Jaisu Shipping Co. Pvt. Ltd., GANDHIDHAM V. The Additional Director of Income Tax, (International Taxation), GANDHIDHAM

ITA 30/RJT/2012

• Counselvise Citation: [2024] 101 COUNSELVISE.COM (IT) 8545 (ITAT-RAJKOT)
• Duration Of Justice: 12 year(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2024
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 22-01-2024
• Assessment Year: 2003-2004
• Appeal Filed On: 26-01-2012

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT & “D” BENCH, AHMEDABAD (Conducted through E-Court at Ahmedabad) BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER & SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER I .T .A . N o s . 3 0 t o 3 7 / Rj t/2 01 2 ( A s s e s s me nt Y ea r s : 2 0 03 -0 4 to 2 01 0 - 1 1) Ja i su S hi p p in g Co . Pv t. Ltd . , Pi sta nj i B i ka j i, D B/ S - 1 7 6- A , Nr . O m C o r n er , G a n d hid ha m V s .A d dit io na l D i r ec to r of I nc o m e Ta x ( I n te r n a ti on al T a x a tio n) , G a nd hid h a m , K ut ch [P AN N o. A A A C J 6 9 9 8 H ] (Appellant) .. (Respondent) I .T .A . N o s . 6 2 t o 6 9 / Rj t/2 01 2 ( A s s e s s me nt Y ea r s : 2 0 03 -0 4 to 2 01 0 - 1 1) De put y D ir e ct o r o f In c o me Tax ( I n te r na ti on a l Tax at io n ) , Ga nd h id ha m V s .M/ s . J a is u Sh ip pi ng C o. Pv t. L td ., Pi s ta n ji Bi k aj i, D B S- 17 6- A, N r. O m C or n e r , Ga nd h id ha m [P AN N o.A A A C J 6 9 9 8 H] (Appellant) .. (Respondent) I .T .A . N o s . 2 6 t o 2 8/ A h d /2 01 4 ( A s s e s s me nt Y ea r s : 2 0 10 -1 1 to 2 01 1 - 1 2) De put y D ir e ct o r o f In c o me Tax ( I n te r na ti on a l Tax at io n ) - II , A h m ed ab ad V s .M/ s . J a is u Sh ip pi ng C o. Pv t. L td ., K e w al R a ma n i H o u s e , D in sh aw B u ild in g R o a d , N r . P & C Bu il din g , K a nd l a Po r t , Gu j ar a t- 3 7 02 20 [P AN N o.A A A C J 6 9 9 8 H] (Appellant) .. (Respondent) Appellant by : None Respondent by: Shri Shramdeep Sinha, CIT DR D a t e of H ea r i ng 23.01.2024 D a t e of P r o no u n ce me nt 23.02.2024 O R D E R PER BENCH: These are cross appeals filed by the Assessee and Department against orders passed by Commissioner of Income Tax (Appeals) (in ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 2 - short “CIT(A)”), for A.Ys. 2003-04 to 2010-11 (ITA Nos. 30 to 37/Rjt/2012) and the Department has filed appeals for A.Ys. 2003-04 to 2010-11 (in ITA Nos. 62 to 69/Rjt/2012) and A.Ys. 2010-11 to 2011-12 (in ITA Nos. 26 to 28/Ahd/2014). Since largely common facts and issues for consideration are involved for the impugned assessment years under consideration, all the appeals are being taken up together. We shall first take up the appeals filed by the Assessee and the Department for A.Y. 2003-04 and our observations would apply to other years as well, as may be applicable. 2. The assessee has taken the following grounds of appeals:- “1. On the facts and in the circumstances of the case, the learned CIT(A) erred by rejecting the appellant's relevant grounds of appeal raised before him of not treating the "Time Charter Hire Charges" as Royalty and not taking into consideration the factual situation and clarification given by CBDT, Department of Revenue, Government of India to all the Indian National Ship Owners Association (INSA) members in the correspondence between the INSA, Ministry of Finance & Ministry of Shipping, of not treating the Time Charter Ships as Equipments, and in turn not treating "Time Charter Hire Charges" as Royalty payments. It is the bounden duty of the field officers to abide with the instructions of CBDT, and by ignoring such instructions, or not taking into Consideration CBDT's Instructions, the International Taxation Division has acted in an arbitrary manner and against the law. Therefore, the order passed by the assessing officer, and the order of the CIT(A) of confirming Time Charter Payments as Royalty, deserved to be quashed. 2. On the facts and in the circumstances of the case, the learned CIT(A) erred in rejecting the appellant's relevant grounds of appeal raised before him contending that the learned Asst. Director of Income-tax (International Taxation) erred in passing the impugned order u/s.201(1) and section 201(1A) of the IT. Act, 1961 beyond reasonable period being four years from the end of the relevant financial year and, therefore, the order passed by him is bad in law, being time barred and the same deserves to be quashed. ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 3 - 3. On the facts and in the circumstances of the case, the learned CIT(A) erred in holding that the Time Charter Hire charges paid by the appellant-company to the non-resident dredger owner in respect of dredgers taken on Time Charter Hire were in the nature of "royalty" as per provisions of section 9(1)(vi) of the IT. Act and, therefore, the appellant-company was liable to deduct tax at source u/s. 195 of the IT. Act at the rates applicable to royalty payments. 4. On the facts and in the circumstances of the case, the learned CIT(A) erred in not admitting evidence assumed by him to be in the nature of "additional evidence" being audit reports and the documents forming part of the regular assessment proceedings before concerned Assessing Officer. 5. On the facts and in the circumstances of the case and without prejudice to the foregoing grounds of appeal, the learned CIT(A) erred in rejecting the claim of the appellant-company that even if it is assumed that there was a liability for deduction of tax at source on the appellant-company , any non-deduction of tax on its part was wholly and entirely attributable to a bonafide belief that there was no legal liability on the appellant-company to deduct tax at source and, therefore, on that ground the Assessing Officer was not justified in passing the impugned order u/s.201(1)/201(1A) of the I.T. Act and accordingly such order is rendered bad in law. 6. The appellant craves leave to add, alter, amend and/or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal.” 3. The brief facts of the case are that the assessee is engaged in the business of dredging, reclamation and other maritime activities. During the course of proceedings under Section 201(1) / 201(1A) of the Act, the Tax Officer observed that the assessee company had taken dredgers for the purpose of its business from a non-resident company M/s. Miller Dredging Company Inc., British Virgin Islands in pursuance to agreements entered with such company since 2002. The assessee company had taken these dredgers from M/s. Miller Dredging Company on a long term charter basis alongwith crew who were carrying out their activities at the command of the assessee in relation to dredging operation of the assessee at various places in India. During the year ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 4 - under consideration, the assessee had remitted a sum of Rs. 15,69,37,334/- as time charter hire charges for the above dredgers which were being used in India by the assessee. However, the assessee did not deduct tax at source at the time of making payments to M/s. Miller Dredging Company Inc. The Tax Officer observed that no order under Section 195(2) / 195(3) / 197 of the Act was obtained by the assessee from the Assessing Officer with respect to payment made to the non- resident recipient with respect to non-deduction of tax at source. The Tax Officer was of the view that the assessee has claimed incorrect benefit of DTAA with UK since the non-resident recipient was not a resident of UK but was a company incorporated in British Virgin Islands, with whom India does not have a Double Tax Treaty Agreement. Therefore, in view of the same, the benefit of tax treaty is not available to the assessee company. 4. On analysis of facts, the Assessing Officer held that the overseas companies M/s. Miller Dredging Company Inc has a business connection in India since it was continuously carrying out operations in India through fully manned dredgers since 2002. Accordingly, income accrues or arises to the above non-resident assessee in terms of Section 5(2)(b) of the Act in India and also such income is specifically covered within the deeming provisions of Section 9(1)(i) of the Act. Further, the Tax Officer observed that M/s. Miller Dredging Company Inc. maintains a technical staff team for operating the dredgers and for the purpose of ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 5 - providing technical support in the operations of the dredgers. This, coupled with the facts that the dredgers have been operating in India for a sufficiently long period of time establishes a “business connection” of the overseas company in India under Section 9(1)(i) of the Act. The Assessing Officer was of the view that the dredgers were taken by the assessee company on “wet lease” basis alongwith dredger operators / coordinators / Captain which were also supplied by the overseas company. Accordingly, since the overseas company viz. M/s. Miller Dredging Company Inc. had a business connection in India, the assessee was under an obligation to deduct tax at source under Section 195 of the Act at the time of making payment. Further, the Assessing Officer also held that the payments made by the assessee to M/s. Miller Dredging Company Inc. also constituted “Royalty” payments within the meaning of Section 9(1)(vi) of the Act. The Assessing Officer was of the view that in case the assessee had any doubt regarding non-deduction of tax at source on the aforesaid payment, then the assessee should have approached the Income Tax Department for ascertaining the correct amount of TDS on such payments. The Assessing Officer held that in the case of West Asia Maritime Ltd. 111 ITD 155 (Chennai), the ITAT has held that it is not open for a person making payment to a non-resident to take a unilateral decision that the payment made by him are not sums chargeable to tax. To take that view, the concurrence of the Assessing Officer as provided in sub-Section (2) of Section 195 is a sine qua non. ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 6 - 5. The conclusions and the findings recorded by the ADIT may be summarized as under: “(1) The AO observed that the time charter hire charges paid to Miller Dredging Inc. are chargeable to tax under the Income Tax Act, 1961, as the dredgers owned by the aforesaid foreign company have been operating in Indian territorial waters for sufficiently long period of time. (2) Technical staff was maintained by the foreign company on the dredgers, which proves that the foreign company has a business connection, and therefore, the hire charges received by the foreign company are in the nature of business income chargeable to tax u/s 9(1)(i), and accordingly tax was required to be deducted under Section 195 by the Appellant Company at the applicable rates. (3) The AO further held that the non-resident company derived income from a source in India having regard to the fact that the dredgers owned by the foreign company are continuously operating in India and regular payments are being made to the foreign company. (4) Further, the dredgers have been rented out to carry out work as per the Assessee's instructions and as per the terms of the agreement, the foreign company is to provide and pay for the insurance of the vessel and other expenses with regard to provisions, cabin deck, engine room and other necessary stores, including boiler water and to pay wages to its employees. Further, it was their responsibility to maintain the vessel in fit and efficient condition. (5) The AO was also of the view that since there was no Double Taxation Avoidance Treaty (DTAA) between India and British Virgin Islands, it was not relevant as to whether the foreign company has a permanent establishment (PE) in India. According to the AO, It was the duty of the Appellant Company to deduct tax under Section 195 and in case of any doubt, it should have applied to the concerned Assessing Officer under Section 195(2) of the Act. The ADIT has referred to the Supreme Court decision in the case of Transmission Corporation of AP Limited V/s CIT 239 ITR 585 and also to the case of West Asia Maritime Ltd V/s ITO, International Taxation - II rendered by the I.T.A.T., Chennai, and reported at 111 ITD 155. The AO held that the time hire charges were in the nature of business income and alternatively and in addition (and also they were in the nature of royalty chargeable to tax under the Income Tax Act, 1961. (6) It was the AO's view that the time charter hire charges are clearly covered under the definition of royalty as contained in Explanation - 2(via) of Section 9(1)(vi). For this proposition he has again referred to I.T.A.T. decision in the case of West Asia Maritime Limited. The AO held that even though the aforesaid time hire charges are sustainable as royalty also in the hands of the foreign company under ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 7 - Section 44D/44DA, the liability in the case of the Appellant Company was required to be computed assuming that the said income was in the nature of business income. The AO also gave a finding that the Appellant Company filed only a few forms No. 15CA/CB and these forms were not filed regularly.” 6. In appeal, CIT (Appeals) partly allowed the appeal of the assessee by holding that in the instant facts, there is no business connection of the assessee in India. However, CIT held that the payments made by the assessee qualified as “royalty” within the meaning of Section 9(1)(vi) of the Act and the assessee was under an obligation to deduct tax at source on such royalty payments. Further, CIT also held that the overseas payee company is not eligible for tax treaty benefits since it did not produce the relevant documents before the tax officer. Further, CIT also held that the assessee did not disclose the vital fact that the payee was Tax resident of British virgin Island and not UK and this fact was not disclosed to RBI or to its Auditors. The CIT observed that the assessee also did not disclose this important fact of the residential status of the recipient before the assessing officer in 201 proceedings as well. Therefore, the benefit of tax treaty was not available to the assessee in the instant facts. Further, CIT rejected the claim of the assessee that it was under a bona fide belief that it was not liable to deduct tax at source and held that in case of doubt, the assessee should have approached the concerned, assessing officer for clarification regarding non-deduction of tax source. While passing the order, CIT made the following observations:- “7.4 I have given careful consideration to all the relevant facts having bearing on the disputed issues, I have also considered the reasons mentioned by the ADIT in his orders as also the detailed submissions made before me on behalf of the appellant ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 8 - company. I have carefully gone through the various relevant provisions of law and the judicial pronouncements which have been brought to my notice. The important issue to be considered and decided is as to whether there was any liability on the part of the appellant company to deduct tax at source from the payments made to the foreign company on the ground that such payments constituted either business income in the hands of the recipient or royalty income. It is notable that initially when show cause notice u/s. 201(1)/201(1A) was issued by the Assessing Officer, he proposed that the payments were in the nature of royalty and, therefore, the appellant company was liable for deduction of tax at source for that reason. However, when the appellant company filed detailed reply challenging this view of the Assessing Officer, he changed his stand and issued another show cause notice calling upon the appellant company to explain as to why the payments be not treated as business income chargeable to tax in the hands of the recipients having regard to the fact that there was business connection or source of income within India. Detailed submissions were made on this issue by the appellant company before the Assessing Officer and also before me which have already been referred to above and also reproduced with a view to properly analyze the claim of the appellant company vis-a-vis the relevant provisions of law and the decided cases. Some of the important facts which emerges from the elaborate v discussion in the assessment order, statement of facts and submissions filed by the appellant are summarized as under: (a) Negotiations are held between foreign ship owners on the one side, and the intending Charterer (Indian Company) on the other side. Such negotiations are generally held abroad, i.e. at the place of registration of the ship / dredger or at its then available location, as physical inspection and survey is an essential component of the entire process. (b) The protocol, if any, is signed at the initial stage. This leads to the "Charter Party" (contract for chartering ships) which is signed between the two parties, laying down the terms and conditions of the charter - in the instant case, the protocol is signed in New York. Even on renewal of charter agreement, if any, are signed by Miller Dredging Co. outside India. (d) The rights and obligations of each party, including charter hire rates, place of delivery, place of arbitration, obligations of each party for complying with national laws, etc., are clearly defined in the Charter Party. "CHARTER PARTY" is the term used for referring to the Contract/ Agreement between the two parties for chartering ships. (e) The place of arbitration is New York as mentioned in the charter party between the Appellant and Miller Dredging Company, Inc.. (f) The payment of charter hire is made by the Indian company in an account outside India, The amount is remitted directly. The receipt of charter payment is therefore outside India, ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 9 - (g) All legal and regulatory obligations under the Merchant Shipping laws of India, are to be complied with and dealt with by the Indian Company (Jaisu). The foreign owner has absolutely no role in this matter, (h) The Indian company has to first apply for permission to In-Charter the foreign flag (foreign owned) ships / dredger to the "Director General of Shipping" Mumbai. Without In-chartering permission, the Indian company (Jaisu) cannot deploy the ship, or remit charter hire payments. (i) Before applying to DG Shipping, the Indian Company has to establish that no Indian flag-Indian owned ship/dredger is available for the intended use. The Indian party, therefore, has to circulate any inquiry amongst all Indian Companies owning dredgers, with a view to ascertain availability of a suitable Indian Flag Dredger. Only if no Indian Flag Dredger is allowable (of the specifications described by the Indian Co,), can the Indian Company apply to DG(S). (j) The Indian party has to obtain No Objection Certificate (NOC) from "Indian National Shipping Owners Association (INSA)" before the company can hire foreign owned ships. Such NOC from INSA has to be submitted to DG(S) along with the application for in-chartering any foreign flag dredger. (k) Based on the above inquiries and NOC from INSA, the Indian Company has to apply to DG Shipping for permission, specifying the proposed hire charter rates. (I) Only if the DG Shipping grants permission for IN-Chartering, can the Indian Company take the ship / dredger on charter. As per existing laws, the foreign ship owner / dredger owner cannot make the application to the DG Shipping. He has no role to play in this process. (m) Only if the DG Shipping has granted IN-Chartering permission, can the Indian Company remit the charter hire charges through an authorized4 foreign exchange dealer. RBI rules clearly stipulate this. (n) Even after obtaining In-Chartering permission from DG Shipping, the Indian Company cannot operate the foreign ship, till a valid "trading license" is obtained u/s.406/407 of the "Merchant Shipping Act, 1958". Application for such license can be made only by the Indian Company. The DG Shipping issues license u/s.406/407 only to the Indian Company which has In-Chartered the dredger. All obligations and responsibilities for complying with the Merchant Shipping Act, during the period of operation of the dredger in Indian waters, rests wholly and solely on the Indian Company. It is to be noted that the license u/s 406/407 of the Indian Merchant Shipping Act is issued in the name of the Indian company and not the non-resident. (r) The Indian company has to obtain the clearance from the Indian custom authorities for the chartered dredgers. Bill of entry in this regard has to be filed by the Indian Company only. The non-resident company has nothing at all to do with ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 10 - this process. Customs duty, if any payable on the deployment of the chartered Dredgers in Indian coastal waters during the period of hire, has to be paid by the Indian company. (s) Security clearance in respect of the chartered dredgers is obtained from the Indian Naval and other Government Authorities by the concerned port, based on information and details submitted by the Indian company alone. Once again, the foreign company has no role to play in the processes of obtaining security clearance, without which the chartered foreign flags dredgers cannot operate in Indian coastal waters. (t) Port clearance has to be periodically obtained by the Indian Company from the concerned port where the foreign flag dredger is deployed. Such clearance has to be obtained only by the charterer, that is the Indian company alone. (u) Some important terms of charter of agreement are reproduced below (from the order of the AO) : (i) Owners to Provide "The owners shall provide and pay for the insurance of the vessel and for all provisions,, cabin, deck, engine room and other necessary stores, including boiler water; shall pay for wages , consular shipping and discharging fees of the crew and charges for port services pertaining to the crew; shall maintain vessel's class and keep her in a thoroughly efficient safe in hull, machinery and equipment for and, during the service. (ii) "Vessel shall be placed at the disposal of the Charterers W.C.I. Probably at Sikka port. In such dock or at such berth or place where she may safely lie. always afloat" (iii) "The captain shall prosecute his voyages with due dispatch, and shall render all customary assistance with ship's crew and boats. The Captain (although appointed by the owners) shall be under the orders and directions of the Characters as regards employment and agency; charterers are to perform all cargo handling at their expense under the supervision of the Captain, who is to sign the bills of lading for cargo s presented in conformity with mate's or tally clerk's receipts. However, at Charterers option, the charterers or their agents may sign bills of lading on behalf of the Captain always in conformity with mate s or tally clerk's receipts. All bills of lading shall be without prejudice to this charter and the charterers shall indemnify the owners against all consequences or liabilities which may arise from any inconsistency between this charter and any bills of lading or waybills signed by the charterers or their agents or by the captain at their request." ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 11 - (iv) Conduct of the Captain "If the charterers shall have reason to be dissatisfied with the conduct of the Captain or officers, the owners shall, on receiving particulars of the complaint, investigate the same, and if necessary, make a change in the appointments." (v) Sailing Orders and Logs. "The charterers shall furnish the Captain from time to time with all requisite instructions and sailing directions, in writing, and the Captain shall keep full and correct deck and engine logs of the voyage or voyages, which are to be patent to the charters or their agents, and furnish the Charterers, their agents or supercargo, when required, with a true copy of such deck and engine logs, showing the course of the vessel, distance run and the consumption of fuel." (vi) Owners shall maintain the cargo handling gear of the ship which is as follows: As efficacy providing gear (for all derricks or cranes) capable of lifting capacity as described. Owners shall also provide on the vessel for night work lights as on board, but all additional lights over those on board shall be at Charterers expense. The Charterers shall have the use of any gear on board the vessel. If required by Charterers, the vessel shall work night and day and all cargo handling gear shall be at charters disposal during loading and discharging." (vii) Navigation "Nothing herein stated is to be constructed as a demise of the vessel to the Time charters. The owners shall remain responsible for the navigation of the vessel, acts of pilots and tug boats, insurance, crew, and all other similar matters, same as when trading for their own account" Considering the above mentioned factual position and several other submissions made on behalf of ,the appellant company elaborated above, besides the issue of business connection, it has to be seen was there any activity of the nature of business of the payee company being conducted in India. The AO in his letters submitted during the appellate proceedings, the relevant portion of which j have been reproduced earlier has brought to my notice to the opinion that a dredging activity carried out in Indian territory may lead to business activity. There cannot be any doubt with this preposition, but in this case the lessor of the dredgers along with staff cannot be said to be doing any dredging work. The contact is essentially for lease of dredger. The fact that generally it has to be maintained as per lessor's requirement and to be handled under its trained staff as to its genera! running, is what which any ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 12 - prudent lessor would ensure in case of temporary hiring of costly specialized equipment as it would like it be received back in good condition and further from the lessee's perspective to safeguard its high stakes it would like the hired equipment not only at its command but in an well maintained running condition. This does not tantamount to providing of services but is corollary to hiring of equipment itself. Lessor has no control on dredging activity as such. The dredging contract is taken by the assessee, the permissions in this regard are all to be taken by the assessee, the lessor in his own authority cannot partake any dredging activity on its own account the staff of the dredger acts under the command of the appellant as far as the dredging activity is concerned, including where, when, and how much to dredge. In fact the Finance Act, 2001 inserted a new item in the IT Act for which royalty would be payable, which is payments arising from the use or right-to use any industrial, commercial or scientific equipment. In this regard, distinction must be made between acquiring use of equipment and acquiring service of the equipment, because royalty is payable only on the former. The criteria for determining royalty under the said provision are that the resident should control and have physical possession over the equipment. Moreover, the provider should not be having any risk of substantially diminished receipts or substantially increased expenditures if there is non performance. Lastly, the equipment should be provided exclusively to the resident, and to no others. The Hon'ble Delhi High Court in the case of Asia Satellite Telecommunication services ltd 332 ITR 340 has concurred with similar criterion, in para 69 of its order, while referring to the judgement of Hon'ble Karnataka High Court in the case of Lakshmi Audio Visual Inc. v. Asstt. CCT [2001] 124 STC 426 while deciding whether an equipment is leased out or services are provided by the owner as follows: “69. We may also refer to the following distinction brought out by the Karnataka High Court between leasing out of equipment and the use of equipment by its customer. This was done in the case of Lakshmi Audio Visual Inc. (supra) in the following terms: "9. Thus if the transaction is one of leasing/hiring/letting simpliciter under which the possession of the goods, i.e., effective and general control of the goods is to be given to the customer and the customer has the freedom and choice of selecting the manner, time and nature of use and enjoyment, though within the frame work of the agreement, then it would be a transfer of the right to use the goods and fall under the extended definition of "'sale". On the other hand, if the customer entrusts to the assessee the work of achieving a certain desired result and that involves the use of goods belonging to the assessee and rendering of several other services and the goods used by the assessee to achieve the desired result continue to be in the effective and general control of the assessee, then, the transaction will not be a transfer of the right to use goods falling within the extended definition of "sale". Let me now clarify the position further, with an illustration which is a variation of the illustration used by the Andhra Pradesh High Court in the case of Rashtriya Ispat Nigam Ltd. v. Commercial Tax Officer. ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 13 - Illustration: (i)A customer engages a carrier (transport operator) to transport one consignment (a full lorry load) from place A to B, for an agreed consideration which is called freight charges or lorry hire. The carrier sends its lorry to the customer's depot, picks up the consignment and proceeds to the destination for delivery of the consignment The lorry is used exclusively for the customer's consignment from the time of loading, to the time of unloading at destination. Can it be said that right to use of the lorry has been transferred by the carrier to the customer? The answer is obviously in the negative, as there is no transfer of the "use of the lorry" for the following reasons: (i) the lorry is never in the control, let alone effective control of the customer; (ii) the carrier decides how, when and where the lorry moves to the destination, and continues to be in effective control of the lorry; (Hi) the carrier can at any point (of time or place) transfer the consignment in the lorry to another lorry; or the earner may unload the consignment en route in any of his godowns, to be picked up later by some other lorry assigned by the carrier for further transportation and delivery at destination. (ii) On the other hand, let us consider the case of a customer (say a factory) entering into a contract with the transport operator, under which the transport operator has to provide a lorry to the customer, between the hours 8.00 a.m. to 8.00 p.m. at the customer's factory for its, use, at a fixed hire per day or hire per km. subject to an assured minimum, for a period of one month or one week or even one day; and ' under the contract, the transport operator is responsible for making repairs apart from providing a driver to drive the lorry and filling the vehicle with diesel for running the lorry. The transaction involves an identified vehicle belonging to the transport operator being delivered to the customer and the customer is given the exclusive and effective control of the vehicle to be used in any manner as it deems fit; and during the period when the lorry is with the customer, the transport operator has no control over it. The transport operator renders no other service to the customer. Therefore, the transaction involves transfer of right to use the lorry and thus be a deemed sale." In the instant case, the lessee has full control over the equipment and the staff and the operation of the equipment. It is similar to (even more clear case as the payment is not assured minimum but is fixed irrespective of the actual usage) case (ii) cited by hon'ble Karnataka High Court as reproduced above. The transfer of right to use the Dredger itself, is clearly transferred for a period (not outright sale); and therefore the payment would be of the nature of Royalty. The Captain (although appointed by the owners) shall be under the orders and directions of the Characters as regards employment and agency. In so much so that if dissatisfied with his services, the lessee can get him changed as per the agreement itself. This fact, in fact has been emphasized by the AO himself at page-1 of the orders where he says that "The assessee has taken these dredgers from above company on long term charter ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 14 - along with the crew which was carrying out its command dredging operations as assessee's business operation at various places in India mainly." He has reiterated this in paras.3 of his orders wherein he has held that "..... as per agreement entered into by the assessee, it has acquired right to control and command the dredger for the purpose of its business as per his requirement The assessee has complete control on the manpower working on the dredger, including its Captain to direct them to carry out specific activities as required for its business." Not only this, the other criteria which may have taken the activity of the lessee into the zone of providing service (doing dredging itself on behalf of assessee as referred to in OECD Commentary) are not satisfied in this case. Once the hired dredger is placed at the disposal of the appellant, the payment to the lessor does not depend at all on the dredging activity undertaken. Even if the dredger does not work for a single hour, the payment to the lessor would be same. Further, the equipment has been given only to one user i.e. the assessee and the lessor or his crew is not negotiating and giving the dredger to others in India during this time. Once the activity of M/s. Miller Dredging Co., is not a business activity, not even being a service, there is no question of it being taxed under the head business even if there was a business connection. In this case, even there is no business connection when there is no existing place of business, even non-fixed and no activity of the nature of business is being carried on either by the payee i.e. M/s. Miller Dredging Co., or its crew as alleged by the AO. There is no common interest between the appellant company and the foreign company, their transactions are not even doubted less proved to be not at arm's length, and the two do not have a revenue sharing agreement or arrangement. With these that the foreign company did not have any business connection or any source of business income in India and, therefore, the payments received by the foreign company can never partake the character of business income chargeable to tax under any- of the provisions of the I. T. Act. To that extent, therefore, the orders of the ADIT are reversed. Coming to the next question as to whether the payments can be said to be in the nature of royalty income, after considering the entire facts and circumstances, the provisions of law and the cases cited, I am of the firm view that these payments are in the nature of royalty as per the amended provisions of sec. 9(1)(vi). The decision of ITAT, Cochin in the case of M/s. Kin Ship Services India Pvt Ltd is not good law as the amended provisions of sec. 9(1)(vi) rw explanation 2 clause (iva) were not bought to its notice and it failed to consider that now the use or right to use any industrial, commercial scientific equipment is covered under Royalty. As per the discussion above, therefore, it is held that the appellant company was under an obligation to deduct tax at source applicable to royalty payments., particularly as per the amended provisions wherein now the non-resident need not have residence or place of business or business connection in India nor services are necessarily to be rendered in India for the royalty to be deemed taxable in India u/s 9(1)(vi). 7.5 Now, whether, having regard to the relevant facts and circumstances and the legal position, it could be said that the appellant company was under a bona fide ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 15 - belief that under the relevant provisions pertaining to deduction of tax at source contained in the Income-tax Act, and therefore there was no liability on it for deducting tax at source from payments made to the foreign company, is to be considered. The appellant's arguments have been gone through and summed up as follows: (i) The appellant had been regularly assessed to tax. (ii) The expense has been shown debited as "Charter hire charges Paid" (e.g. in A Y 2004-05). (iii) The accounts were audited u/s 44 AB, and although the auditor (e.g. in A Y 2004-05) had quantified other expenses where TDS was not deduct although deductible, this expense was not listed in the category. (iv) The appellant was therefore bonafidely believing on such expert opinion. (v) The AOs even in Scrutiny Assessments ( e.g. in A Y 2004-05 &2005- 06) have examined expenses of the nature debited as "Charter hire charges Paid"; and have not made even any adverse comments. (vi) Relied on late amendments to section 9 and decision of ITAT, Cochin in the case of M/s, Kin Ship Services India Pvt Ltd; to emphasize its argument that it was under bonafide belief that TDS was not deductible by it. Having gone through the relevant law, the facts of the case and the submissions of the appellant; I find no merit in the claim that the appellant had bonafide belief that the tax was not deductible. Here, the following fact which has been observed by the AO in his orders in para-2.2 is of particular importance: "It has been further shown in the form No. 15CB that country of these remittances is Bermuda and nature of remittance has been shown as "Charter Hire Charges (Shipping)". It was further mentioned in point 14 that such income of non-resident is not liable to tax in India and the reason thereof is "DTAA with UK - Article 7" [emphasis supplied]. It was clarified by the assessee in the certificate that no order under section 195(2)/195(3)/197 of the IT Act has been obtained from the Assessing Officer in this regard. In point no. 16 of Form No., 15CB it was further mentioned as "the beneficiary has no permanent establishment in India; hence the amount remitted is not taxable in India. Consequently tax need not to be deducted at source from this payment." In all the certificates received from the bank similar assertion was made by the assessee for each remittances." Clearly, the fact that the payee was resident of a tax haven i.e. British Virgin Island and not UK, was not even disclosed to the RBI. I have not admitted the additional evidences in the form of Audit Reports and proceedings before the AO [the AO having jurisdiction over the assessee's assessments is different from the present AO who has passed the order u/s.201(1)] sought to be filed before me, primarily ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 16 - because these are immaterial; because nowhere has the assessee shown that the important fact of the residential status of the payee was correctly disclosed before the auditor or the AO. Any opinion of the auditor or the AO, even if formed [I have not examined the material evidences, as I have not admitted it]; formed on the basis of incomplete disclosure of facts cannot be allowed to be relied upon by the assessee. Further, the decision of ITAT, Cochin in the case of M/s. Kin Ship Services India Pvt Ltd is not good law as the amended provisions of sec. 9(l)(vi) rw explanation 2 clause (iva) were not bought to its notice and it failed to consider that now the use or right to use any industrial, commercial scientific equipment is covered under Royalty. As per the discussion above, therefore, it is held that the appellant company was under an obligation to deduct tax at source applicable to royalty payments., particularly as per the amended provisions wherein now the non- resident need not have residence or place of business or business connection in India nor services are necessarily to be rendered in India for the royalty to be deemed taxable in India u/s 9(l)(vi). There cannot be two opinions on this issue. Any opinion to the contrary is not a plausible opinion and cannot be a reason for bonafide belief. Considering the totality of facts and circumstances, I reject the claim of the existence of any bonafide belief on the part of the appellant company. Without prejudice to the above, in my view, even if the assessee had any doubt about this, it ought to have applied to the concerned Assessing Officer for clarification or for no deduction of tax at source on such payments. However, no such action was taken by the appellant company. Even if there was bonafide belief, where the income in the hands of non-resident is clearly taxable and no clarification has been sought from the AO; it cannot result into rendering the orders passed by the Assessing Officer bad in law. Reliance is placed on the judgment of Hon'ble Supreme Court in the case of Eli Lilly & Co. (India) Pvt Ltd 312 ITR 225 and other .cases which hold that even interest u/s 201(1A) is mandatory being compensatory ; and there is no relevance for there being reasonable cause or not for the default. Therefore, the plea of bonafide belief cannot be accepted so as to arrive at the conclusion that the orders passed by the Assessing Officer are bad in law. Accordingly, this contention is rejected.” Assessee’s Appeal Ground No. 1:- Ld. CIT(A) erred in holding that the aforesaid payment for time charter higher charges are Royalty under Section 9(1)(vi) of the Act. 7. The brief facts in relation to the first ground of appeal are that the assessee company, which is engaged in the business of dredging and ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 17 - other shipping and maritime activities, has hired dredging from foreign companies on time charter basis. During the impugned year under consideration, the assessee had taken dredgers on time charter basis from M/s. Miller Dredging Company Inc., British Virgin Islands. As per the terms and conditions of the relevant agreement, these dredgers are to be delivered at one of the Ports of India by the foreign company. As per the agreement, the dredgers are hired out alongwith navigational staff of the foreign company including the Captain of the vessel. 