Dy. DIT, Hyderabad V. M/s Dharti Dredging & Infrastructure Ltd., Hyderabad

ITA 396/HYD/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59233 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 22-09-2011
• Assessment Year: misc
• Appeal Filed On: 15-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T DIWAKAR PRASAD
• Assessee Lawyers: S C TIWARI
• Keywords: Business income; Double taxation relief; Permanent establishment; Non-deduction of tax; TDS
• Section: 133A; 195

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER I.T.A. NO. 396/HYD/2010 (ASSESSMENT YEARS : 2005-2006 & 2006-07) DY. DIRECTOR OF INCOME - TAX (INTERNATIONAL TAXATION)-I, HYDERABAD VS. M/S. DHARTI DREDGING & INFRASTRUCTURE LTD., HYDERABAD PAN: NOT AVAILABLE. APPELLANT RESPONDENT APPELLANT BY: SHRI T. DIWAKAR PRASAD RESPONDENT BY: SHRI S.C. TIWARI DATE OF HEARING: 1 5 .1 2 .201 1 DATE OF PRONOUNCEMENT: 15.2.2012 O R D E R PER ASHA VIJAYARAGHAVAN, JM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-VI, HYDERABAD DATED 23.12.2009 FOR ASSES SMENT YEARS 2005-06 AND 2006-07. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE MADE PAYMENTS TO M/S. EAST MARINE PVT. LTD., SINGAPORE (EMPL FOR SHORT) DURING THE PERIOD 2.2.2006 TO 28.7.2006 AGGREGATING TO RS. 52,949,100. THESE PAYMENTS WERE MADE BY THE ASSESSEE-COMPANY FO R SUB- CONTRACTING ITS WORKS CONTRACT WITH VISAKHAPATNAM P ORT TRUST. A SURVEY U/S. 133A OF INCOME-TAX ACT, 1961 WAS CONDUC TED AT THE OFFICE PREMISES OF THE ASSESSEE-COMPANY SITUATED AT BEGUMPET, HYDERABAD ON 8.2.2006. SUBSEQUENTLY, ANOTHER SURVE Y WAS CONDUCTED AT THE SITE OFFICE OF THE ASSESSEE-COMPAN Y LOCATED IN THE PORT AREA OF VISAKHAPATNAM. DURING THE COURSE OF T HIS SURVEY ACTION, THE OFFICERS IMPOUNDED A NUMBER OF BOOKS, E TC., INCLUDING A COPY OF STANDARD CHARTER AGREEMENT I.E., 'BALTIME 1939' SIGNED BY THE ASSESSEE-COMPANY AND EMPL. THE ASSESSING OF FICER I.T.A. NO. 396/HYD/2010 M/S. DHARTI DREDGING & INFRASTRUCTURE LTD. =============================== 2 DISCUSSED IN HIS ORDER ABOUT THE COPIES OF THREE AG REEMENTS BETWEEN THE ASSESSEE AND EMPL. BASED ON THE STATEM ENTS RECORDED FROM ONE SHRI A.P. VITHAL AND K. RAMESH OF THE ASSESSEE- COMPANY AND MATERIAL FOUND DURING THE COURSE OF SUR VEY, THE ASSESSING OFFICER HELD THAT THE SUBSEQUENT TWO AGRE EMENTS WERE NOT AUTHENTIC AND IT WAS ONLY THE FIRST AGREEMENT F OUND DURING THE COURSE OF SURVEY THAT WAS ACTED UPON BY THE ASSESSE E. HENCE, THE ASSESSING OFFICER HELD THAT THE ASSESSEE-COMPANY WA S LIABLE TO DEDUCT TDS BEFORE MAKING PAYMENT TO M/S. EMPL, SING APORE IN ACCORDANCE WITH THE PROVISIONS OF SECTION 195 OF TH E ACT. ACCORDINGLY HE HELD THE ASSESSEE COMPANY AS AN ASSE SSEE IN DEFAULT IN RESPECT OF THE ALLEGED TAX WHICH OUGHT T O HAVE