AND CONSEQUENTLY ERRED IN SUSTAINING THE RE-ASSESSM ENT IN BRINGING TO TAX THE HIRE CHARGES EARNED BY THE SHIPPING COMP ANIED ON THE APPLICATION OF SEC.9(1)(VI) R/W SECTION 160/163 OF THE ACT WITHOUT ASSIGNING PROPER REASONS AND JUSTIFICATION. 11. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN THESE CASES, THE PROVISION OF THE SECTIO N172 APPLIES AS THE PAYMENTS MADE TO SHIPPING AGENTS OF NON-RESIDENT FO R HIRING THE SHIP - - SICAL LOGISTICS L TD. 31 AT PORT IN INDIA. SINCE THE ASSESSEE ACTED ON BEHAL F OF THE NON- RESIDENT SHIP OWNER, HE STEPS INTO THE SHOES OF THE PRINCIPAL. AS PER PROVISIONS OF SEC.172, ONCE TAX IS RECOVERED, THERE CANNOT BE ANY FURTHER RECOVERY OF THE SAME TAX FROM THE PRESENT A SSESSEE. THIS IS ALSO CLARIFIED BY THE CBDT CIRCULAR NO.723 DATED 19 .09.1995. BEING SO, IN OUR OPINION THE PRESENT CASE, THE ASSESSEE CANNOT BE TREATED AS A REPRESENTATIVE ASSESSEE OF THE SHIPPING CO MPANY. 11.1 FURTHER IT IS TO BE NOTED THAT SIMILAR ISSUE CAME FOR CONSIDERATION BEFORE THIS TRIBUNAL IN ASSESSEE'S O WN CASE FOR ASSESSMENT YEAR 2007-08 IN ITA NO.74/MDS./2012 VIDE ORDER DATED 3 RD APRIL, 2012 WHEREIN HELD AS UNDER:- 12. IN FIRST APPEAL, THE ONLY ISSUE DECIDED BY TH E COMMISSIONER OF INCOME-TAX(APPEALS) IS THAT THE ASSESSING OFFICER I S JUSTIFIED IN TREATING THE ASSESSEE AS A REPRESENTATIVEASSESSEE UNDER SEC.163.APART FROM THAT HE HAS NOT DECIDED ANYTHING ON THE MERITS OF THE CASE. THE APPEAL FILED BEFORE HIM DOES NOT GET DISPOSED OF, ON DECIDING ONLY ONE OF THE ISSUES THAT WHETHER THE AS SESSEE COULD BE RIGHTLY TREATED AS A REPRESENTATIVE ASSESSEE OR NOT. IT IS TO BE SEEN THAT EVEN IF THE ASSESSEE HAS BEEN RIGHTFULLY TREAT ED AS A REPRESENTATIVE ASSESSEE, STILL WHETHER THE HIRE C HARGES PAID TO THE FSCS ARE EXIGIBLE TO TAXES OR NOT? - - SICAL LOGISTICS L TD. 32 13. THE INCOME-TAX APPELLATE TRIBUNAL, CHENNAI D BENCH HAD AN OCCASION TO CONSIDER THE NATURE OF HIRE CHARGES PAI D BY THE ASSESSEE TO FSCS. THE ISSUE WAS CONSIDERED BY THE TRIBUNAL IN ITS COMMON ORDER DATED 4.10.2011 PASSED IN ITA NOS.1206 & 779/ MDS/2011. THOSE APPEALS ALSO RELATED TO THE IMPUGNED ASSESSME NT YEAR 2007- 08. THOSE APPEALS ARISE OUT OF THE ASSESSMENT ORDE R PASSED IN THE HANDS OF THE ASSESSEE AS SUCH AND THE ISSUE CONSID ERED IN THOSE APPEALS WAS WHETHER THE ASSESSEE WAS LIABLE TO MAKE DEDUCTION OF TAX AT SOURCE UNDER SEC.195 OR NOT. THIS IS BECAU SE, THE ASSESSING OFFICER HAD DISALLOWED THE EXPENDITURE CLAIMED BY T HE ASSESSEEUUNDER SEC.40(A)(IA) ON THE GROUND THAT THE ASSESSEE HAD NOT MADE TDS WHILE MAKING PAYMENTS TO FSCS UNDER SE C.195. THE TRIBUNAL FOUND THAT THE PAYMENTS MADE BY THE ASSESS EE TO FSCS WERE NOT IN THE NATURE OF ROYALTY AND THEREFORE, SE C.195 DOES NOT APPLY AS SUCH AND THERE CANNOT BE ANY DISALLOWANCE OF EXPENDITURE UNDER SEC.40(A)(IA). 