8. During the course of assessment proceedings the Assessing Officer held that time hire charges were in the nature of “Royalty” under the provisions of Section 9(1)(vi) of the Act. 9. In appeal, Ld. CIT(A) confirmed the order passed by Assessing Officer and held that the payments qualify as “Royalty” under Section 9(1)(vi) of the Act. After analysis of the relevant facts, the Ld. CIT(A) formed the view that the contract for providing dredgers is essentially a contract of lease of dredger. The fact that generally the dredgers have to be maintained as per the lessor’s requirement and to be handled under its trained staff is only with a view to ensure that in case of temporary hiring of costly specialized equipment, the same should be received back in a good working condition and that there is no unwarranted damage to the equipment. Therefore, this does not amount to provision of services but it is a corollary to hiring of equipment itself. The lessor had no control on dredging activity as such. The dredging contract was taken by the ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 18 - assessee, the permissions in this regard are all to be taken by the assessee, the lessor in his own authority cannot partake any dredging activity in India, the staff of the dredger acts under the control of the assessee so far as the dredging activity is concerned, including where, when, and how much to dredge. The Ld. CIT(A) observed that Finance Act, 2001 inserted a new item under the definition of “Royalty”, wherein payments arising from the use or right to use any industrial commercial or scientific “equipment” would qualify as “Royalty”. The CIT(A) held that criteria for determining “Royalty” under the said provisions are that the resident should control and have physical possession over the equipment. Moreover, the lessor should not have any risk of substantially diminished receipts or substantially increased expenditures if there is non- performance. Lastly, the equipment should be provided exclusively to the resident and to no other party. The CIT(A) observed that in this case the assessee has full control over the equipment and the staff and the operation of the equipment. The payment was made for the use of equipment on a monthly basis irrespective of the actual usage. Accordingly, Ld. CIT(A) was of the view that in the instant case there is a transfer of right to use the dredger itself, which is under the physical control and possession of the assessee for the period of lease and therefore, the payment would be in the nature of “Royalty”. The Captain although appointed by the owners shall work under the orders and directions of the assessee company. The CIT(A) held that once the dredger is placed at the disposal of the assessee, the payment to the lessor ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 19 - does not depend at all on the dredging activity under taken. Even if the dredger does not work even for a single hour, the payment to the lessor would be the same. Further, the equipment has been given to only one user i.e. the assessee, in exclusion to all other persons. Therefore, the payment in the instant case clearly qualify as “Royalty” under Section 9(1)(vi) of the Act. 10. The assessee is in appeal before us against the aforesaid order passed by Ld. CIT(A) holding that payments qualify as “Royalty” under Section 9(1)(vi) of the Act. 11. Before us, the assessee filed its written submission and placed reliance on the case of Kin Ship Services (India) (P.) Ltd. 31 SOT 375 (Cochin), wherein the ITAT held that payments made by way of hire charges of ships could not be said to be in the nature of “Royalty” within the meaning of Section 9(1)(vi) of the Act. The assessee further placed reliance in the case of Isro Satellite Centre 307 ITR 59 (AAR) in which the AAR ruled that by leasing of transponding space by earmarking a space segment capacity of the transponder for the use of the applicant, assessee did not got any possession of the equipment nor did it use any equipment and hence payment made by the applicant cannot be regarded as being made for the “use” of the equipment. Further, the assessee also placed reliance in the case of Asia Satellite Telecommunications Co. Ltd. 332 ITR 340 (Delhi), in which it was held that there is a well-known distinction between lease of equipment and use of equipment, while ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 20 - ruling that lease of transponder space is not “Royalty” as the assessee was the operator of the satellite and continued to be in control of the satellite. Accordingly, the assessee submitted that the assessee company merely availed the facility of dredgers without exercising any possessory rights over it. The assessee submitted that in the instant facts, it cannot be said that the assessee is in control of the dredgers or has possessory rights over the equipment as is obvious from the terms of the time charter agreement. 12. In response, the Ld. D.R. relied on various judicial precedents, which were also cited by the Ld. CIT(A) in the appellate order to hold that the payments qualify as “Royalty” within the meaning of Section 9(1)(vi) of the Act. 13. We have heard the rival contentions and perused the material on record. In the instant case, the assessee is a tax resident of British Virgin Islands and not a tax resident of UK, as admitted by the assessee during the course of appellate proceedings vide it’s written submissions. Accordingly, we shall decide the issue in light of the “Royalty” provisions as contained in the Income Tax Act. We observe that the instant contract is essentially a contract for lease of dredger. The Captain of the dredger, though appointed by the lessor works under the control of the assessee and as per the directions given by the assessee. Further, we concur with the view of the Ld. CIT(A) that though the dredger is maintained by the trained staff of lessor, however, the same is the only ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 21 - with a view to ensure that the costly specialized equipment i.e. a dredger is received back in good running condition. This, in our view, does not tantamount to provision of any service but is a corollary to hiring of equipment itself. The lessor has no control on the dredging activity as such. The dredging is under taken by the assessee and the permission in this regard is also taken by the assessee. The staff of the lessor acts under the command of the assessee so far as dredging activity is concerned including when, where and how much to dredge. Therefore, looking into the instant facts, we are of the considered view that firstly the contract is one for giving dredger on lease and secondly the dredger is effectively under the control and possession of the assessee, to the exclusion of the all other parties, especially keeping into consideration the long duration of period for which the dredger continuous to remain in control of the assessee. 14. The Finance Act, 2011 inserted a Clause in the Income Tax Act in the definition of “Royalty” for payments arising from the use or right to use any industrial, commercial or scientific equipment. It would be useful to reproduce the relevant extracts of the Income Tax Act, Section 9(1)(vi) for ready reference:- “Explanation 2.—For the purposes of this clause, "royalty" means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head "Capital gains") for— (i) the transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property ; ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 22 - (ii) the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property ; (iii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar property ; (iv) the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill ; (iva) the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB; (v) the transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting; or (vi) the rendering of any services in connection with the activities referred to in sub-clauses (i) to (iv), (iva) and (v).” 15. From the language of the Statute and judicial precedents on the subject, the criterion for determining “Royalty” under the said provision is that the resident should have control and have physical possession over the equipment. The equipment should be under the exclusive possession and control of the resident, in exclusion to others. In the instant case, the assessee has full control over the dredger and the staff and operation of the equipment. From the facts produced before us, we are of the considered view that the right to use the dredger has been transferred to the assessee for the period of lease. The Captain of the ship although appointed by the owners shall work under the orders and directions of the assessee. Once the hired dredger is placed at the disposal of the assessee, the payment to the lessor does not depend on the dredging activity undertaken. Even if the dredger does not work for a single hour, the payment to the lessor would remain constant. Further, the dredger has ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 23 - been given only to the assessee for his exclusive use. Accordingly, the assessee is in effective control of the equipment. 16. In the case of Poompuhar Shipping Corporation Ltd. 38 taxmann.com 150 (Madras), it was held that where assessee, engaged in business of moving coal from various ports in India to State Electricity Board, Chennai, hired ships from various non-resident companies for transportation of coal, payments of hire charges made to said companies under time charter agreement amounted to royalty falling under clause (iva) of Explanation 2 to Section 9(1)(vi) and, thus, assessee was liable to deduct tax at source while making said payments. It would be relevant to reproduce the relevant extract for ready reference:- “64. In the decision Gosalia Shipping (P.) Ltd. (supra) the Supreme Court considered the similar clauses in a time charter agreement and pointed out that the conclusion that one would draw from the terms is that the payment by time charterers to the owners of the ship was not one payable on account of the carriage of goods, but was payable on account of the use and hire of the ship. Pointing out that the charter party was approved by the New York Produce Exchange and that there is no warrant for supposing that though the payment which the charterers bound themselves to make to the owners of the ship is on account of the carriage of goods, the parties described it as payable for the use and hire of the Vessel, in order to avoid the payment of Indian Income Tax. Referring to the clause on the liberty reserved to the charterers to sub-let, and the captain of the ship should be under the orders and directions of the charterers as regards employment and agency, the Supreme Court pointed out "the character of the payment cannot change according to the use to which the charterers put the ship or according as to whether the ship is loaded with goods in a port in India. What is payable as hire charges for the use of the ship cannot transform itself into an amount payable on account of the carriage of goods, by reason of the circumstance that the ship was loaded with goods in India." Thus, neither the one nor the other receive any amount on account of the carriage of goods, the charterer paid hire charges to the owner of the ship for the use of the ship and since they loaded the ship with their own goods, they received nothing on account of the carriage of goods. Referring to the various authors' view on time charter party, the Apex Court pointed out that it being distinguishable from charter ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 24 - by demise and voyage charter, time charter is essentially the one for the use and hire of the ship. The amount payable is irrespective of what use the ship is to be put to by the time charterers. Thus, no part of the amount could be said as one paid on account of the carriage of goods. 65. In fact, in the decision Essar Shipping Ltd. (supra), to which one of us was a party (Chitra Venkataraman, J), this Court had an occasion to consider the taxability on the consideration paid under the time charter agreement in the context of Section 3A of the Tamil Nadu General Sales Tax Act. This Court pointed out that in a time charter, there is no transfer of effective control of the Vessel. This Court also referred to the Statements by Scrutton on "Charter-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 the ship, but a contract for hire of services, there is no possession given to the charterer under a time charter party, to result in delivery or redelivery, as is normally understood as though on the delivery of the Vessel, the owner lost control to resume the same on the expiry of the period of time charter. In the context of the charge created under Section 3A, this Court held that in the absence of passing of effective control to the charterer, the mere fact that the agreement had been entered into and that the assessee had paid the hire charges, the transaction, per se, would not come within the scope of Section 3A of the Tamil Nadu General Sales Tax Act. In so holding, this Court also referred to the decision in 20th Century Finance Corpn. Ltd. (supra) and the decision of the Apex Court in Aggarwal Brothers (supra), for the understanding of the expression 'use or right to use'. This Court also referred to the decision in Bharat Sanchar Nigam Ltd. v. Union of India [2006] 3 STT 245 (SC) and pointed out to the attributes in right to use goods for the purposes of attracting the charge to hold that a transfer of right to use goods implied transfer of effective control for use. In that context, going by the charging provisions under Section 3A of the Tamil Nadu General Sales Tax Act, this Court held that in a time charter party, there being no transfer of effective control for use, the transactions would not attract Section 3A of the Tamil Nadu General Sales Tax Act. 66. Learned senior counsel appearing for the assessee submitted that the view of this Court in the decision Essar Shipping Ltd. (supra) squarely covers the case on hand, particularly as regards the phrase 'use or right to use' and hence, when the transaction is one of service in nature, the question of attracting Clause (iva) to Explanation 2 does not arise. 67. We do not agree with the submission of the assessee. On the expression 'use or right to use' appearing under Explanation 2(iva) to Section 9(1)(vi), the decision of this Court in Essar Shipping Ltd., (supra) is distinguishable. We may note that the decision in Essar Shipping Ltd. (supra) rests on the scope of the charging provision under Section 3A of the Tamil Nadu General Sales Tax Act. Section 3A, introduced consequent on the 46th amendment, seeks to levy tax on the transfer of right to use in goods. The Section reads as follows: ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 25 - "Section 3A. Levy of tax on right to use any goods — (1) Notwithstanding anything contained in sub-sections (2-A), (2-B), (3), (4), (7) and (8) of Section 3, of section 7A but subject to the other provisions of this Act including the provisions of sub-section (1) of section 3, every dealer referred to in item (viii) of clause (g) of section 2 shall pay, for each year, a tax on his taxable turnover relating to the business of transfer of the right to use any goods for any purpose at the rates mentioned in sub-section (20 of section 3 or as the case may be, in section 4." 68. The phrase "use or right to use goods" came up for consideration before the Supreme Court in the decisions in Rashtirya Ispat Nigam Ltd. (supra) affirmed in the decision in Controller of Estate Duty (supra), Aggarwal Brothers (supra) and 20th Century Finance Corpn. Ltd.(supra) which are all relied on by the Revenue. 69. In the decision Rashtriya Ispat Nigam Ltd. (supra), the Andhra Pradesh High Court considered a similar phrase in Section 5E of the Andhra Pradesh General Sales Tax Act as in Section 3A of the Tamil Nadu General Sales Tax Act. The said Section related to levy of sales tax on the transfer of right to use any goods. There, the Andhra Pradesh High Court held that even while the machinery was in the use of the contractor who executed the project for Visakapatnam Steel Project, Rashtriya Ispat Nigam Ltd., who owned the Visakapatnam Steel Project, had the effective control of the machinery belonging to it . Even while the machinery was in the use of the contractor, the contractor had no more freedom to make use of the same for other works or move it out during the period when the machinery was in his use than to make use of it for the project for which it was given. To facilitate the execution of work by the contractors with the use of sophisticated machinery, the owner, namely, Rashtriya Ispat Nigam Ltd. had undertaken to supply the machinery to the contractors for the purpose of it being used in the execution of the contracted work. Thus the contractor was entitled to make use of the machinery for the purpose of execution of the work of the owner, namely, Rashtriya Ispat Nigam Ltd. and there was no transfer of right to use as such, in favour of the contractor. The High Court pointed out as follows: 'An owner of property has a bundle of rights in it, namely, right to possess, right to use and enjoy, right to usufruct, right to consume, to destroy, to alienate or transfer, etc. In law it is not only possible but also permissible that the various rights and interest may be vested in various persons. While remaining the owner of a property, a person may create a charge on the property, mortgage it or lease it. In the transaction of sale, all the rights of the owner are transferred to the purchaser and it is said that the property in the goods passes to the purchaser. In a lease of immovable property, there is a transfer of a right to enjoy such property; "a lease of land and a bailment of chattels are transactions of essentially the same nature." (Salmond on Jurisprudence -Twelfth Edition at page 424) Section 148 of the Contract Act defines "bailment" in the following terms : ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 26 - "148. 'Bailment', 'bailor' and 'bailee' defined. -A 'bailment' is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them. The person delivering the goods is called the 'bailor'. The person to whom they are delivered is called the 'bailee'." 6. Thus in bailment there is transfer of goods for a particular period and thereafter the goods have to be returned to the person delivering them. One of the categories of bailment is hire of chattel. In Halsbury's Laws of England (Fourth Edition) at paragraph 1551 it is defined as follows : "It is a contract by which the hirer obtains to use the chattel hired in return for the payment to the owner of the price of the hiring.' 70. Thus, the High Court Pointed out "it is this category of bailment of goods that is the tax base under section 5-E of the Act. The taxable event under section 5-E is the transfer of the right to use any goods. What does this phrase connote? This means that unless there is a transfer of the right to use the goods, no occasion for levying tax arises; providing a facility which involves the use of goods nor even a right to use the goods is not enough, there must be a transfer of that right." 71. The High Court further pointed out that transfer of right to use the goods necessarily involves delivery of possession by the transferor to the transferee. Delivery of possession of a thing must be distinguished from its custody. Referring to a case of hiring a taxi cab, the High Court observed "it is not uncommon to find the transferee of goods in possession while transferor is having custody. When a taxi cab is hired under "rent-a-car" scheme, and a cab is provided, usually driver accompanies the cab; there the driver will have the custody of the car though the hirer will have the possession and effective control of the cab. This may be contrasted with the case when a taxi car is hired for going from one place to another. There the driver will have both the custody as well as possession; what is provided is service on hire." 72. The above-said decision was appealed against by the State and in the decision in Rashtirya Ispat Nigam Ltd. (supra), affirming the decision of the High Court, the Apex Court held that the transaction did not involve transfer of right to use the machinery in favour of the contractors and in the absence of satisfying that essential requirement of Section 5-E, the hire charges collected by the assessee from the contractors were not exigible to sales tax. 73. In the decision Aggarwal Brothers (supra), the question of hiring as amounting to transfer of right to use goods again surfaced with reference to Haryana General Sales Tax Act. This case related to hiring of shuttering materials to builders for use in the course of construction of buildings. The Supreme Court pointed out that the definition of "sale" in the Act includes the "transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 27 - other valuable consideration". The provision expressly speaks of "transfer of the right to use goods" and not of transfer of goods, and transfer of right to use goods for consideration is deemed to be sale. Where the transfer of a right to use is for consideration, the requirement of law is satisfied and is deemed to be a sale. The Supreme Court rejected the contention of the assessee and held that, to come under the expression of right to use goods to be a deemed sale, the transaction need not be like a lease. When the assessee transferred the shuttering for consideration to builders for use in the construction of buildings, there can be no doubt that the requirement of a deemed sale was satisfied. 74. In the decision 20th Century Finance Corpn. Ltd. (supra), the Apex Court pointed out that the definition given under Article 366(29A) in the second limb provided that transfer, delivery or supply of any goods referred to in first limb in Clauses (a) to (f) shall be deemed to be a sale of those goods by the person making the transfer, delivery, or supply and the purchase of those goods by the person to whom such transfer, delivery or supply is made. It further observed with reference to Clause (d), namely, the tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration as follows: '64. A perusal of sub-clause (d) shows that the tax, envisaged therein, is on the transfer of the right to use any goods for any purpose; the period of use may or may not be specified; the consideration (need not necessarily be cash consideration). As the tax is on the transfer of right to use any goods, we shall ascertain the meaning of the word "transfer".' 75. Referring to Corpus Juris Secundum, Black's Law Dictionary and The New Shorter Oxford English Dictionary, it held as follows: "it is explicit that the transfer of right to use any goods involves both passing of a right in as well as domain of the goods in which right to use is transferred. 67. It is a common ground that the transaction mentioned in Sub-clause (d) which is treated as a 'deemed sale', is in effect leasing hiring of the goods, which implies use of the goods by the hirer. 