BEEN DEDUCTED BY THE ASSESSEE-COMPANY AND PAID TO THE GO VERNMENT ACCOUNT WHICH WAS COMPUTED AT RS. 5,294,910. THE A SSESSING OFFICER ALSO IMPOSED INTEREST AMOUNTING TO RS. 1,44 9,236 UNDER THE PROVISIONS OF SECTION 201(1A) OF THE ACT. 3. IN THE IMPUGNED ORDER THE ASSESSING OFFICER THE ASS ESSING OFFICER HAS HELD THAT CONTRACT BETWEEN THE ASSESSEE AND EMPL WAS IN THE NATURE OF CONTRACT FOR CHARTERING/HIRING OF THE DREDGER 'KETAM'. AS PER TERMS AND CONDITIONS OF THE CONTRA CT, EMPL MADE DREDGER 'KETAM' AVAILABLE TO DHARTI DREDGING AND IN FRASTRUCTURE LTD. (DHARTI) TO DEPLOY IN ITS DREDGING WORK AT VIS AKHAPATNAM. IN CONSIDERATION FOR THE DREDGER USED IN VISAKHAPATNAM , DHARTI MADE PAYMENTS TO EMPL. THE ASSESSING OFFICER HAS F URTHER HELD THAT THE HIRE CHARGES/CHARTER FEES PAID TO EMPL ARE IN THE NATURE OF ROYALTY, AS IT IS FOR THE USE OR RIGHT TO USE TH E DREDGER KETAM BY DHARTI. FOR THIS PURPOSE HE HAS PLACED RELIANCE ON CLAUSE (IVA) OF EXPLANATION 2 TO SECTION 9(1)(VI) OF THE ACT. ACCO RDING TO HIM, THE PAYMENTS MADE BY THE ASSESSEE WERE FOR THE USE OF I NDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT AND, THEREFORE, IT AMOUNTS TO ROYALTY. HENCE THE PAYMENTS RECEIVED BY EMPL FROM THE ASSESSEE ARE CHARGEABLE TO TAX IN INDIA IN ACCORDANCE WITH T HE AFORESAID I.T.A. NO. 396/HYD/2010 M/S. DHARTI DREDGING & INFRASTRUCTURE LTD. =============================== 3 PROVISIONS OF SECTION 9(1) OF THE ACT AS WELL AS AR TICLE 12 OF THE DTAA BETWEEN INDIA AND SINGAPORE. ACCORDINGLY, THE ASSESSEE SHOULD HAVE DEDUCTED TAX AT SOURCE FROM THE PAYMENT S MADE AS REQUIRED BY THE PROVISIONS OF SECTION 195 OF THE AC T. SINCE THE ASSESSEE DID NOT DO SO, THE PROVISIONS OF SECTION 2 01 CAME INTO OPERATION AND THE ASSESSEE HAS BECOME AN ASSESSEE I N DEFAULT IN RESPECT OF TAX THAT THE ASSESSEE SHOULD HAVE DEDUCT ED FROM THE PAYMENTS MADE TO EMPL. FURTHER HE HAS HELD THAT ON ACCOUNT OF THE FAILURE TO DEDUCT TAX AT SOURCE WITHIN THE TIME ALLOWED, ASSESSEE IS LIABLE TO PAY ADDITIONAL AMOUNT BY WAY OF INTEREST U/S 201(1A). 4. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, TH E ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). 5. BEFORE THE CIT(A), THE LEARNED COUNSEL FOR THE ASSE SSEE REFERRED TO THE THREE AGREEMENTS FURNISHED BY THE A SSESSING OFFICER AND POINTED OUT THAT THE VARIATIONS IN THE THREE AG REEMENTS HAVE NO BEARING ON THE ASSESSABILITY OF EMPL IN INDIA AS TAKING ANY ONE OF THE THREE AGREEMENTS THE LEGAL POSITION WOULD RE MAIN ONE AND THE SAME I.E., THE RECEIPTS IN THE HANDS OF EMPL CO NSTITUTE BUSINESS RECEIPTS WITHIN THE MEANING OF INDO-SINGAP ORE DTAA. THE ASSESSEE SUMMARISED THE DETAILS OF THE AGREEMEN T AND THE DETAILS OF ARRIVAL OF DREDGERS/CONTRACTS WHICH HAS BEEN REPRODUCED AT PARAS 6.1 AND 6.2 OF THE CIT(A)'S ORDER. 