14. A PORTION OF THE ORDER OF THE TRIBUNAL REFLECTE D IN PAGES 14 AND 15 IS REPRODUCED BELOW TO MAKE THE MATTER CLEAR :- IT IS NOT THE CASE THAT ANYBODY OR EVERYBODY CAN O PERATE A VESSEL. THE POWERS OF CHARTER (IN THIS CASE THIS ASSESSEE) UNDER THE TIME CHARTER AGREEMENT IS EXTREMELY LIMITED LIKE THE CHA RTERER CANNOT DRY- DOCK THE VESSEL AND THE VESSEL IS OPERATED BY ITS C APTAIN/MASTER AND ITS CREWS, WHO ARE APPOINTED BY THE SHIP OWNER AND NOT BY THE CHARTERER (THE ASSESSEE). THERE IS A DISTINCTION B ETWEEN LETTING THE ASSET AND USE OF ASSET BY THE OWNER PROVIDING SE RVICES. THE PAYMENT MADE FOR THE USE OF ASSET BY OWNER FOR THE PURPOSES CANNOT BE TANTAMOUNT TO A ROYALTY. IN THIS CASE, THE CONSIDERATION IS NOT FOR USE OF THE SHIP ONLY, BUT ALSO FOR THE S ERVICES OF MOVING THE GOODS BY A FULLY MANNED SHIP. IN THE DECISION OF T HE HONBLE DELHI - - SICAL LOGISTICS L TD. 33 HIGH COURT IN THE CASE OF ASIA SATELLITE TELECOMMUN ICATIONS CO. LTD. (SUPRA), THE PAYMENT SO MADE BY THE ASSESSEE CANNOT BE TREATED AS ROYALTY FOR THE USE OF INDUSTRIAL OR C OMMERCIAL OR SCIENTIFIC USE OF THE EQUIPMENT. THE LD. CIT(A) SH OULD HAVE APPRECIATED THAT THE CASE HAS ONLY BOOKED THE FREIG HT SPACE IN THE SHIP (TIME CHARTER) AND HAS NOT TAKEN THE VESSEL ON HIRE, IT IS DONE UNDER WHAT IS CALLED BARE BOAT CHARTER. THEREFO RE, THE PAYMENT MADE IN THIS CASE WOULD NOT CONSTITUTE ROYALTY PA ID FOR THE USE OF INDUSTRIAL, OR COMMERCIAL, OR SCIENTIFIC EQUIPMENTS . THE ESSENCE OF THE TIME CHARTER AGREEMENT EXECUTED BETWEEN THE PAR TIES SPEAKS CLEARLY THAT THE ASSESSEE CAN UTILIZE THE SPACE IN THE VESSEL AND NOT THAT THE ASSESSEE IS AUTHORIZED TO OPERATE OR EXER CISE CONTROL OVER THE VESSEL. THE HONBLEKARNATKA HIGH COURT IN THE CASE OF CBDT VS. CHOWGULE& CO. LTD. 192 ITR 40 AND IN THE CASE O F KAR AND LIMA LETTOA& CO. LTD. VS. UOI 70 ITR 518 HAS HELD THAT S ECTION 172 IS A COMPLETE CODE BY ITSELF. THUS, THE AMOUNT PAID BY THE ASSESSEE TO THE FSC ON TIME CHARTER AGREEMENT WOULD NOT AMOUNT TO ROYALTY NEITHER UNDER EXPLANATION 2 OR UNDER SECTION 9(1)(B )(II) OR UNDER THE DTAA AND IN THIS CASE ONLY SECTION 172 APPLIES. TH IS, NO TAX IS NEEDED TO BE DEDUCTED AT SOURCE UNDER SECTION 195 A S THE AMOUNT PAID DOES NOT AMOUNT TO ROYALTY NEITHER UNDER EXP LANATION 2 OR UNDER SECTION 9(1)(B)(II) OR UNDER THE DTAA AND IN THIS CASE ONLY SECTION 172 APPLIES. THIS, NO TAX IS NEEDED TO BE DEDUCTED AT SOURCE UNDER SECTION 195 AS THE AMOUNT PAID DOES NO T AMOUNT TO ROYALTY. 