68. It will be useful to note the following passage in 'Introduction to the Law of property' by Mr. F.H. Lawson 1958 Edition, Page 117. "In Roman law hire was nothing more than contract. In English law, however, it is much more. Here again we must distinguish between chattels and land. When a chattel is handed over by way of hire a bailment takes place, and thereby the hirer is put in possession of the thing. For land the corresponding transaction is a lease, and here too there is a transfer of possession. So far the two are very similar, though whereas the lessor always retains what is ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 28 - misleadingly called 'possession', a bailor who bails goods for a fixed term loses possession... 69. The Halsbury's Laws of England describes 'Hire of chattels' Fourth Edition, Volume 2, Para 1551 thus : "Hire is a class of bailment. It is a contract by which the hirer obtains a right to use the chattel hired in return for the payment to the owner of the price of the hiring. The proprietary interest in the chattel is not changed, but remains in the owner, although upon delivery the hirer becomes legally possessed of the chattel hired, so that if it is lent for a time certain, even the true owner is debarred during that time from resuming possession against the hirer's will and, should he do so, becomes liable in damages for the wrongful seizure. 70. We can with advantage refer to 'Bailment by Palmer'. The learned author refers to the classification of bailment made by Holt C.J. in Coggs v. Bernard 1703 (92) ER 107 into six categories of which the third is relevant on the facts in the case of the appellant. Here the equipment, on being received from the manufacturer/supplier, is left with the hirer for being used for hire. The material extract of that book reads thus: And there are six sorts of bailments.... The third sort is, when goods are left with the bailee to be used by him for hire; this is called location et conduction, and the lender is called locator and the borrower conductor. 71. Be that as it may, what is the contractual nature of the transaction specified in Sub-clause (d) of Clause (29A)? Whether it is a specie of bailment or not? These questions should not detain us because we are concerned here not with the contractual nature of the transaction but with the substance and content of Sub-clause (d). Suffice it to mention that the Parliament itself has not named the transaction and for purposes of the present discussion relating to tax on the transaction of the nature in Sub- clause (d) of Clause (29A), brought into the fold of deemed sale, it is not necessary to give a nomen juris to it. It may, however, be mentioned that various High Courts in India treated the transaction in Sub-clause (d) as bailment; among them are the High Court of Andhra Pradesh in Rashtriya Ispat Nigam Ltd. v. Commercial Tax Officer [1990] 77 STC 182 (A.P.) ITC Classic Finance and Services v. Commissioner of Commercial Taxes (1995) 97 STC 330 the High Court at Bombay in 20th Century Finance Corpn. Ltd. v. State of Maharashtra [1989] 75 STC 217 the High Court of Punjab and Haryana (the Tamil Nadu Taxation Special Tribunal) in Upasana Finance Ltd. v. State of Tamil Nadu [1999] 113 STC 403 the High Court of Orissa in Krushna Chandra Behera v. State of Orissa (1991) 83 STC 325. 72. Reverting to Sub-clause (d) of Clause (29A), a perusal of the Statement of Objects and Reasons appended to The Constitution (Forty-Sixth Amendment) ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 29 - Act, 1982, shows that the Parliament has taken note of the fact that the main right in regard to films relates to its exploitation and after exploitation for a certain period of time, in most cases, the film ceases to have any value, so instead of resorting to the outright sale of a film, only a lease or transfer of the right to exploit the film is made. The device by way of lease of films has been resulting in avoidance of sales tax so to curb that device, Sub-clause (d) is inserted in Clause (29A). Even so, Sub-clause (d) is wider import than a mere leasing of films. It applies to all kinds of leasing/hiring of goods, for example, leases of plants, machinery, computers, cars, planes, furniture etc, 73. A sale of any goods is complete when the property in the goods passes to the purchaser pursuant to a contract of sale of those goods. So also, a deemed sale of goods under Sub-clause (d), as has been pointed out above, will be complete when the control of the goods in which the right to use is transferred, passes to the transferee under the contract of transfer." 76. Thus a reading of the decisions of the Apex Court shows that for the purpose of levy of sales tax on a deemed sale, there must be a transfer of right to use goods, which contemplates delivery of possession, so that, the transferee has a control over the economic benefits over the property. For the purpose of understanding 'royalty' under Clause (iva), we do not find any such necessity of emerging termination of rights of the owner and so long as the assessee has the custody and has the right for economic exploitation of the ship on payment of charges, we do not find the decision under the Sales Tax Act having relevance to the case on hand. As pointed out in the Supreme Court decision in Gosalia Shipping (P.) Ltd. (supra), the charter, though does not have the possession, yet, has the right to give direction to the course that the ship will take, to determine the voyage. Thus even though the ship never leaves the owner, the amount paid by the charterer for the use of the ship by its custody has to be seen in the context of the expression 'use or right to use' as appearing under Clause (iva). In the decision Bharat Sanchar Nigam Ltd. (supra), the Supreme Court pointed out to the decision 20th Century Finance Corpn. Ltd. (supra) and observed as follows: "77. But in the case of Aggarwal Brothers v. State of Haryana [1999] 9 SCC 182 when the assessee had hired shuttering to favour of contractors to use it in the course of construction of buildings it was found that possession of the shuttering materials was transferred by the assessee to the customers for their use and therefore, there was a deemed sale within the meaning of Sub- clause (d) of Clause 29-A of article 366. What is noteworthy is that in both the cases there were goods in existence which were delivered to the contractors for their use. In one case there was no intention to transfer the right to use while in the other there was." 77. The Apex Court pointed out that in order to attract the charge under transfer of right to use any goods as deemed sale, the emphasis is the intention to transfer the right to use goods, which, in turn, implies effective control for use. This Court in the ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 30 - decision Essar Shipping Ltd. (supra) pointed out that without the transfer of right to use, the transaction in question cannot fall under the charging position. This Court further referred to the decision Bharat Sanchar Nigam Ltd. (supra) and held what is contemplated as held in the Apex Court decision to attract the charge under the Sales Tax Act on the transfer of right to use goods was that the possession given unaccompanied by transfer of right to use, in the sense of there being no effective control, would not bring the transaction within the four corners of the charging provision. Thus the decision Essar Shipping Ltd. (supra) rested on the scheme, the charging Section and the decisions of the Apex Court on the similarly worded charging position. 78. As far as the present case is concerned, 'royalty' means the consideration paid for "the use or right to use". Irrespective of whether there is any transfer or not, the consideration paid for use or right to use simpliciter is sufficient for the consideration being called as 'royalty'. The presence or absence of possession effective/general control and custody with the assessee, even though may be matters of agreement, are not of any relevance to decide the character of payment. The assessee, as per the agreement, had the right to use the ship, selecting the time and the decided route as per its requirement, for which it paid the foreign enterprise, the consideration and we have no hesitation in holding that the character of payment is nothing but royalty.” 17. Further in the case of West Asia Maritime Ltd. vs. ITO 111 ITD 155 (Chennai) the ITAT held that ship being an “equipment” under Article 12, hire charges for user of ship partook the character of royalty for use of equipment under provisions of Section 9(1)(vi) and, hence, exigible to tax in India. 18. Further, we are unable to accept the argument of the assessee that the assessee company merely availed the facility of dredger without exercising any possessory rights over it. The assessee has placed reliance on various cases, however, the same are distinguishable on facts and the aforesaid cases as cited read with the plain language of the Statute are clearly applicable to the assessee facts. ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 31 - 19. Accordingly, we are of the considered view that the payments made by the assessee to M/s. Miller Dredging Company Inc. qualify as “Royalty” for use of “equipments” under Section 9(1)(vi) of the Act and the assessee was under an obligation to deduct tax at source as royalty payments at the time of making payments to the non-resident payee. 20. Accordingly, Ground Nos. 1 & 3 of the assessee’s appeal are dismissed. Ground No.2:- Order passed under Section 201(1) and Section 201(1A) of the Act are barred by limitation. 21. The assessee has vide its written submission has submitted before us that the impugned order passed by the Assessing Officer is time barred and hence the order deserves to be quashed. The assessee has submitted that since no specific time limit has been prescribed under Section 201 of the Act, the time limit as laid down in decided cases must be applied. The assessee placed reliance on the case of NHK Japan Broadcasting Corporation 305 ITR 137 wherein it was held that proceedings under Section 201 / 201(1A) cannot be initiated after expiry of 4 years from the end of the relevant Financial Year. The assessee also placed reliance on the case of SBI vs. ACIT 106 ITD 589 wherein it was held that orders passed under Section 201(1) and 201(1A) after expiry of 4 years from the end of the relevant Financial Year are time barred. The assessee submitted that similar view has been taken by ITAT Ahmedabad in the ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 32 - case of Anagram Wellington Assets in ITA No. 2679/2677, 2678/Ahd/2006 vide order dated 19.12.2008. Accordingly, it was submitted that since the present proceedings under Section 201(1) / 201(1A) have been initiated after the expiry of 4 years from the end of the relevant Financial Year, the said order is liable to be quashed as being time barred. 22. In response, the Ld. D.R. placed reliance on the case of Dr. Reddys Laboratories Ltd. 155 taxmann.com 97 (Telangana), wherein the High Court held that with regards to the question as to what would be a “reasonable” period, in absence of statutory limitation, there cannot be a straight jacket answer to such a question. What is the “reasonable period” would depend upon the facts and circumstances of each case and, therefore, as a general principle it may not be possible as well as feasible on the part of the Court to say definitely that a period of 4 years would the period of limitation for the purpose of passing an order under Section 201(1) or 201(1A) of the Act, when the Legislature has consciously not prescribed any such limitation. 23. We have heard the rival contentions on this issue. In our considered view, it is not an inadvertent omission in the Act as to the non-provision of any specific time limitation for initiating proceedings under Section 201(1) and 201(1A) of the Act in respect of payment made to a non-resident entity. In our view, Ld. CIT(A) has correctly observed that the Calcutta High Court in the case of Bhura Exports Ltd. vs. ITO in ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 33 - ITA No. 116 of 2011 held that there is no time limit for initiating withholding tax proceedings during the period 1 st April 1989 to 3 rd March 2010. The High Court held that the order passed by the Assessing Officer under Section 201 of the Act is not barred by limitation since the Act did not specify any specific time limit for treating a tax payer as “assessee in default” under Section 201 of the Act. The High Court also ruled that the Limitation Act, 1963 does not apply to Income Tax Law as it is a self-contained code in itself. We observe that from 1 st April, 2010, the provision prescribing a time limit to pass order under Section 201 of the Act in the case of resident tax payers was reintroduced by way of sub-section (3) of Section 201 of the Act. However, as elaborated in the Memorandum explaining the provisions of Finance Act 2009, it has been clarified that the time limit will not be applicable in the following cases:- (i) Where tax has been deducted but no deposited with the government. (ii) Where employer failed to deduct and pay tax on perquisites provided to employees. (iii) Tax deductible in case of non-resident payees, as it may not be administratively possible to recover the tax from non-residents. 24. Therefore, in view of the Memorandum to the Finance Act, 2009, the Government in its wisdom has deliberately not prescribed any specific time limit in the case of non-resident payees, keeping in mind the ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 34 - administrative difficulty in recovering taxes from non-residents payees. Therefore, clearly the omission to prescribe a specific time limit in respect of completion of proceedings under Section 201 / 201(1A) of the Act in respect of non-resident payees is a well-thought out omission keeping in view the administrative difficulties which may be faced in case of collection of taxes from non-resident recipients. Therefore, we are of the considered view that what may constitutes as “reasonable time” limit would depend upon the facts of each case and the time period of 4 years from the end of relevant Financial Year cannot be held to be a binding period of limitation in all cases. In the case of Mahindra & Mahindra Ltd. vs. DCIT 313 ITR (AT) 263 the ITAT made the following observations:- • “As decided by the Hon’ble Calcutta High Court in the case of cited above, the time limit prescribed in Section 149 of the Act for taking action under Section 147 cannot have any application for taking action under Section 201 of the Act, since it was not a case of income escaping assessment but a case of inaction of payer to deduct tax on interest while making payment of the interest in violation of Section 194A of the Act. • There is no scope for applying provisions of Limitation Act, 1963 to the Act since the Supreme Court in the case of Rao Bahadur Ravulu Subba Rao [1956] 30 ITR 163 (SC) held that the Act is a self contained code and its provisions show an intention to depart from the common rule. • Relying on the three-judge Bench Supreme Court’s decisions in the case of Uttam Namdeo Mahale v. Vithal Deo and ors AIR [1997] SC 2695 and Ishar Singh AIR [1984] SC 171, the Calcutta High Court observed that if no period of limitation is prescribed under the Act for taking action and the Limitation Act does not apply then there cannot be any prohibition of the period of limitation for taking action under the Act.” 25. In the case of CIT vs. Idea Cellular Ltd. 158 taxmann.com 163 (Telangana), the High Court held that since there is no specific period of ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 35 - limitation prescribed for initiating proceedings under Section 201(1) and 201(1A) and that “reasonable period” would depend on facts and circumstances of each case and therefore, where CIT(A) and also Tribunal held that show-cause notice issue by Assessing Officer initiating proceedings under Section 201(1) against assessee after 4 years was barred by limitation, same could not be said to be proper, legal or justified. In the case of Bhura Exports 13 taxmann.com 162 (Calcutta), the High Court held that when there was no period of limitation fixed for exercising power under Section 201 at the relevant point, there is no question of invoking a reasonable period of limitation for applying provision contend in Section 201 of the Act. In the case of Mass Awash Pvt. Ltd. 83 taxmann.com 306 (Allahabad) , the High Court upheld initiation of proceedings under Section 201(1) / 201(1A) after a lapse of 10 years in case of assessee company, as there was reasonable explanation for delay. In the case of Indo-Gulf Corporation Ltd. 99 taxmann.com 432 (Allahabad), the High Court held that the Tribunal was not justified in summarily dismissing order passed by Commissioner (Appeals) sustaining levy of interest under Section 201(1) and 201(1A) on ground of limitation only without appreciating that there is no prescribed time limit for invoking provisions of Sections 200 and 26. The delay occurred in passing order under Section 201(1) and 201(1A) whether justified or not is a question of fact which has to be examined independently on basis of facts of each individual case. ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 36 - 27. In view of the above judicial precedents and the plain language of the Statute, in our considered view we find no infirmity in the order of the Ld. CIT(A) on this issue so as to call for any interference. In the instant case, the assessee had chosen not to furnish the correct details of the recipient entity (regarding the residential status of the non-resident recipient) and had also not approached the Tax Officer for determination of the correct amount of TDS under Section 195 / 197 of the Act and the assessee had taken the suo moto decision not to withhold taxes on continuous payments being made to the non-resident recipient entity M/s. Miller Dredging Company Inc., being a resident of British Virgin Islands, with whom India does not have a Tax Treaty, without deduction of tax at source for a period spanning over 10 years. We observe that notices under Section 201(1) and 201(1A) of the Act were issued by ADIT on the assessee, following survey proceedings in the case of the assessee. Accordingly, looking into the facts of the instant case and the conduct of the assessee as pointed out by the Ld. CIT(A) for not deducting tax at source on such payments, we are of the considered view that Ld. CIT(A) has correctly held that looking into the instant facts, the aforesaid proceedings are not barred by limitation. 28. In the result, Ground No. 2 of the assessee’s appeal is dismissed. 29. Ground No. 4 of the assessee’s appeal is general in nature and does not require any specific adjudication. Further, despite a large number of opportunities, the Counsel for the assessee has not caused appearance ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 37 - before us and pointed out to specific infirmity in the order of Ld. CIT(A) wherein any specific document was not considered by Ld. CIT(A) while passing the order. Accordingly, Ground No. 4 of the assessee’s appeal is dismissed. Ground No. 5:- Non-deduction of taxes at source were attributable to a bona fide belief on part of the assessee. 30. In this ground the assessee has submitted that non-deduction of tax at source by the assessee was on account of a bona fide belief that there was no legal liability on the assessee to deduct tax at source. The assessee placed reliance on various decisions in support of it’s contention that once the assessee is under a bona fide belief that no taxes are liable to be deduct tax at source, order passed under Section 201(1) and 201(1A) of the Act is liable to be set-aside. 31. In the instant case we observe that notices under Section 201(1) and 201(1A) of the Act were issued by ADIT on the assessee, following survey proceedings in the case of the assessee. Further, the fact that payee / recipient was resident of a tax heaven i.e. British Virgin Island and not UK was not disclosed by the assessee either to the RBI or to it’s auditors and nor to the Assessing Officer. Therefore, the assessee did not deduct taxes at source on payments without disclosing the true set of facts to the concerned authorities and took a suo moto decision not to deduct taxes at source. We are of the considered view that the Ld. ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 38 - CIT(A) has correctly observed that even if the assessee had any doubts regarding non-deduction of tax at source, the assessee ought to have applied to the concerned Assessing Officer for clarification on whether taxes are required to be deducted with respect to aforesaid payments. In the case of Van Oord ACZ India (P.) Ltd. vs. ADIT 112 ITD 79 (Delhi), the ITAT held that the payer cannot escape liability for non- deduction of tax at source unless a certificate from the Assessing Officer is obtained for deduction of tax either at a lower rate than rate is prescribed or for non-deduction of tax at source. The ITAT made the following observations while passing the order:- “The power to deduct tax at source is conferred by section 195(1). On a combined reading of the provisions of section 40(a)( i) and section 195 or 197, it is clear that where deduction of tax is required to be made under section 195(1), the same cannot be avoided unless 'nil' deduction or deduction at a lower rate is authorized by the Assessing Officer under section 195(3) or 197. In cases where the tax has not been deducted as per provisions of section 195 in the manner as stated hereinabove, the Legislature in its wisdom, in order to ensure effective compliance of provision of section 195 relating to tax deductions at source in respect of payments outside India, extended the scope of the above provision to cover payments in respect of royalty, fees for technical services or other sources chargeable under the Act and enacted the provision of section 40(a)(i ) mandating that no deduction for such payments is allowed to the assessee in computation of income for such payment outside India or in India to a non-resident or to a foreign company, if tax is not deducted at source from the payments of such sums. [Para 22] The Apex Court in the case of Transmission Corporation of AP Ltd. v. CIT [1999] 239 ITR 587 / 105 Taxman 742 has clearly elucidated the scheme and purpose of deduction of tax at source under section 195 as well as the duty of the taxpayer for the payments made to non-resident. [Para 23] Keeping in view the decision of the Apex Court (supra ), the meaning, scope, limitations, rights and duties of payer and the payee under the provisions of section 195 can be laid down as under: (a ) Section 195 deals with the deduction of tax at source by the payer, i.e., assessee if ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 39 - the payments are to be made to a non-resident. (b ) The payer/assessee is required to deduct income-tax on such payments made to non- resident at the specified rates in force. (c ) If the parties feel that either the deduction of tax at source by the payer is required to be at a rate lower than the prescribed rate or no deduction is required to be made, they are required to file an application before the Assessing Officer for obtaining such certificate. In case no such application is filed before the Assessing Officer for obtaining such certificate or such application is rejected by the Assessing Officer and direction is issued by the Assessing Officer to deduct such tax at a particular rate, the payer is duty bound to deduct tax as per the directions of the Assessing Officer; and in case no such application for obtaining the certificate was filed before the Assessing Officer, then the payer is duty bound to deduct tax as per the prescribed rates in force at the relevant time. If the payer still fails to comply with the provisions, there is no escape for the payer from suffering the consequences provided under the Act. (d ) Since the deduction of tax under section 195 on such payments to non-residents is subject to regular assessments, the rights of parties are not adversely affected in any manner whatsoever and it is clearly indicative of a fact that such deductions are tentative. [Para 26] From the above discussion, it can be said that rights and duties of the payer now clearly stand demarcated and limited to the extent as laid down by the Apex Court in their order (supra), i.e., that the payer/assessee is duty bound to deduct tax at source for the payments made to non-residents at the appropriate rates as provided under section 195. The payer cannot escape the liability for doing so, unless a certificate from the Assessing Officer is obtained for the deduction of the tax either at a rate lower than the rate as prescribed or for non-deduction of tax at source and that the duty of the payer ends here only and he is not required to examine and look into other aspects beyond this like whether the payer received the services from the non-resident to whom such payments were made or from some other person through the non-resident; whether such receipt in the hands of the recipient non-resident would be his income or part of it would be his income on which he is liable to pay tax. The payer is not expected to step into the shoes of the Assessing Officer for examining whether the receipts in the hands of the recipient are income or not or whether he is liable to pay tax thereon or not. [Para 27] It is also not material for the payer either to make the whole of the payment to the recipient/non-resident or to make part of the payment to the payee after deduction of the tax at source at the prescribed rates because in either of the conditions the payer/ assessee has to part with the whole of the payment required to be made to the non- resident by him. More so when the deduction of the tax at source under section 195 is subject to regular assessment and the right of non-resident is not adversely affected because at the time of regular assessment if the payee/recipient succeeds in proving ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 40 - before the Assessing Officer that such receipts, from the payer/assessee, were not its income and so it was not bound to pay tax thereon, then such tax deducted at source by the payer/assessee and deposited with the Government is bound to be refunded or adjusted against the payment of tax, if any, to the recipient non-resident by the Assessing Officer at the time of regular assessment. [Para 28] To sum up, neither it is the duty nor it is desirable from the payer/assessee to examine whether any tax is deductible at source from the payments made to the non- resident. In case it feels that no tax is required to be deducted at source or required to be deducted at a lower rate, then it is required to obtain such certificate under section 195(2) from the Assessing Officer or for non-deduction of tax at source. This is a safeguard provided under sections 195(2), 195(3) and 197 to payer and payee because before the Assessing Officer while obtaining certificate such facts are required to be established by them. [Para 29] For non-compliance of the statutory provisions of section 195 by the payer, it would have to suffer the consequences laid down by the Legislature under section 40(a)(i ). [Para 30] The provision of section 40(a )(i) has been enacted by the Legislature in its wisdom to ensure the effective compliance of provisions of section 195 relating to tax deductions at source in respect of payments made to non-residents outside India. Thus, the provision mandates that no deduction for such payments made to non- residents outside India is to be allowed to the payer/assessee while computing its income while considering its claim of deduction for such payments made to non- resident at the time of assessment in case the tax is not deducted at source from the payment of such sums as per provisions of section 195. [Para 31] With this enactment now the duty is cast upon the Assessing Officer to not allow the deduction to the payer/assessee for such payments in the cases where the provisions of section 195 are not complied with by the payer while computing the income of such payer/assessee during the course of assessment proceedings. [Para 32] Thus, in view of the detailed discussions and in view of the ratio of the decision of the Apex Court in Transmission Corporation of AP Ltd. (supra), it is clear that it is not for the assessee/payer to decide the taxability of payments made by it in the hands of non-resident recipient as the machinery for this purpose is provided in sub-section (2) of section 195 itself, whereby the concerned Assessing Officer could have been approached to decide this aspect. Thus, there is no need to look into the nature of such payments made to non-resident and to look into whether such payments are income or part of income in hands of recipient non-resident taxable in India and many other relevant factors relating to taxability of the payments in the hands of recipient non-resident as its income in India. Under the provisions of section 40(a)(i ) it is only required to consider the deduction of such payments claimed by the payer/assessee to the non-resident in case of non-compliance of provisions of ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 41 - section 195, i.e., non-deduction of tax at source for the payments made to non- resident. [Para 33]” 32. Accordingly, in our view there is no reason as to why and on what basis the assessee could have formed a bona fide belief that it was not liable to deduct tax at source on the aforesaid payments. This is further coupled with the fact that the assessee was governed by the provisions of the Income Tax Act since the recipient was a tax resident of Virgin Island, with which India did not have a tax treaty. Accordingly, the argument of the assessee that it was under a bona fide belief for non- deduction of tax at source is hereby rejected. 33. In the result, Ground No. 5 of the assessee’s appeal is dismissed. 34. In the result, the appeal of the assessee is dismissed for A.Y. 2003- 04. Now we shall discuss the Department’s appeal for A.Y. 2003-04 (in ITA No. 62/Rjt/2012) 35. The Department has raised the following grounds of appeal:- “(i) The Ld. CIT(A) has erred in holding that the activity of M/s. Miller Dredging Company is not a business activity but mere leasing of dredger and hence can not be taxed as such. (ii) The Ld. CIT(A) erred in placing reliance on the pre-contractual activity of M/s. Jaisu Shipping Co. Pvt. Ltd. rather than the obligation in the actual contract in arriving at a decision that no business activity was performed by M/s. Miller Dredging Company Inc. BVI. ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 42 - (iii) The CIT(A) has further erred in holding that the foreign company did not have any business connection or any source of business income in India in spite of clear evidence to the contrary. (iv) The Ld. CIT(A) has erred in law and on facts in holding that the entire establishment of the foreign party within the Indian territorial waters did not constitute PE of the foreign party for the purpose of section 9 of the IT. Act. (v) On the facts and circumstances of the case, the Ld. CIT(A) ought to have upheld the order of the Assessing Officer. It is, therefore, prayed that the order of the Ld. CIT(A) may be cancelled and that of Assessing Officer may be restored to the above extent. (vi) The appellant craves leave to add/alter/modify/delete any of the grounds of appeal at the time of hearing.” 36. Essentially all the grounds of the Department relate to a single issue that the CIT(A) erred in holding that the assessee did not perform any business activity in India and hence it did not have a business connection / PE in India for the purpose of Section 9(1)(i) of the Act. The issue for consideration in relation to this ground of appeal are whether the overseas company M/s. Miller Dredging Company Inc., British Virgin Islands, could be said to be conducting any business in India so as to constitute a business connection of the assessee in India. The Assessing Officer was of the view that the overseas company had a business connection in India and it was actively conducting business operations in India. The Assessing Officer observed that the dredgers of the foreign company was continuously operating in India and regular payments were being made by the assessee to M/s. Miller Dredging Company Inc. The Assessing Officer further observed that as per the terms of agreement, the owners i.e. Miller Dredging Inc. shall provide and pay for insurance of the vessel and for all provisions, cabin, deck, ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 43 - engine room etc. and had also under taken complete responsibility to maintain the vessel / dredger in an efficient and safe working condition. The Assessing Officer was of the view that the fact that dredger was registered outside of India has no bearing so long as it is a source of business for the foreign company in India. The Assessing Officer was further of the view that the case of Hon’ble Supreme Court (R.D. Agarwal and Company) relied upon by the assessee is distinguishable because it discussed the taxability of a foreign company in the case of a stand alone or solitary transaction. However, the Assessing Officer observed that the assessee had been making substantial payments to the overseas company continuously for a period of over 9 years. The Assessing Officer was of the view that the dredgers were taken by the assessee on wet lease basis and alongwith dredgers, the operators / coordinators / Captain were also supplied by the non-resident entity to the assessee company. Further, the Assessing Officer observed that the Captain of the dredger is appointed by the owner (non-resident) and that the captain will supervise the activities of the charterers i.e. the assessee. The Assessing Officer held that M/s. Miller Dredging Company Inc. had derived income from business connection in India from wet lease of dredgers which it had provided to the assessee company on long term charter basis by carrying out business activity through these dredgers as per the directions of the assessee. Therefore, the income earned by the non-resident from it’s business activity is taxable in India. ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 44 - 37. In appeal, Ld. CIT(A) gave a detailed finding on the facts of the case and came to the conclusion that the non-resident company did not have a business connection in India and as per the Ld. CIT(A), the overseas company earned rental income for giving out dredgers to the assessee on lease on long-term basis. The Ld. CIT(A) was of the considered view that the non-resident company was not carrying out any active business operations in India but had only earned income from giving on dredgers to the assessee company on long-term hire basis. The Ld. CIT(A) was of the view that provisions of Captain and other crew etc. would not characterize the income from the lease of dredgers as business activity of the non-resident company since the Captain on the vessel and the operational staff were to work exclusively under the control and directions of the assessee company in India and secondly such staff was provided, not for carrying out any business operations in India, but only with a view to ensure that the vessel was returned to the non-resident company in a well maintained and good working condition. The CIT(A) observed that negotiations and agreement between the assessee and the non-resident company were held and signed outside of India. The payment for charter hire charges is made by assessee in a bank account held outside India. The requisite permissions for carrying out dredging activities has been obtained by the assessee company in it’s own name in India. The assessee has obtained the clearance from the Indian customs authority for the chartered dredgers. The Captain of the vessel though appointed by the non-resident company shall work ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 45 - exclusively under the control and supervision of the assessee in India. The CIT(A) was of the view that the activities carried out by the non- resident company does not tantamount to providing of a service but is a corollary to hiring of equipment itself. The overseas non-resident company has no control on the dredging activity as such. The dredging contract is taken by the assessee, the permission in this regard are to be taken by the assessee and the overseas company in it’s own authority, cannot partake in any dredging activity in India on it’s own account. The staff of the overseas company acts under the command of the assessee so far as the dredging activities is concerned, including where, when and how much to dredge. In this case, the CIT(A) held that the assessee company has full control over the equipment and the staff and the operation of the equipment. The fact that non-resident company does not have a business connection in India is also evident from the fact that it shall receive payments on a fixed basis from the lessee, irrespective of the period of use of the dredgers by the assessee company in India. The Ld. CIT(A) observed that the payment for hiring of dredgers was not subject to actual user of dredgers, which also supports the fact that the non-resident company did not have a business connection in India. The CIT(A) was of the view that there was no common interest between the assessee company and the foreign company, and the two do not have a revenue sharing agreement or arrangement. With these observations, the Ld. CIT(A) was of the view that the non-resident company did not have a ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 46 - business connection in India. While passing the order Ld. CIT(A) made the following observations:- “Some of the important facts which emerges from the elaborate discussion in the assessment order, statement of facts and submissions filed by the appellant are summarized as under: (a) Negotiations are held between foreign ship owners on the one side, and the intending Charterer (Indian Company) on the other side. Such negotiations are generally held abroad, i.e. at the place of registration of the ship / dredger or at its then available location, as physical inspection and survey is an essential component of the entire process. (b) The protocol, if any, is signed at the initial stage. This leads to the "Charter Party" (contract for chartering ships) which is signed between the two parties, laying down the terms and conditions of the charter - in the instant case, the protocol is signed in New York. Even on renewal of charter agreement, if any, are signed by Miller Dredging Co. outside India. (d) The rights and obligations of each party, including charter hire rates, place of delivery, place of arbitration, obligations of each party for complying with national laws, etc., are clearly defined in the Charter Party. "CHARTER PARTY" is the term used for referring to the Contract/ Agreement between the two parties for chartering ships. (e) The place of arbitration is New York as mentioned in the charter party between the Appellant and Miller Dredging Company, Inc.. (f) The payment of charter hire is made by the Indian company in an account outside India. The amount is remitted directly. The receipt of charter payment is therefore outside India. (g) Ail legal and regulatory obligations under the Merchant Shipping laws of India, are to be complied with and dealt with by the Indian Company (Jaisu). The foreign owner has absolutely no role in this matter. (h) The Indian company has to first apply for permission to In-Charter the foreign flag (foreign owned) ships / dredger to the "Director General of Shipping", Mumbai. Without In-chartering permission, the Indian company (Jaisu) cannot deploy the ship, or remit charter hire payments. (i) Before applying to DG Shipping, the Indian Company has to establish that no Indian flag-Indian owned ship/dredger is available for the intended use. The Indian party, therefore, has to circulate any inquiry amongst all Indian Companies owning dredgers, with a view to ascertain availability of a suitable Indian Flag ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 47 - Dredger. Only if no Indian Flag Dredger is allowable (of the specifications described by the Indian Co.), can the Indian Company apply to DG(S). (j) The Indian party has to obtain No Objection Certificate (NOC) from “Indian National Shipping Owners Association (INSA)” before the company can hire foreign owner ships. Such NOC from INSA has to be submitted to DG(S) along with the application for in-chartering any foreign flag dredger. (k) Based on the above inquiries and NOC from INSA, the Indian Company has to apply to DG Shipping for permission, specifying the proposed hire charter rates. (I) Only if the DG Shipping grants permission for IN-Chartering, can the Indian Company take the ship / dredger on charter. As per existing laws, the foreign ship owner / dredger owner cannot make the application to the DG Shipping, He has no role to play in this process. (m) Only if the DG Shipping has granted IN-Chartering permission, can the Indian Company remit the charter hire charges through an authorized' foreign exchange dealer. RBI rules clearly stipulate this. (n) Even after obtaining In-Chartering permission from DG Shipping, the Indian Company cannot operate the foreign ship, till a valid "trading license" is obtained u/s.406/407 of the "Merchant Shipping Act, 1958". Application for such license can be made only by the Indian Company. The DG Shipping issues license u/s.406/407 only to the Indian Company which has In-Chartered the dredger. All obligations and responsibilities for complying with the Merchant Shipping Act, during the period of operation of the dredger in Indian waters, rests wholly and solely on the Indian Company. It is to be noted that the license u/s 406/407 of the Indian Merchant Shipping Act is issued in the name of the Indian company and not the non-resident. (r) The Indian company has to obtain the clearance from the Indian custom authorities for the chartered dredgers. Bill of entry in this regard has to be filed by the Indian Company only. The non-resident company has nothing at all to do with this process. Customs duty, if any payable on the deployment of the chartered Dredgers in Indian coastal waters during the period of hire, has to be paid by the Indian company. (s) Security clearance in respect of the chartered dredgers is obtained from the Indian Naval and other Government Authorities by the concerned port, based on information and details submitted by the Indian company alone. Once again, the foreign company has no role to play in the processes of obtaining security clearance, without which the chartered foreign flags dredgers cannot operate in Indian coastal waters. ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 48 - (t) Port clearance has to be periodically obtained by the Indian Company from the concerned port where the foreign flag dredger is deployed. Such clearance has to be obtained only by the charterer, that is the Indian company alone. (u) Some important terms of charter of agreement are reproduced below (from the order of the AO): (i) Owners to Provide "The owners shall provide and pay for the insurance of the vessel and for all provisions, cabin, deck, engine room and other necessary stores, including boiler water; shall pay for wages, consular shipping and discharging fees of the crew and charges for port services pertaining to the crew; shall maintain vessel's class and keep her in a thoroughly efficient safe in hull, machinery and equipment for and, during the service. (ii)"Vessel shall be placed at the disposal of the Charterers W.C.I. Probably at Sikka port. In such dock or at such berth or place where she may safely lie. always afloat" (iii) "The captain shall prosecute his voyages with due dispatch, and shall render all customary assistance with ship's crew and boats. The Captain (although appointed by the owners) shall be under the orders and directions of the Characters as regards employment and agency; charterers are to perform all cargo handling at their expense under the supervision of the Captain, who is to sign the bills of lading for cargo s presented in conformity with mate's or tally clerk's receipts. However, at Charterers option, the charterers or their agents may sign bills of lading on behalf of the Captain always in conformity with mate's or tally clerk's receipts. All bills of lading shall be without prejudice to this charter and the charterers shall indemnify the owners against all consequences or liabilities which may arise from any inconsistency between this charter and any bills of lading or waybills signed by the charterers or their agents or by the captain at their request." (iv) Conduct of the Captain "If the charterers shall have reason to be dissatisfied with the conduct of the Captain or officers, the owners shall, on receiving particulars of the complaint, investigate the same, and if necessary, make a change in the appointments." (v) Sailing Orders and Logs. "The charterers shall furnish the Captain from time to time with all requisite instructions and sailing directions, in writing, and the Captain shall keep full and correct deck and engine logs of the voyage or voyages, which are to be patent to the charters or their agents, and furnish the Charterers, their agents or supercargo, when required, with a true copy of ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 49 - such deck and engine logs, showing the course of the vessel, distance run and the consumption of fuel." (vi) Owners shall maintain the cargo handling gear of the ship which is as follows: As efficacy providing gear(for all derricks or cranes) capable of lifting capacity as described. Owners shall also provide on the vessel for night work lights as on board, but all additional lights over those on board shall be at Charterers expense. The Chatterers shall have the use of anv gear on board the vessel. If required by Charterers, the vessel shall work night and day and all cargo handling gear shall be at charters disposal during loading and discharging." (vii) Navigation "Nothing herein stated is to be constructed as a demise of the vessel to the Time charters. The owners shall remain responsible for the navigation of the vessel, acts of pilots and tug boats, insurance, crew, and all other similar matters, same as when trading for their own account." Considering the above mentioned factual position and several other submissions made on behalf of ,the appellant company elaborated above, besides the issue of business connection, it has to be seen was there any activity of the nature of business of the payee company being conducted in India. The AO in his letters submitted during the appellate proceedings, the relevant portion of which have been reproduced earlier has brought to my notice to the opinion that a dredging activity carried out in Indian territory may lead to business activity. There cannot be any doubt with this preposition, but in this case the lessor of the dredgers along with staff cannot be said to be doing any dredging work. The contact is essentially for lease of dredger. The fact that generally it has to be maintained as per lessor's requirement and to be handled under its trained staff as to its genera! running, is what which any prudent lessor would ensure in case of temporary hiring of costly specialized equipment as it would like it be received back in good condition and further from the lessee's perspective to safeguard its high stakes it would like the hired equipment not only at its command but in an well maintained running condition. This does not tantamount to providing of services but is corollary to hiring of equipment itself. Lessor has no control on dredging activity as such. The dredging contract is taken by the assessee, the permissions in this regard are all to be taken by the assessee, the lessor in his own authority cannot partake any dredging activity on its own account, the staff of the dredger acts under the command of the appellant as far as the dredging activity is concerned, including where, when, and how much to dredge. In fact the Finance Act, 2001 inserted a new item in the IT Act for which royalty would be payable, which is payments arising from the use or right, to use any industrial, commercial or scientific equipment. In this regard, distinction must be made between acquiring use of equipment and acquiring service of the equipment, because royalty is payable only on the former. The criteria for determining royalty under the said ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 50 - provision are that the resident should control and have physical possession over the equipment. Moreover, the provider should not be having any risk of substantially diminished receipts or substantially increased expenditures if there is non performance. Lastly, the equipment should be provided exclusively to the resident, and to no others. The Hon’ble Delhi High Court in the case of Asia Satellite Telecommunication services ltd 332 ITR 340 has concurred with similar criterion, in para 69 of its order, while referring to the judgement of Hon'ble Karnataka High Court in the case of Lakshmi Audio Visual Inc. v. Asstt. CCT [2001] 124 STC 426 while deciding whether an equipment is leased out or services are provided by the owner as follows: "69. We may also refer to the following distinction brought out by the Karnataka High Court between teasing out of equipment and the use of equipment by its customer. This was done in the case of Lakshmi Audio Visual Inc. (supra) in the following terms: "9. Thus if the transaction is one of leasing/hiring/letting simpliciter under which the possession of the goods, i.e., effective and general control of the goods is to be given to tiie customer and tne customer has the freedom and choice of selecting the manner, time and nature of use and enjoyment, though within the frame work of the agreement, fhen it would be a transfer of the right to use the goods and fall under the extended definition of "sale". On the other hand, if the customer entrusts to the assessee the work of achieving a certain desired result and that involves the use of goods belonging to the assessee and rendering of several other services and the goods used by the assessee to achieve the desired result continue to be in the effective and general control of the assessee, then, the transaction will not be a transfer of the right to use goods falling within the extended definition of "sale". Let me now clarify the position further, with an illustration which is a variation of the illustration used by the Andhra Pradesh High Court in the case of Rashtriya Ispat Nigam Ltd. v. Commercial Tax Officer. Illustration: (i) A customer engages a carrier (transport operator) to transport one consignment (a full lorry load) from place A to B, for an agreed consideration which is called freight charges or lorry hire. The carrier sends its lorry to the customer's depot, picks up the consignment and proceeds to the destination for delivery of the consignment. The lorry is used exclusively for the customer's consignment from the time of loading, to the time of unloading at destination. Can it be said that right to use of the lorry has been transferred by the carrier to the customer? The answer is obviously in the negative, as there is no transfer of the "use of the lorry" for the following reasons: CO the lorry is never in the control, let alone effective control of the customer; (ii) the carrier decides how, when and where the lorry moves to the destination, and continues to be in effective control of the lorry; (Hi) the carrier can at any point (of time or place) transfer the consignment in the ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 51 - lorry to another lorry; or the earner may unload the consignment en route in any of his godowns, to be picked up later by some other lorry assigned by the carrier for further transportation and delivery at destination. (ii) On the other hand, let us consider the case of a customer (say a factory) entering into a contract with the transport operator, under which the transport operator has to provide a lorry to the customer, between the hours 8.00 a.m. to 8.00 p.m. at the customer's factory for its .use, at a fixed hire per day or hire per km. subject to an assured minimum, for a period of one month or one week or even one day; and " under the contract, the transport operator is responsible for making repairs apart from providing a driver to drive- the lorry and filling the vehicle with diesel for running the lorry. The transaction involves an identified vehicle belonging to the transport operator being delivered to the customer and the customer is given the exclusive and effective control of the vehicle to be used in any manner as it deems fit; and during the period when the lorry is with the customer, the transport operator has no control over it. The transport operator renders no other service to the customer. Therefore, the transaction involves transfer of right to use the lorry and thus be a deemed sale." In the instant case, the lessee has full control over the equipment and the staff and the operation of the equipment It is similar to (even more clear case as the payment is not assured minimum but is fixed irrespective of the actual usage) case (ii) cited by hon'ble Karnataka High Court as reproduced above. The transfer of right to use the Dredger itself, is clearly transferred for a period (not outright sale); and therefore the payment would be of the nature of Royalty. The Captain (although appointed by the owners) shall be under the orders and directions of the Characters as regards employment and agency. In so much so that if dissatisfied with his services, the lessee can get him changed as per the agreement itself. This fact, in fact has been emphasized by the AO himself at page-1 of the orders where he says that "The assesses has taken these dredgers from above company on long term charter along with the crew which was carrying out its command dredging operations as assessee's business operation at various places in India mainly." He has reiterated this in paras.3 of his orders wherein he has held that "...., as per agreement entered into by the assessee, it has acquired right to control and command the dredger for the purpose of its business as per his requirement. The assessee has complete control on the manpower working on the dredger, including its Captain to direct them to carry out specific activities as required for its business." Not only this, the other criteria which may have taken the activity of the lessee into the zone of providing service (doing dredging itself on behalf of assessee as referred to in OECD Commentary) are not satisfied in this case. Once the hired dredger is placed at the disposal of the appellant, the payment to the lessor does not depend at all on the dredging activity undertaken. Even if the dredger does not work for a single hour, the payment to the lessor would be same. Further, the equipment has been given only to one user i.e. the assessee and the lessor or his crew is not ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 52 - negotiating and giving the dredger to others in India during this time. Once the activity of M/s. Miller Dredging Co., is not a business activity, not even being a service, there is no question of it being taxed under the head business even if there was a business connection. In this case, even there is no business connection when there is no existing place of business, even non-fixed and no activity of the nature of business is being carried on either by the payee i.e. M/s. Miller Dredging Co., or its crew as alleged by the AO. There is no common interest between the appellant company and the foreign company, their transactions are not even doubted less proved to be not at arm's length, and the two do not have a revenue sharing agreement or arrangement. With these observations, I hold that the foreign company did not have any business connection or any source of business income in India and, therefore, the payments received by the foreign company can never partake the charter of business income chargeable to tax under any of the provisions of the I.T. Act. To that extent, therefore, the orders of the ADIT are reversed.” 38. The Department is in appeal before us against the order passed by Ld. CIT(A) holding that the assessee does not have a business connection in India. On going through the facts of the instant case, and the observations made by the Ld. CIT(A), we are of the considered view that the Ld. CIT(A) has correctly concluded that the overseas company did not have a business connection in India. We observe that in the instant case, the overseas company did not carry out any dredging operations in India. The overseas company only gave dredgers to the assessee company in India on time charter basis, for which it charged a fixed fee / remuneration irrespective of the actual usage of such vessel. There was no revenue sharing agreement between the non-resident company and the assessee company in India. In our view, Ld. CIT(A) has correctly observed that the operational staff and Captain which were sent by the overseas non-resident company worked under the supervision and control of the assessee company in India and had been sent in India only with a view to ensure that the vessel was returned back to the non-resident ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 53 - company in a good working condition. The decision on whether and how much to dredge was not taken by the Captain of the vessel, but this decision was completely within the domain of the assessee company in India. Therefore, effectively the charges were paid by the assessee company were for the use of equipment i.e. the vessel in India and the overseas non-resident company was not carrying out any business operations in India. We would like to draw useful reference to the case of Maersk A/s vs. ACIT 86 taxmann.com 77 (Delhi – Tribunal) in which the ITAT held that where the assessee, a Denmark based company gave a vessel under charter hire arrangement for ONGC’s operation of exploration and exploitation of oil and natural gas, since crew of board did not work under the direction and control of non-resident assessee and, moreover, decision relating to assessee’s business were also taken in Denmark it can be said to have a permanent establishment in India in terms of Article 5(2)(a) of India-Denmark DTAA. In this case, the brief facts were that the assessee was a non-resident company incorporated under the laws of Denmark. During relevant year, the assessee entered into agreement with ONGC in terms of which it gave a vessel under charter hire arrangement for ONGC’s operation of exploration and exploitation of oil and natural gas in offshore area of operation in India. In the return of income, assessee company showed “NIL” taxable income on the reasoning that no part of receipts from ONGC was taxable in India as the non-resident assessee did not have any permanent establishment in India “PE” in terms of Article 5 of DTAA. The Assessing Officer opined ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 54 - that assessee company had a PE in India under Article 5(2)(a) of India- Denmark Treaty. It was noted from the records that master and crew of board of vessel given on hire to ONGC were working under direction and control of ONGC and thus, those employees did not constitute assessee’s service PE in India. Further, the Tribunal observed that it was an undisputed fact that management of assessee company was in Denmark where decision relating to business were taken and, thus, assessee did not have PE in terms of “place of management” as per Article 5(2)(a) of DTAA. Accordingly, the Tribunal held that no PE existed of the assessee in India and therefore, revenue earned from ONGC could not be taxed in India. In the case of Dharti Dredging and Infrastructural Ltd. 44 SOT 586 (Hyderabad) , the assessee was engaged in the business of marine dredging and port construction. The assessee was awarded a contract for dredging at inner harbour channel of Visakhapatnam Port Trust. For the purpose of executing the contract, assessee hired dipper dredger from ‘MA’, Netherlands. During the relevant assessment year, assessee made payments to ‘MA’, Netherlands, in respect of usage of dipper dredger. The Assessing Officer held that since assessee had made payments to ‘MA’, Netherlands without deducting tax at source under Section 195, it was to be regarded as assessee in default. Since the dipper dredger constituted a “PE” of ‘MA’ Netherlands in India. The Commissioner of Appeals set-aside the order of Assessing Officer. On Revenue’s appeal, the Tribunal observed that as per the terms of agreement, Netherlands company had given it’s ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 55 - equipment, namely, dipper dredger to assessee on hire charges and it would not the responsibility of the Netherlands company to do any work at the Visakhapatnam Port Trust. Further, Netherlands company was only entitled for hire charges on weekly basis in accordance with the shift in which dredger was used. The Tribunal also noted that the entire responsibility was that of the assessee to whom the work was awarded. Therefore, the Tribunal held that looking into the instant facts, diper dredger which was an equipment leased by Netherlands company to assessee and could not be considered as a “PE” or place of business income. The Tribunal made the following observations while passing the order:- “On further reading of the agreement, it was obvious that the hire charges would be ‘E’ 34,500.00 per week for ‘double shift’ and for single shift ‘E’ 29,950.00 per week. The agreement further provided that the cost of insurance would be paid by the assessee for insuring the hired equipment, namely, dipper dredger. The owner of the dipper dredger would also provide operators and co-ordinators. However, the cost of providing such operator and co-ordinator including salary, food, residence, etc., would be borne by the assessee. The agreement further clearly said that the crew would work under the management of the hirer as per the direction and instructions and responsibility of the hirer. Article 10B of the agreement between the assessee and the Netherlands company clearly showed that the work had to be executed by the assessee under its responsibility and the assessee had to pay hire charges for the dipper dredger on the basis of its utility for single shift or double shift besides the payment for co-ordinator, operator and the crew. The operator, co-ordinator and crew were to work under the direction and control of the assessee. Therefore, it was clear that dredging at inner harbour channel at Visakhapatnam Port Trust was executed by the assessee by hiring the dipper dredger which belonged to Netherlands company. No part of the work was given to Netherlands company for execution. The assessee executed the work on its own by utilizing the dipper dredger hired from ‘MA’, Netherlands. Therefore, it was a case of hiring an equipment, namely, dipper dredger by the assessee and not a case of execution of the work by the Netherlands company on behalf of the assessee. Therefore, the payment made by the assessee to the Netherlands company was nothing but hire charges. The next question arose for consideration was when the assessee paid hire charges to Netherlands company, whether the tax had to be deducted under section 195. Section 195 provides for deduction of tax at source when the payment is made to non-resident which is ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 56 - chargeable to tax under the Act. Therefore, if the payment which was made to foreign company was chargeable to tax, the assessee had to deduct tax at source. [Para 16] The next question arose for consideration was whether the payment made by the assessee to the Netherlands company was taxable in India or not ? For the purpose of taxing income of the foreign company, the foreign company shall have a PE in India. The contention of the revenue was that the dipper dredger itself was a PE since it was working for a long period in the territory of India. It was opined that equipment hired by Indian national from foreign company cannot be construed as PE since the equipment is only used for the purpose of execution of the work. The contention of the revenue was that the dredger was hired along with co-ordinator, operator, and crew. Therefore, the Netherlands company had a PE in India. Hiring a dipper dredger for dredging in the territory of India in the direction, control and supervision of an Indian company, cannot be construed as a PE of a foreign company. For the purpose of PE of a foreign company, the foreign company should have a permanent place in order to control its business activity. Merely because the dipper dredger was equipped with place for residence of its crew and operator and installed with the latest communication facilities, it did not mean that it was a PE. When the dipper dredger was designed to work in the sea, it had to be necessarily provided a place of residence for crew members and it should have a communication facility. Otherwise the dipper dredger could not be used effectively. The provisions for residence and latest communication facility were for the purpose of effective usage of the dipper dredger. By any stretch of imagination, it could not be construed as PE. [Para 17]” 39. Accordingly, looking into the instant facts and the judicial precedents cited above, we are of the considered view that the Ld. CIT(A) has correctly held that the non-resident company does not have a business connection in India. Accordingly, we find no infirmity in the order of Ld. CIT(A) so as to call for any interference. 