6. THE ASSESSEE-COMPANY SUBMITTED BEFORE THE CIT(A) TH AT EVEN IF THE ASSESSING OFFICER'S FINDING THAT THE ASSESSE E PAID HIGHER CHARGES TO EMPL WAS ASSUMED TO BE CORRECT, IT DID N OT FOLLOW THAT THE PAYMENTS MADE BY THE ASSESSEE TO EMPL WERE ROYA LTY. THE LEARNED COUNSEL FOR THE ASSESSEE ELABORATED ON THE MEANING OF 'ROYALTY' AND THE VARIOUS DECISIONS WHEREIN THE MEA NING OF ROYALTY HAS BEEN DISCUSSED. I.T.A. NO. 396/HYD/2010 M/S. DHARTI DREDGING & INFRASTRUCTURE LTD. =============================== 4 7. THE LEARNED COUNSEL FOR THE ASSESSEE ARGUED THAT TH ROUGH OUT THE PERIOD OF SUB-CONTRACT DREDGER KETAM REMAIN ED IN THE CONTROL AND POSSESSION OF EMPL. IT WAS OPERATED BY THE PERSONNEL OF EMPL WHO WERE ANSWERABLE TO EMPL AND NOT TO THE ASSESSEE. IT WAS FOR THIS REASON THAT THE ASSESSEE HAD EMPHASISE D THAT WHAT IT DID WAS TO ASSIGN A WORK CONTRACT TO EMPL. IT DID NOT MAKE ANY DIFFERENCE WHETHER THE PAYMENTS TO EMPL ARE MEASURE D AS PER THE QUANTITY OF WORK DONE AS CLAIMED BY THE ASSESSEE OR FOR THE PERIOD DURING WHICH WORK WAS DONE AS CONTENDED BY ASSESSIN G OFFICER. WHETHER THE PAYMENTS TO EMPL WERE MEASURED IN TERMS OF QUANTITY OF OUTPUT OR LENGTH OF TIME THE ESSENTIAL FACT REMAINED THE SAME THAT THE ASSESSEE ASSIGNED THE JOB WORK OR WOR K CONTRACT TO EMPL. BY DISPUTING THE CLAIM OF THE ASSESSEE ON TH E BASIS OF VARIATIONS IN THE THREE AGREEMENTS WHICH ASSESSING OFFICER HAD DISCUSSED AT CONSIDERABLE LENGTH WHAT ASSESSING OFF ICER HAD DONE WAS TO FIND OUT A DIFFERENT MEASUREMENT FOR CALCULA TING PAYMENTS TO EMPL AND FROM THAT HE HAD WRONGLY CONCLUDED THAT IT WAS NOT SUB-CONTRACT TO EMPL. AS LONG AS THE WORK WAS CARR IED OUT BY DREDGER KETAM UNDER THE CONTROL AND SUPERVISION OF EMPL, THE POSITION REMAINED THE SAME IRRESPECTIVE OF THE MODE OF PAYMENTS THAT THE ASSESSEE ADOPTED FOR THE SUB-CONTRACTED PO RTION OF ITS CONTRACT TO EMPL. IT WAS, THEREFORE, EMPHATIC SUBM ISSION OF THE ASSESSEE THAT THE PAYMENT IS NOT FOR USE OR RIGHT T O USE OF DREDGER KETAM BY THE ASSESSEE. THE PAYMENT IS FOR THE JOB WORK DONE BY DREDGER KETAM OPERATED UPON BY EMPL. SUCH PAYMENTS COULD NOT BE CONSTRUED AS ROYALTY WITHIN THE MEANING OF ARTIC LE 12 OF INDO- SINGAPORE DTAA AND SECTION 9 OF THE INCOME-TAX ACT ALSO. 8. THE LEARNED COUNSEL FOR THE ASSESSEE'S NEXT ARGUMEN T BEFORE THE CIT(A) WAS THAT NONE OF SUB-CLAUSE (A), (B) & ( C) OF ARTICLE 12 OF INDO-SINGAPOREAN DTAA WERE APPLICABLE. THE WORK EX ECUTED BY EMPL WAS NOT ANCILLARY AND SUBSIDIARY TO THE APPLIC ATION OR I.T.A. NO. 396/HYD/2010 M/S. DHARTI DREDGING & INFRASTRUCTURE LTD. =============================== 5 ENJOYMENT OF ANY RIGHT, PROPERTY OR INFORMATION. S ECONDLY, EMPL DID NOT MAKE AVAILABLE ANY TECHNICAL KNOWLEDGE, EXP