15. THE ABOVE DISCUSSION REFLECTED IN THE ORDER OF THE TRIBUNAL PASSED IN ASSESSEES OWN CASE WITH REFERENCE TO THE SAME PAYM ENT OF HIRE CHARGES TO FSCS CLEARLY SHOWS THAT WHAT WAS ENJOYED BY THE ASSESSEE ON THE TIME CHARTER SHALL BE ONLY A PERMISSIVE RIGHT T O USE THE SPACE PROVIDED BY THE CAPTAIN OF THE SHIP. THE TRIBUNAL HAS, THER EFORE, CATEGORICALLY HELD - - SICAL LOGISTICS L TD. 34 THAT THE PAYMENT IS NOT ROYALTY AND THE PAYMENT IS COVERED BY SEC.172 OF THE ACT. 16. THE ABOVE DECISION OF THE TRIBUNAL STRAIGHTAWA Y GOES TO DECIDE THE ISSUE IN THE PRESENT APPEAL PLACED BEFORE US. THE TAX AT COMPOUNDING RATE HAS ALREADY BEEN ESTIMATED AS PROVIDED UNDER SEC.172 ON THE GROSS HIRE CHARGES PAID TO FSCS. SEC.172 IS ONE OF THE VERY FEW SECTI ONS AVAILABLE FOR MAKING AN ASSESSMENT AND PAYMENT OF TAX IN A PREVIOUS YEAR ITSELF. THIS SPECIAL PROVISION IS AVAILABLE ONLY IN CASE OF FOREIGN SHIP LEAVING INDIAN PORTS, A DISCONTINUED BUSINESS AND IN CASE OF A PERSON LEAVI NG INDIA. THE ASSESSMENTS ARE MADE IN THE PREVIOUS YEAR ITSELF. IN THAT SPECIAL SCHEME, THE TAX ON SHIPS LEAVING INDIAN PORTS IS CALCULATED AT A PRESUMPTIVE RATE. ONCE THE TAX IS PAID ON THE BASIS OF THAT PRESUMPTIVE RA TE, THE LIABILITY OF THE FOREIGN SHIP LEAVING THE PORTS IS DISCHARGED. IN THE PRESE NT CASE, THE TAX HAS BEEN PAID UNDER SEC.172, THEREBY THE FSCS HAVE DISCHARGE D THEIR LIABILITIES TOWARDS INDIAN INCOME-TAX. WHEN THE FSCS THEMSELVE S HAVE DISCHARGED THEIR LIABILITIES TOWARDS TAX BY COMPLYING WITH THE PROVISIONS OF SEC.172, THERE IS NO QUESTION OF ANY FURTHER LIABILITY IN THEIR HA NDS. WHEN THERE IS NO SUCH TAX LIABILITY IN THEIR HANDS, THERE IS NO JUSTIFICATION IN MAKING THE ASSESSMENT AGAIN IN THE HANDS OF THE ASSESSEE COMPANY IN THE STATUS OF REPRESENTATIVE ASSESSEE, WHICH TANTAMOUNT TO DOUBLE ASSESSMENT, WHICH IS NOT PERMISSIBLE UNDER THE LAW. THE PAYMENT OF TAX MADE BY THE FSCS . UNDERSEC.172 TANTAMOUNT TO DISCHARGING OF TAX LIABILITY OF THOSE COMPANIES AND THERE IS NO REASON WHY THOSE COMPANIES AGAIN BE ASSESSED. WHEN THE PRINCIPAL ITSELF DOES NOT MAKE ANY LIABILITY, THE AGENT CANNOT BE FA STENED WITH ANY LIABILITY. THEREFORE, THE IMPUGNED ASSESSMENT MADE IN THE HAND S OF THE ASSESSEE IS NOT IN ACCORDANCE WITH LAW. IT IS CANCELLED. 17. IN RESULT, THIS APPEAL FILED BY THE ASSESSEE I S ALLOWED. - - SICAL LOGISTICS L TD. 35 11.2 IN VIEW OF THE ABOVE ORDER OF THE TRIBUNAL IN ASSESSEE'S OWN CASE, WE ARE INCLINED TO ALLOW THE APPEALS OF THE A SSESSEE IN 1077 TO 1079/MDS./2015 IN FAVOUR OF THE ASSESSEE. 12. IN THE RESULT, THE THE APPEALS OF ASSESSEE IN ITA NOS.1074, 1075, 1076, 1077,1078 & 1079/MDS./2015 ARE ALLOWED AND THE APPEAL OF REVENUE IN 1573,1574, 1575/MDS./2015 ARE DISMISSED. ORDER PRONOUNCED ON 14 TH DECEMBER, 2016 AT CHENNAI. SD/- SD/- ( %. ' ) ( ( ) * %! ) (G. PAVAN KUMAR) (CHANDRA POOJARI) ; <= /JUDICIAL MEMBER >' <=/ACCOUNTANT MEMBER (>; /CHENNAI, C< /DATED, THE 14 TH DECEMBER, 2016. <>D EF G>F /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. H () /CIT(A) 4. H /CIT 5. FIJ K /DR 6. JL M /GF