40. In the result, all grounds of appeal of the Department are dismissed for A.Y. 2003-04. Now we come to the Assessee’s Appeal for A.Y. 2004-05 41. The assessee has raised the following grounds of appeal:- ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 57 - “1. On the facts and in the circumstances of the case, the learned CIT(A) erred by rejecting the appellant's relevant grounds of appeal raised before him of not treating the "Time Charter Hire Charges" as Royalty and not taking into consideration the factual situation and clarification given by CBDT, Department of Revenue, Government of India to all the Indian National Ship Owners Association (INSA) members in the correspondence between the INSA, Ministry of Finance & Ministry of Shipping, of not treating the Time Charter Ships as Equipments, and in turn not treating "Time Charter Hire Charges" as Royalty payments. It is the bounden duty of the field officers to abide with the instructions of CBDT, and by ignoring such instructions, or not taking into Consideration CBDT's Instructions, the International Taxation Division has acted in an arbitrary manner and against the law. Therefore, the order passed by the assessing officer, and the order of the CIT(A) of confirming Time Charter Payments as Royalty, deserved to be quashed. 2. On the facts and in the circumstances of the case, the learned CIT(A) erred in rejecting the appellant's relevant grounds of appeal raised before him contending that the learned Asst. Director of Income-tax (International Taxation) erred in passing the impugned order u/s.201(1) and section 201(1A) of the IT. Act, 1961 beyond reasonable period being four years from the end of the relevant financial year and, therefore, the order passed by him is bad in law, being time barred and the same deserves to be quashed. 3. On the facts and in the circumstances of the case, the learned CIT(A) erred in holding that the Time Charter Hire charges paid by the appellant-company to the non-resident dredger owner in respect of dredgers taken on Time Charter Hire were in the nature of "royalty" as per provisions of section 9(1)(vi) of the I.T. Act and, therefore, the appellant-company was liable to deduct tax at source u/s. 195 of the IT. Act at the rates applicable to royalty payments. 4. On the facts and in the circumstances of the case, the learned CIT(A) erred in not admitting evidence assumed by him to be in the nature of "additional evidence" being audit reports and the documents forming part of the regular assessment proceedings before concerned Assessing Officer. 5. On the facts and in the circumstances of the case and without prejudice to the foregoing grounds of appeal, the learned CIT(A) erred in rejecting the claim of the appellant-company that even if it is assumed that there was a liability for deduction of tax at source on the appellant-company , any non-deduction of tax on its part was wholly and entirely attributable to a bonafide belief that there was no legal liability on the appellant-company to deduct tax at source and, therefore, on that ground the Assessing Officer was not justified in passing the impugned order u/s.201(1)/201(1A) of the I.T. Act and accordingly such order is rendered bad in law. 6. The appellant craves leave to add, alter, amend and/or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal.” ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 58 - 42. The grounds raised by the assessee for A.Y. 2004-05 are similar to grounds raised by the assessee for A.Y. 2003-04. 43. In the result, our observations made for A.Y. 2003-04 would apply to A.Y. 2004-05 as well. 44. In the result, the appeal of the assessee is dismissed for A.Y. 2004- 05. Now we come to the Department’s Appeal for A.Y. 2004-05 45. The Department has raised the following grounds of appeal:- “(i) The Ld. CIT(A) has erred in holding that the activity of M/s. Miller Dredging Company is not a business activity but mere leasing of dredger and hence can not be taxed as such. (ii) The Ld. CIT(A) erred in placing reliance on the pre-contractual activity of M/s. Jaisu Shipping Co. Pvt. Ltd. rather than the obligation in the actual contract in arriving at a decision that no business activity was performed by M/s. Miller Dredging Company Inc. BVI. (iii) The CIT(A) has further erred in holding that the foreign company did not have any business connection or any source of business income in India in spite of clear evidence to the contrary. (iv) The Ld. CIT(A) has erred in law and on facts in holding that the entire establishment of the foreign party within the Indian territorial waters did not constitute PE of the foreign party for the purpose of section 9 of the IT. Act. (v) On the facts and circumstances of the case, the Ld. CIT(A) ought to have upheld the order of the Assessing Officer. It is, therefore, prayed that the order of the Ld. CIT(A) may be cancelled and that of Assessing Officer may be restored to the above extent. (vi) The appellant craves leave to add/alter/modify/delete any of the grounds of appeal at the time of hearing.” ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 59 - 46. The grounds raised by the Department for A.Y. 2004-05 are similar to grounds raised by the Department for A.Y. 2003-04. 47. In the result, our observations made for A.Y. 2003-04 would apply to A.Y. 2004-05 as well. 48. In the result, the appeal of the Department is dismissed for A.Y. 2004-05. Now we come to the Assessee’s Appeal for A.Y. 2005-06 49. The assessee has raised the following grounds of appeal:- “1. On the facts and in the circumstances of the case, the learned CIT(A) erred by rejecting the appellant's relevant grounds of appeal raised before him of not treating the "Time Charter Hire Charges" as Royalty and not taking into consideration the factual situation and clarification given by CBDT, Department of Revenue, Government of India to all the Indian National Ship Owners Association (INSA) members in the correspondence between the INSA, Ministry of Finance & Ministry of Shipping, of not treating the Time Charter Ships as Equipments, and in turn not treating "Time Charter Hire Charges" as Royalty payments. It is the bounden duty of the field officers to abide with the instructions of CBDT, and by ignoring such instructions, or not taking into Consideration CBDT's Instructions, the International Taxation Division has acted in an arbitrary manner and against the law. Therefore, the order passed by the assessing officer, and the order of the CIT(A) of confirming Time Charter Payments as Royalty, deserved to be quashed. 2. On the facts and in the circumstances of the case, the learned CIT(A) erred in rejecting the appellant's relevant grounds of appeal raised before him contending that the learned Asst. Director of Income-tax (International Taxation) erred in passing the impugned order u/s.201(1) and section 201(1A) of the IT. Act, 1961 beyond reasonable period being four years from the end of the relevant financial year and, therefore, the order passed by him is bad in law, being time barred and the same deserves to be quashed. 3. On the facts and in the circumstances of the case, the learned CIT(A) erred in holding that the Time Charter Hire charges paid by the appellant-company to the ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 60 - non-resident dredger owner in respect of dredgers taken on Time Charter Hire were in the nature of "royalty" as per provisions of section 9(1)(vi) of the I.T. Act and, therefore, the appellant-company was liable to deduct tax at source u/s. 195 of the IT. Act at the rates applicable to royalty payments. 4. On the facts and in the circumstances of the case, the learned CIT(A) erred in not admitting evidence assumed by him to be in the nature of "additional evidence" being audit reports and the documents forming part of the regular assessment proceedings before concerned Assessing Officer. 5. On the facts and in the circumstances of the case and without prejudice to the foregoing grounds of appeal, the learned CIT(A) erred in rejecting the claim of the appellant-company that even if it is assumed that there was a liability for deduction of tax at source on the appellant-company , any non-deduction of tax on its part was wholly and entirely attributable to a bonafide belief that there was no legal liability on the appellant-company to deduct tax at source and, therefore, on that ground the Assessing Officer was not justified in passing the impugned order u/s.201(1)/201(1A) of the I.T. Act and accordingly such order is rendered bad in law. 6. The appellant craves leave to add, alter, amend and/or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal.” 50. The grounds raised by the assessee for A.Y. 2005-06 are similar to grounds raised by the assessee for A.Y. 2003-04. 51. In the result, our observations made for A.Y. 2003-04 would apply to A.Y. 2005-06 as well. 52. In the result, the appeal of the assessee is dismissed for A.Y. 2005- 06. Now we come to the Department’s Appeal for A.Y. 2005-06 53. The Department has raised the following grounds of appeal:- “(i) The Ld. CIT(A) has erred in holding that the activity of M/s. Miller Dredging Company is not a business activity but mere leasing of dredger and hence can not be taxed as such. ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 61 - (ii) The Ld. CIT(A) erred in placing reliance on the pre-contractual activity of M/s. Jaisu Shipping Co. Pvt. Ltd. rather than the obligation in the actual contract in arriving at a decision that no business activity was performed by M/s. Miller Dredging Company Inc. BVI. (iii) The CIT(A) has further erred in holding that the foreign company did not have any business connection or any source of business income in India in spite of clear evidence to the contrary. (iv) The Ld. CIT(A) has erred in law and on facts in holding that the entire establishment of the foreign party within the Indian territorial waters did not constitute PE of the foreign party for the purpose of section 9 of the IT. Act. (v) On the facts and circumstances of the case, the Ld. CIT(A) ought to have upheld the order of the Assessing Officer. It is, therefore, prayed that the order of the Ld. CIT(A) may be cancelled and that of Assessing Officer may be restored to the above extent. (vi) The appellant craves leave to add/alter/modify/delete any of the grounds of appeal at the time of hearing.” 54. The grounds raised by the Department for A.Y. 2005-06 are similar to grounds raised by the Department for A.Y. 2003-04. 55. In the result, our observations made for A.Y. 2003-04 would apply to A.Y. 2005-06 as well. 56. In the result, the appeal of the Department is dismissed for A.Y. 2005-06. Now we come to the Assessee’s Appeal for A.Y. 2006-07 57. The assessee has raised the following grounds of appeal:- “1. On the facts and in the circumstances of the case, the learned CIT(A) erred by rejecting the appellant's relevant grounds of appeal raised before him of not treating the "Time Charter Hire Charges" as Royalty and not taking into consideration the factual situation and clarification given by CBDT, Department of Revenue, Government of India to all the Indian National Ship Owners Association ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 62 - (INSA) members in the correspondence between the INSA, Ministry of Finance & Ministry of Shipping, of not treating the Time Charter Ships as Equipments, and in turn not treating "Time Charter Hire Charges" as Royalty payments. It is the bounden duty of the field officers to abide with the instructions of CBDT, and by ignoring such instructions, or not taking into Consideration CBDT's Instructions, the International Taxation Division has acted in an arbitrary manner and against the law. Therefore, the order passed by the assessing officer, and the order of the CIT(A) of confirming Time Charter Payments as Royalty, deserved to be quashed. 2. On the facts and in the circumstances of the case, the learned CIT(A) erred in rejecting the appellant's relevant grounds of appeal raised before him contending that the learned Asst. Director of Income-tax (International Taxation) erred in passing the impugned order u/s.201(1) and section 201(1A) of the IT. Act, 1961 beyond reasonable period being four years from the end of the relevant financial year and, therefore, the order passed by him is bad in law, being time barred and the same deserves to be quashed. 3. On the facts and in the circumstances of the case, the learned CIT(A) erred in holding that the Time Charter Hire charges paid by the appellant-company to the non-resident dredger owner in respect of dredgers taken on Time Charter Hire were in the nature of "royalty" as per provisions of section 9(1)(vi) of the I.T. Act and, therefore, the appellant-company was liable to deduct tax at source u/s. 195 of the IT. Act at the rates applicable to royalty payments. 4. On the facts and in the circumstances of the case, the learned CIT(A) erred in not admitting evidence assumed by him to be in the nature of "additional evidence" being audit reports and the documents forming part of the regular assessment proceedings before concerned Assessing Officer. 5. On the facts and in the circumstances of the case and without prejudice to the foregoing grounds of appeal, the learned CIT(A) erred in rejecting the claim of the appellant-company that even if it is assumed that there was a liability for deduction of tax at source on the appellant-company , any non-deduction of tax on its part was wholly and entirely attributable to a bonafide belief that there was no legal liability on the appellant-company to deduct tax at source and, therefore, on that ground the Assessing Officer was not justified in passing the impugned order u/s.201(1)/201(1A) of the I.T. Act and accordingly such order is rendered bad in law. 6. The appellant craves leave to add, alter, amend and/or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal.” 58. The grounds raised by the assessee for A.Y. 2006-07 are similar to grounds raised by the assessee for A.Y. 2003-04. ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 63 - 59. In the result, our observations made for A.Y. 2003-04 would apply to A.Y. 2006-07 as well. 60. In the result, the appeal of the assessee is dismissed for A.Y. 2006- 07. Now we come to the Department’s Appeal for A.Y. 2006-07 61. The Department has raised the following grounds of appeal:- “(i) The Ld. CIT(A) has erred in holding that the activity of M/s. Miller Dredging Company is not a business activity but mere leasing of dredger and hence can not be taxed as such. (ii) The Ld. CIT(A) erred in placing reliance on the pre-contractual activity of M/s. Jaisu Shipping Co. Pvt. Ltd. rather than the obligation in the actual contract in arriving at a decision that no business activity was performed by M/s. Miller Dredging Company Inc. BVI. (iii) The CIT(A) has further erred in holding that the foreign company did not have any business connection or any source of business income in India in spite of clear evidence to the contrary. (iv) The Ld. CIT(A) has erred in law and on facts in holding that the entire establishment of the foreign party within the Indian territorial waters did not constitute PE of the foreign party for the purpose of section 9 of the IT. Act. (v) On the facts and circumstances of the case, the Ld. CIT(A) ought to have upheld the order of the Assessing Officer. It is, therefore, prayed that the order of the Ld. CIT(A) may be cancelled and that of Assessing Officer may be restored to the above extent. (vi) The appellant craves leave to add/alter/modify/delete any of the grounds of appeal at the time of hearing.” 62. The grounds raised by the Department for A.Y. 2006-07 are similar to grounds raised by the Department for A.Y. 2003-04. ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 64 - 63. In the result, our observations made for A.Y. 2003-04 would apply to A.Y. 2006-07 as well. 64. In the result, the appeal of the Department is dismissed for A.Y. 2006-07. Now we come to the Assessee’s Appeal for A.Y. 2007-08 65. The assessee has raised the following grounds of appeal:- “1. On the facts and in the circumstances of the case, the learned CIT(A) erred by rejecting the appellant's relevant grounds of appeal raised before him of not treating the "Time Charter Hire Charges" as Royalty and not taking into consideration the factual situation and clarification given by CBDT, Department of Revenue, Government of India to all the Indian National Ship Owners Association (INSA) members in the correspondence between the INSA, Ministry of Finance & Ministry of Shipping, of not treating the Time Charter Ships as Equipments, and in turn not treating "Time Charter Hire Charges" as Royalty payments. It is the bounden duty of the field officers to abide with the instructions of CBDT, and by ignoring such instructions, or not taking into Consideration CBDT's Instructions, the International Taxation Division has acted in an arbitrary manner and against the law. Therefore, the order passed by the assessing officer, and the order of the CIT(A) of confirming Time Charter Payments as Royalty, deserved to be quashed. 2. On the facts and in the circumstances of the case, the learned CIT(A) erred in rejecting the appellant's relevant grounds of appeal raised before him contending that the learned Asst. Director of Income-tax (International Taxation) erred in passing the impugned order u/s.201(1) and section 201(1A) of the IT. Act, 1961 beyond reasonable period being four years from the end of the relevant financial year and, therefore, the order passed by him is bad in law, being time barred and the same deserves to be quashed. 3. On the facts and in the circumstances of the case, the learned CIT(A) erred in holding that the Time Charter Hire charges paid by the appellant-company to the non-resident dredger owner in respect of dredgers taken on Time Charter Hire were in the nature of "royalty" as per provisions of section 9(1)(vi) of the I.T. Act and, therefore, the appellant-company was liable to deduct tax at source u/s. 195 of the IT. Act at the rates applicable to royalty payments. ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 65 - 4. On the facts and in the circumstances of the case, the learned CIT(A) erred in not admitting evidence assumed by him to be in the nature of "additional evidence" being audit reports and the documents forming part of the regular assessment proceedings before concerned Assessing Officer. 5. On the facts and in the circumstances of the case and without prejudice to the foregoing grounds of appeal, the learned CIT(A) erred in rejecting the claim of the appellant-company that even if it is assumed that there was a liability for deduction of tax at source on the appellant-company , any non-deduction of tax on its part was wholly and entirely attributable to a bonafide belief that there was no legal liability on the appellant-company to deduct tax at source and, therefore, on that ground the Assessing Officer was not justified in passing the impugned order u/s.201(1)/201(1A) of the I.T. Act and accordingly such order is rendered bad in law. 6. The appellant craves leave to add, alter, amend and/or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal.” 66. The grounds raised by the assessee for A.Y. 2007-08 are similar to grounds raised by the assessee for A.Y. 2003-04. 67. In the result, our observations made for A.Y. 2003-04 would apply to A.Y. 2007-08 as well. 68. In the result, the appeal of the assessee is dismissed for A.Y. 2007- 08. Now we come to the Department’s Appeal for A.Y. 2007-08 69. The Department has raised the following grounds of appeal:- “(i) The Ld. CIT(A) has erred in holding that the activity of M/s. Miller Dredging Company is not a business activity but mere leasing of dredger and hence can not be taxed as such. (ii) The Ld. CIT(A) erred in placing reliance on the pre-contractual activity of M/s. Jaisu Shipping Co. Pvt. Ltd. rather than the obligation in the actual contract in arriving at a decision that no business activity was performed by M/s. Miller Dredging Company Inc. BVI. ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 66 - (iii) The CIT(A) has further erred in holding that the foreign company did not have any business connection or any source of business income in India in spite of clear evidence to the contrary. (iv) The Ld. CIT(A) has erred in law and on facts in holding that the entire establishment of the foreign party within the Indian territorial waters did not constitute PE of the foreign party for the purpose of section 9 of the IT. Act. (v) On the facts and circumstances of the case, the Ld. CIT(A) ought to have upheld the order of the Assessing Officer. It is, therefore, prayed that the order of the Ld. CIT(A) may be cancelled and that of Assessing Officer may be restored to the above extent. (vi) The appellant craves leave to add/alter/modify/delete any of the grounds of appeal at the time of hearing.” 70. The grounds raised by the Department for A.Y. 2007-08 are similar to grounds raised by the Department for A.Y. 2003-04. 71. In the result, our observations made for A.Y. 2003-04 would apply to A.Y. 2007-08 as well. 72. In the result, the appeal of the Department is dismissed for A.Y. 2007-08. Now we come to the Assessee’s Appeal for A.Y. 2008-09 73. The assessee has raised the following grounds of appeal:- “1. On the facts and in the circumstances of the case, the learned CIT(A) erred by rejecting the appellant's relevant grounds of appeal raised before him of not treating the "Time Charter Hire Charges" as Royalty and not taking into consideration the factual situation and clarification given by CBDT, Department of Revenue, Government of India to all the Indian National Ship Owners Association (INSA) members in the correspondence between the INSA, Ministry of Finance & Ministry of Shipping, of not treating the Time Charter Ships as Equipments, and in turn not treating "Time Charter Hire Charges" as Royalty payments. ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 67 - It is the bounden duty of the field officers to abide with the instructions of CBDT, and by ignoring such instructions, or not taking into Consideration CBDT's Instructions, the International Taxation Division has acted in an arbitrary manner and against the law. Therefore, the order passed by the assessing officer, and the order of the CIT(A) of confirming Time Charter Payments as Royalty, deserved to be quashed. 2. On the facts and in the circumstances of the case, the learned CIT(A) erred in rejecting the appellant's relevant grounds of appeal raised before him contending that the learned Asst. Director of Income-tax (International Taxation) erred in passing the impugned order u/s.201(1) and section 201(1A) of the IT. Act, 1961 beyond reasonable period being four years from the end of the relevant financial year and, therefore, the order passed by him is bad in law, being time barred and the same deserves to be quashed. 3. On the facts and in the circumstances of the case, the learned CIT(A) erred in holding that the Time Charter Hire charges paid by the appellant-company to the non-resident dredger owner in respect of dredgers taken on Time Charter Hire were in the nature of "royalty" as per provisions of section 9(1)(vi) of the I.T. Act and, therefore, the appellant-company was liable to deduct tax at source u/s. 195 of the IT. Act at the rates applicable to royalty payments. 4. On the facts and in the circumstances of the case, the learned CIT(A) erred in not admitting evidence assumed by him to be in the nature of "additional evidence" being audit reports and the documents forming part of the regular assessment proceedings before concerned Assessing Officer. 5. On the facts and in the circumstances of the case and without prejudice to the foregoing grounds of appeal, the learned CIT(A) erred in rejecting the claim of the appellant-company that even if it is assumed that there was a liability for deduction of tax at source on the appellant-company , any non-deduction of tax on its part was wholly and entirely attributable to a bonafide belief that there was no legal liability on the appellant-company to deduct tax at source and, therefore, on that ground the Assessing Officer was not justified in passing the impugned order u/s.201(1)/201(1A) of the I.T. Act and accordingly such order is rendered bad in law. 6. The appellant craves leave to add, alter, amend and/or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal.” 74. The grounds raised by the assessee for A.Y. 2008-09 are similar to grounds raised by the assessee for A.Y. 2003-04. 75. In the result, our observations made for A.Y. 2003-04 would apply to A.Y. 2008-09 as well. ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 68 - 76. In the result, the appeal of the assessee is dismissed for A.Y. 2008- 09. Now we come to the Department’s Appeal for A.Y. 2008-09 77. The Department has raised the following grounds of appeal:- “(i) The Ld. CIT(A) has erred in holding that the activity of M/s. Miller Dredging Company is not a business activity but mere leasing of dredger and hence can not be taxed as such. (ii) The Ld. CIT(A) erred in placing reliance on the pre-contractual activity of M/s. Jaisu Shipping Co. Pvt. Ltd. rather than the obligation in the actual contract in arriving at a decision that no business activity was performed by M/s. Miller Dredging Company Inc. BVI. (iii) The CIT(A) has further erred in holding that the foreign company did not have any business connection or any source of business income in India in spite of clear evidence to the contrary. (iv) The Ld. CIT(A) has erred in law and on facts in holding that the entire establishment of the foreign party within the Indian territorial waters did not constitute PE of the foreign party for the purpose of section 9 of the IT. Act. (v) On the facts and circumstances of the case, the Ld. CIT(A) ought to have upheld the order of the Assessing Officer. It is, therefore, prayed that the order of the Ld. CIT(A) may be cancelled and that of Assessing Officer may be restored to the above extent. (vi) The appellant craves leave to add/alter/modify/delete any of the grounds of appeal at the time of hearing.” 78. The grounds raised by the Department for A.Y. 2008-09 are similar to grounds raised by the Department for A.Y. 2003-04. 79. In the result, our observations made for A.Y. 2003-04 would apply to A.Y. 2008-09 as well. ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 69 - 80. In the result, the appeal of the Department is dismissed for A.Y. 2008-09. Now we come to the Assessee’s Appeal for A.Y. 2009-10 81. The assessee has raised the following grounds of appeal:- “1. On the facts and in the circumstances of the case, the learned CIT(A) erred by rejecting the appellant's relevant grounds of appeal raised before him of not treating the "Time Charter Hire Charges" as Royalty and not taking into consideration the factual situation and clarification given by CBDT, Department of Revenue, Government of India to all the Indian National Ship Owners Association (INSA) members in the correspondence between the INSA, Ministry of Finance & Ministry of Shipping, of not treating the Time Charter Ships as Equipments, and in turn not treating "Time Charter Hire Charges" as Royalty payments. It is the bounden duty of the field officers to abide with the instructions of CBDT, and by ignoring such instructions, or not taking into Consideration CBDT's Instructions, the International Taxation Division has acted in an arbitrary manner and against the law. Therefore, the order passed by the assessing officer, and the order of the CIT(A) of confirming Time Charter Payments as Royalty, deserved to be quashed. 2. On the facts and in the circumstances of the case, the learned CIT(A) erred in rejecting the appellant's relevant grounds of appeal raised before him contending that the learned Asst. Director of Income-tax (International Taxation) erred in passing the impugned order u/s.201(1) and section 201(1A) of the IT. Act, 1961 beyond reasonable period being four years from the end of the relevant financial year and, therefore, the order passed by him is bad in law, being time barred and the same deserves to be quashed. 3. On the facts and in the circumstances of the case, the learned CIT(A) erred in holding that the Time Charter Hire charges paid by the appellant-company to the non-resident dredger owner in respect of dredgers taken on Time Charter Hire were in the nature of "royalty" as per provisions of section 9(1)(vi) of the I.T. Act and, therefore, the appellant-company was liable to deduct tax at source u/s. 195 of the IT. Act at the rates applicable to royalty payments. 4. On the facts and in the circumstances of the case, the learned CIT(A) erred in not admitting evidence assumed by him to be in the nature of "additional evidence" being audit reports and the documents forming part of the regular assessment proceedings before concerned Assessing Officer. ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 70 - 5. On the facts and in the circumstances of the case and without prejudice to the foregoing grounds of appeal, the learned CIT(A) erred in rejecting the claim of the appellant-company that even if it is assumed that there was a liability for deduction of tax at source on the appellant-company , any non-deduction of tax on its part was wholly and entirely attributable to a bonafide belief that there was no legal liability on the appellant-company to deduct tax at source and, therefore, on that ground the Assessing Officer was not justified in passing the impugned order u/s.201(1)/201(1A) of the I.T. Act and accordingly such order is rendered bad in law. 6. The appellant craves leave to add, alter, amend and/or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal.” 82. The grounds raised by the assessee for A.Y. 2009-10 are similar to grounds raised by the assessee for A.Y. 2003-04. 83. In the result, our observations made for A.Y. 2003-04 would apply to A.Y. 2009-10 as well. 84. In the result, the appeal of the assessee is dismissed for A.Y. 2009- 10. Now we come to the Department’s Appeal for A.Y. 2009-10 85. The Department has raised the following grounds of appeal:- “(i) The Ld. CIT(A) has erred in holding that the activity of M/s. Miller Dredging Company is not a business activity but mere leasing of dredger and hence can not be taxed as such. (ii) The Ld. CIT(A) erred in placing reliance on the pre-contractual activity of M/s. Jaisu Shipping Co. Pvt. Ltd. rather than the obligation in the actual contract in arriving at a decision that no business activity was performed by M/s. Miller Dredging Company Inc. BVI. (iii) The CIT(A) has further erred in holding that the foreign company did not have any business connection or any source of business income in India in spite of clear evidence to the contrary. ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 71 - (iv) The Ld. CIT(A) has erred in law and on facts in holding that the entire establishment of the foreign party within the Indian territorial waters did not constitute PE of the foreign party for the purpose of section 9 of the IT. Act. (v) On the facts and circumstances of the case, the Ld. CIT(A) ought to have upheld the order of the Assessing Officer. It is, therefore, prayed that the order of the Ld. CIT(A) may be cancelled and that of Assessing Officer may be restored to the above extent. (vi) The appellant craves leave to add/alter/modify/delete any of the grounds of appeal at the time of hearing.” 86. The grounds raised by the Department for A.Y. 2009-10 are similar to grounds raised by the Department for A.Y. 2003-04. 87. In the result, our observations made for A.Y. 2003-04 would apply to A.Y. 2009-10 as well. 88. In the result, the appeal of the Department is dismissed for A.Y. 2009-10. Now we come to the Assessee’s Appeal for A.Y. 2010-11 89. The assessee has raised the following grounds of appeal:- “1. On the facts and in the circumstances of the case, the learned CIT(A) erred by rejecting the appellant's relevant grounds of appeal raised before him of not treating the "Time Charter Hire Charges" as Royalty and not taking into consideration the factual situation and clarification given by CBDT, Department of Revenue, Government of India to all the Indian National Ship Owners Association (INSA) members in the correspondence between the INSA, Ministry of Finance & Ministry of Shipping, of not treating the Time Charter Ships as Equipments, and in turn not treating "Time Charter Hire Charges" as Royalty payments. It is the bounden duty of the field officers to abide with the instructions of CBDT, and by ignoring such instructions, or not taking into Consideration CBDT's Instructions, the International Taxation Division has acted in an arbitrary manner and against the ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 72 - law. Therefore, the order passed by the assessing officer, and the order of the CIT(A) of confirming Time Charter Payments as Royalty, deserved to be quashed. 2. On the facts and in the circumstances of the case, the learned CIT(A) erred in rejecting the appellant's relevant grounds of appeal raised before him contending that the learned Asst. Director of Income-tax (International Taxation) erred in passing the impugned order u/s.201(1) and section 201(1A) of the IT. Act, 1961 beyond reasonable period being four years from the end of the relevant financial year and, therefore, the order passed by him is bad in law, being time barred and the same deserves to be quashed. 3. On the facts and in the circumstances of the case, the learned CIT(A) erred in holding that the Time Charter Hire charges paid by the appellant-company to the non-resident dredger owner in respect of dredgers taken on Time Charter Hire were in the nature of "royalty" as per provisions of section 9(1)(vi) of the I.T. Act and, therefore, the appellant-company was liable to deduct tax at source u/s. 195 of the IT. Act at the rates applicable to royalty payments. 4. On the facts and in the circumstances of the case, the learned CIT(A) erred in not admitting evidence assumed by him to be in the nature of "additional evidence" being audit reports and the documents forming part of the regular assessment proceedings before concerned Assessing Officer. 5. On the facts and in the circumstances of the case and without prejudice to the foregoing grounds of appeal, the learned CIT(A) erred in rejecting the claim of the appellant-company that even if it is assumed that there was a liability for deduction of tax at source on the appellant-company , any non-deduction of tax on its part was wholly and entirely attributable to a bonafide belief that there was no legal liability on the appellant-company to deduct tax at source and, therefore, on that ground the Assessing Officer was not justified in passing the impugned order u/s.201(1)/201(1A) of the I.T. Act and accordingly such order is rendered bad in law. 6. The appellant craves leave to add, alter, amend and/or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal.” 90. The grounds raised by the assessee for A.Y. 2010-11 are similar to grounds raised by the assessee for A.Y. 2003-04. 91. In the result, our observations made for A.Y. 2003-04 would apply to A.Y. 2010-11 as well. ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 73 - 92. In the result, the appeal of the assessee is dismissed for A.Y. 2010- 11. Now we come to the Department’s Appeal for A.Y. 2010-11 93. The Department has raised the following grounds of appeal:- “(i) The Ld. CIT(A) has erred in holding that the activity of M/s. Miller Dredging Company is not a business activity but mere leasing of dredger and hence can not be taxed as such. (ii) The Ld. CIT(A) erred in placing reliance on the pre-contractual activity of M/s. Jaisu Shipping Co. Pvt. Ltd. rather than the obligation in the actual contract in arriving at a decision that no business activity was performed by M/s. Miller Dredging Company Inc. BVI. (iii) The CIT(A) has further erred in holding that the foreign company did not have any business connection or any source of business income in India in spite of clear evidence to the contrary. (iv) The Ld. CIT(A) has erred in law and on facts in holding that the entire establishment of the foreign party within the Indian territorial waters did not constitute PE of the foreign party for the purpose of section 9 of the IT. Act. (v) On the facts and circumstances of the case, the Ld. CIT(A) ought to have upheld the order of the Assessing Officer. It is, therefore, prayed that the order of the Ld. CIT(A) may be cancelled and that of Assessing Officer may be restored to the above extent. (vi) The appellant craves leave to add/alter/modify/delete any of the grounds of appeal at the time of hearing.” 94. The grounds raised by the Department for A.Y. 2010-11 are similar to grounds raised by the Department for A.Y. 2003-04. 95. In the result, our observations made for A.Y. 2003-04 would apply to A.Y. 2010-11 as well. ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 74 - 96. In the result, the appeal of the Department is dismissed for A.Y. 2010-11. Now we come to the Department’s Appeal (in ITA Nos. 26 to 28/Ahd/2014 for A.Y. 2010-11 to 2011-12) 97. The Department has raised the following grounds of appeal:- ITA No. 26/Ahd/2014 (A.Y. 2011-12) “1. The Ld. CIT(A) has erred in law and on facts in holding that the activity of Miller Dredging Company is not a business activity but mere leasing of dredger and hence cannot be taxed as such. 2. The Ld. CIT(A) erred in placing reliance on the pre-contractual activity of M/s. Jaisu Shipping Co. Pvt. Ltd., rather than the obligation in the actual contract in arriving at a decision that no business activity was performed by M/s. Miller Dredging Company Inc. BVI. 3. The CIT(A) has further erred in holding that the foreign company did not have any business connection or any source of business income in India in spite of clear evidence to the contrary. 4. The Ld. CIT(A) has erred in law and on facts in holding that the entire establishment of the foreign party within the Indian territorial waters did not constitute PE of the foreign party for the purpose of section 9 of the I T Act, 1961. 5. Therefore the order of the Ld. CIT(A) deserves to be deleted and that of the AO restored. 6. Any other ground that may be urged at the time of hearing.” ITA No. 27/Ahd/2014 (A.Y. 2010-11) “1. The Ld. CIT(A) has erred in law and on facts in holding that the activity of Clashmore Holding is not a business activity but mere leasing of dredger and hence cannot be taxed as such. 2. The Ld. CIT(A) erred in placing reliance on the pre-contractual activity of M/s. Jaisu Dredging & Shipping Ltd., rather than the obligation in the actual ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 75 - contract in arriving at a decision that no business activity was performed by Clashmore Holding. 3. The CIT(A) has further erred in holding that the foreign company did not have any business connection or any source of business income in India in spite of clear evidence to the contrary. 4. The Ld. CIT(A) has erred in law and on facts in holding that the entire establishment of the foreign party within the Indian territorial waters did not constitute PE of the foreign party for the purpose of section 9 of the I T Act, 1961. 5. Therefore the order of the Ld. CIT(A) deserves to be deleted and that of the AO restored. 6. Any other ground that may be urged at the time of hearing.” ITA No. 28/Ahd/2014 (A.Y. 2011-12) “1. The Ld. CIT(A) has erred in law and on facts in holding that the activity of Clashmore Holding is not a business activity but mere leasing of dredger and hence cannot be taxed as such. 2. The Ld. CIT(A) erred in placing reliance on the pre-contractual activity of M/s. Jaisu Dredging & Shipping Ltd., rather than the obligation in the actual contract in arriving at a decision that no business activity was performed by Clashmore Holding. 3. The CIT(A) has further erred in holding that the foreign company did not have any business connection or any source of business income in India in spite of clear evidence to the contrary. 4. The Ld. CIT(A) has erred in law and on facts in holding that the entire establishment of the foreign party within the Indian territorial waters did not constitute PE of the foreign party for the purpose of section 9 of the I T Act, 1961. 5. Therefore the order of the Ld. CIT(A) deserves to be deleted and that of the AO restored. 6. Any other ground that may be urged at the time of hearing.” 98. We observe that the Department has filed appeals in ITA Nos. 26 to 28/Ahd/2014 against the order passed by Ld. CIT(A) vide orders dated ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 76 - 29.10.2013 in which the Ld. CIT(A), while placing reliance on the orders passed by his predecessor for previous assessment years from A.Ys. 2003-04 to 2010-11 has held that at the overseas non-resident company does not have a permanent establishment in India. 99. The Department has filed an appeal against the order passed by Ld. CIT(A) holding that the non-resident company does not have a business connection in India. 100. We observe that issues for consideration and the grounds of appeal raised by the assessee in relation to Ld. CIT(A) holding that the non- resident company does not have a business connection / permanent establishment in India are similar to grounds raised by the Department for previous assessment years, which have been discussed in detail in the preceding paragraphs. 101. Accordingly, in the light of our observations made for the previous assessment years, we are of the considered view that the Ld. CIT(A) has correctly concluded that the overseas company does not have a business connection in India in terms of Section 9(1) of the Act and accordingly, we find no infirmity in the order of Ld. CIT(A) so as to call for any interference. 102. In the result, the appeal of the Department is dismissed for A.Ys. 2010-11 to 2011-12. ITA Nos. 30 to 37/Rjt/2012 & 62 to 69/Rjt/2012 & ITA Nos. 26to28/Ahd/2014 Jaisu Shipping Co. Pvt. Ltd. vs. ADIT(International Taxation) & DDIT (International Taxation) vs. Jaisu Shipping Co. Pvt. Ltd. Asst.Years –2003-04 to 2010-11 & 2010-11 to 2011-12 - 77 - 103. In the combined result, all the appeals filed by the Assessee (in ITA Nos. 30 to 37/Rjt/2012 for A.Y. 2003-04 to 2010-11) and the appeals filed by the Department (in ITA Nos. 62 to 69/Rjt/2012 for A.Ys. 2003-04 to 2010-11) and the appeals filed by the Department (in ITA Nos. 26 to 28/Ahd/ 2014 for A.Ys. 2010-11 to 2011-12) are dismissed. This Order pronounced in Open Court on 23/02/2024 Sd/- Sd/- (WASEEM AHMED) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 23/02/2024 TANMAY, Sr. PS TRUE COPY आदेश क त ल प अ े षत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. संबं धत आयकर आय ु त / Concerned CIT 4. आयकर आय ु त(अपील) / The CIT(A)- 5. वभागीय त न ध, आयकर अपील!य अ धकरण, राजोकट / DR, ITAT, Rajkot 6. गाड' फाईल / Guard file. आदेशान ु सार/ BY ORDER, उप/सहायक पंजीकार Dy./Asstt.Registrar) आयकर अपील य अ धकरण, राजोकट / ITAT, Rajkot 1. Date of dictation 07,08,09,12&14.02.2024 2. Date on which the typed draft is placed before the Dictating Member 09,12&15.02.2024 3. Other Member..................... 4. Date on which the approved draft comes to the Sr.P.S./P.S 12,13&22.02.2024 5. Date on which the fair order is placed before the Dictating Member for pronouncement .02.2024 6. Date on which the fair order comes back to the Sr.P.S./P.S 23.02.2024 7. Date on which the file goes to the Bench Clerk 23.02.2024 8. Date on which the file goes to the Head Clerk.......................................... 9. The date on which the file goes to the Assistant Registrar for signature on the order.......................... 10. Date of Dispatch of the Order..........................................