ERIENCE, SKILL, KNOW-HOW OR PROCESSES TO DHARTI, NOR DID THEY ENABL E THE AS TO APPLY ANY TECHNOLOGY. THE EQUIPMENTS BROUGHT BY EM PL REMAINED IN THEIR OWN CONTROL AND POSSESSION AND TH E EQUIPMENTS WERE RUN BY THEIR QUALIFIED PERSONNEL. NO PERSONNE L EXCEPT MENIAL LABOUR WAS PROVIDED OR DEPLOYED BY THE ASSESSEE. T HIRDLY, EMPL DID NOT DEVELOP AND TRANSFER ANY TECHNICAL PLAN OR TECHNICAL DESIGN TO THE ASSESSEE. THE PRIMARY FUNCTION OF EMPL WAS TO PERFORM DREDGING WORK AT VISHAKHAPATNAM PORT. IN SHORT, EM PL EXECUTED WORK-CONTRACT AS CONTRA-DISTINGUISHED FROM RENDERIN G OF ANY SERVICES. FOR THAT REASON ARTICLE 12 OF THE TREATY COULD NOT BE INVOKED SO AS TO HOLD THE PAYMENTS MADE BY THE ASSE SSEE TO EMPL NEITHER AS 'ROYALTY' NOR AS 'FEES FOR TECHNICAL SER VICES'. IN SHORT, EMPL RECEIVED PAYMENTS AS ITS BUSINESS RECEIPTS THA T COULD NOT BE BROUGHT TO TAX IN INDIA BECAUSE IT OPERATED IN INDI AN FOR LESS THAN 183 DAYS IN ANY FINANCIAL YEAR. 9. THE CIT(A) HELD AFTER GOING THROUGH THE ANNEXURES A ND CONSIDERING THE CONTENTIONS OF THE ASSESSEE THAT TH E ASSESSEE- COMPANY ENTERED INTO A CONTRACT WITH SEVERAL DREDGE R OWNERS INCLUDING EMPL ON 5 TH JANUARY, 2006 WHEN THE COMPANY WAS AWARDED THE WORK OF DREDGING FOR CHANNEL AT VISAKHA PATNAM PORT TRUST. HE HELD THAT THE CONTRACT GIVEN TO EMPL WAS IN THE NATURE OF SUB-CONTRACT TO UNDERTAKE ON BEHALF OF THE ASSES SEE'S DREDGING WORK OF VISAKHAPATNAM PORT WITH THE EQUIPMENT AND M ANPOWER OF EMPL AND FOR THAT PURPOSE THE EMPL BROUGHT AT WORK SITE THEIR DREDGER IN THE NAME AND STYLE OF 'KETAM' ALONG WITH A SET OF 18 CREW FOR 24 HOURS OPERATION. M/S. EMPL ALSO BROUGH T ONE UNIT OF 'ANCHOR BOAT' AS A PART OF THE DREDGER. THE CIT(A) HELD THAT THE PAYMENTS MADE BY THE ASSESSEE TO EMPL ARE CONTRACTU AL PAYMENTS FOR EXECUTION OF WORK CONTRACT ASSIGNED TO THEM. SINCE AT THE WORK SITE THE ENTIRE DREDGING OPERATION WAS CARRIED OUT BY I.T.A. NO. 396/HYD/2010 M/S. DHARTI DREDGING & INFRASTRUCTURE LTD. =============================== 6 EMPL AND ALL EQUIPMENTS REMAINED IN-CHARGE AND CUST ODY OF EMPL AT THEIR OWN RISK. 10. THE CIT(A) POINTED OUT TO CLAUSE 3(A) OF ARTICLE 12 OF THE TREATY WHICH DEFINES THE TERM ROYALTY AND ALSO CLAU SE 3(B) WHICH SPECIFIES ANY INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT. THE CIT(A) HELD AS FOLLOWS: 'IN THE INSTANT CASE THE EQUIPMENT HAS BEEN USED BY EAST MARINE UNDER THEIR CUSTODY AND CONTROL BY THEI R PERSONNEL UNDER THEIR SUPERVISION AND INSTRUCTION O F THE APPELLANT. THUS THE APPELLANT DID NOT USE THE DRED GER OR ANY PART THEREOF ON ITS OWN, NOR HAD APPELLANT ACQUIRED ANY RIGHT TO USE IT FROM EAST MARINE. THEREFORE, THE PAYMENT HAS NOT BEEN MADE TO THEM AS 'ROYALTIES'.' 11. THE CIT(A) FURTHER MENTIONED THAT CLAUSE 4 OF ARTIC LE 12 OF THE TREATY WHICH DEFINES THE TERMS 'FEES FOR TECHNI CAL SERVICES' IS NOT CALLED FOR IN THE PRESENT CASE. THE CIT(A) CON CLUDED THAT IN THE INSTANT CASE ARTICLE 5 OF INDO-SINGAPOREAN TREA TY APPLIES. IN ORDER TO ASSESS THE PAYMENTS AS BUSINESS RECEIPTS O F EMPL THERE SHOULD BE A PERMANENT ESTABLISHMENT (PE) OF EMPL IN INDIA AND THAT IS POSSIBLE ONLY IF DREDGER KETAM OPERATED IN INDIA FOR MORE THAN 183 DAYS, WHICH IS NOT THE CASE IN THE PRESENT CASE. 12. THUS, THE CIT(A) DIRECTED THE ASSESSING OFFICER TO AMEND THE ORDER HOLDING THAT PAYMENTS MADE BY THE ASSESSEE TO EMPL ARE NOT THE INCOME OF THE EMPL CHARGEABLE TO TAX IN IND IA AND THE ASSESSEE SHOULD NOT BE TREATED AS IN DEFAULT IN RES PECT OF THE PAYMENTS MADE BY IT TO EMPL. THE CIT(A) THUS ALLOW ED THE ASSESSEE'S APPEAL. AGGRIEVED, THE DEPARTMENT IS IN APPEAL BEFORE US AND RAISED THE FOLLOWING GROUNDS OF APPEAL: I. THE LD. CIT(A) ERRED IN LAW AND ON THE FACTS OF THE CASE. I.T.A. NO. 396/HYD/2010 M/S. DHARTI DREDGING & INFRASTRUCTURE LTD. =============================== 7 II. THE LD. CIT(A) ERRED IN FACTS AND LAW BY HOLDING THAT THE CONTRACT BETWEEN THE ASSESSEE AND EAST MARINE WAS NOT IN THE NATURE OF A CHARTER CONTRACT BUT A DREDGING WORKS CONTRACT, THE PAYMENTS FOR WHICH WERE CONTRACTUAL PAYMENTS WHICH DO NOT FALL WITHIN THE MEANING OF 'ROYALTIES'. III. THE LD. CIT(A) ERRED IN FACTS BY IGNORING THE 'STANDARD TIME CHARTER AGREEMENT' AND GIVING MUCH CREDENCE ON THE 'DREDGING CONTRACT' WITHOUT APPRECIATING ITS SHORTCOMINGS. IV. THE CIT(A) ERRED IN FACTS BY FAILING TO APPRECIATE THE FINDINGS FROM THIRD PARTY ENQUIRIES. V. THE CIT(A) ERRED IN FACTS BY FAILING TO CONSIDER TH E DECLARATION GIVEN BY THE ASSESSEE IN THE 'FORM AND APPLICATION FOR REMITTANCE U/S. 195' AND THE ENTRIES MADE IN ITS LEDGER. VI. ANY OTHER GROUND THAT MAY BE URGED AT THE TIME OF HEARING. 13. THE LEARNED DR, SHRI T. DIWAKAR PRASAD, RELIED ON T HE LETTER DATED 3.4.2006 ADDRESSED TO THE DIRECTOR GENERAL OF SHIPPING, MUMBAI AND POINTED OUT THAT 'THIS BOAT IS ESSENTIAL FOR OPERATION OF GRAB DREDGER KETAM, WHICH HAS ALSO BEEN TAKEN ON LEASE AND APPROVED BY YOUR GOOD SELF VIDE YOUR LETTER NO. SD- 9/CHRT (105)/ 06/ DATED 8.02.06. HE ALSO POINTED OUT TO THE INVO ICE WHERE RS. 340 LAKHS HAS BEEN RAISED TO CHARTER OF ONE UNIT DR EDGER KETAM FROM 28.5.2006 TO 27.6.2006. AS PER CHARTER AGREEM ENT THE INVOICE HAS BEEN RAISED BY M/S. EMPL FOR AN AMOUNT OF RS. 340.00 LAKHS. HE ALSO POINTED OUT TO THE SUPPLY OF MANPOWER IN FOR THE MONTH OF MAY 2006 AND INVOICE OF $ 8000 HAS BEEN RAISED. 14. THE LEARNED DR, THEREFORE, CONTENDED THAT THOUGH IT WAS AGREED UNDER THE 'DREDGING CONTRACT' THAT EMPL WOUL D BE REMUNERATED EITHER DREDGING CHARGES SGD 340,000 PER CALENDAR MONTH OR SGD 2 PER CUM OF DREDGED MATERIAL IN A MON TH, WHICHEVER IS HIGHER, THE PAYMENT TO EMPL WAS MADE B ASED ON THE AGREED MINIMUM GUARANTEED CHARGES @ SGD 340,000 PER CALENDAR I.T.A. NO. 396/HYD/2010 M/S. DHARTI DREDGING & INFRASTRUCTURE LTD. =============================== 8 MONTH OR ON PRO-RATA MINIMUM GUARANTEED CHARGES. T HE PAYMENT ON THE BASIS OF AGREED MINIMUM GUARANTEE, MEANS THA T THE EMPL WAS PAID THE CHARGES AS AGREED REGARDLESS OF WHETHE R OR NOT ANY OUTPUT GENERATED BY THE DREDGER DURING ITS DEPLOYME NT IN THE VISAKHAPATNAM PROJECT. THE EMPL WAS GUARANTEED TO RECEIVE PAYMENTS AT AGREED MINIMUM CHARGES REGARDLESS OF WH ETHER THE DREDGER IS PUT TO ANY USE OR NOT BY DHARTI. ON THE BASIS OF ABOVE, IT IS CLEAR THAT THE PAYMENTS MADE BY DHARTI ARE IN THE NATURE OF HIRE/CHARTER CHARGES FOR THE DREDGER KETAM. 15. THE LEARNED DR FURTHER PUT FORTH THE VIEW OF THE AS SESSING OFFICER THAT THE CONTRACT BETWEEN DHARTI AND EMPL W AS IN THE NATURE OF CONTRACT FOR CHARTERING/HIRING OF THE DRE DGER 'KETAM'. AS PER THE TERMS AND CONDITIONS OF THE CONTRACT EMPL M ADE THE DREDGER KETAM AVAILABLE TO DHARTI TO DEPLOY IN ITS DREDGING WORK AT VISAKHAPATNAM. IN CONSIDERATION FOR THE DREDGER'S USE IN VISAKHAPATNAM, DHARTI MADE PAYMENTS TO EMPL. THE H IRE CHARGES/CHARTER FEES PAID TO EMPL ARE IN THE NATURE OF ROYALTY AS IT IS FOR THE USE OR RIGHT TO USE THE DREDGER KETAM BY DHARTI. THE DR, THEREFORE, CONTENDED THAT THE DREDGER BEING AN EQUIPMENT WOULD COME UNDER THE DEFINITION OF ROYALTY UNDER CL AUSE (B) AS PER ARTICLE 12 OF PROVISIONS OF DTAA BETWEEN INDO AND S INGAPORE WHICH READS AS FOLLOWS: 'B. ANY INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIP MENT OTHER THAN PAYMENTS DERIVED BY AN ENTERPRISE FROM ACTIVITIES DESCRIBED IN PARAGRAPH 4(B) OR 4(C) OF A RTICLE 8.' 16. THE LEARNED DR ALSO RELIED ON THE DECISION OF NIMBU S SPORT INTERNATIONAL PTE VS. CIT (63 DTR (DEL) (TRI) 374). 17. THE LEARNED COUNSEL FOR THE ASSESSEE SHRI S.C. TIWA RI, ON THE OTHER HAND, REITERATED THE SUBMISSIONS MADE BEFORE THE CIT(A) AND ALSO RELIED ON THE FOLLOWING DECISIONS: I.T.A. NO. 396/HYD/2010 M/S. DHARTI DREDGING & INFRASTRUCTURE LTD. =============================== 9 A) ACIT VS. M/S. VAN OORD ACZ EQUIPMENT B.V., I.T.A. N O. 1894/MDS/2005 ORDER DATED 29 TH MARCH, 2007. B) DCIT VS. HYUNDAI HEAVY INDUSTRIES CO. LTD., (2010) 128 TTJ (DEL)(UO) 4; (2009) 31 SOT 482. C) DDIT VS. M/S. NEDERLANDSCHE OVERZEE BANGGERMAAT- SCHAPPIJI BV, ITA NOS. 8352/MUM/2004, 8888/MUM/ 2004, 1542/MUM/2005 AND 2118/MUM/2006 ORDER DATED 14 TH MAY, 2010. D) DCIT (INTL. TAXATION) VS. DHARTI, 44 SOT 586 HYD. 18. WE HAVE HEARD BOTH THE PARTIES. WE FIND IN THE PRE SENT CASE THE EQUIPMENT HAS BEEN USED BY EMPL UNDER THE SUPER VISION, CONTROL AND EMPLOYMENT OF 18 MEMBER CREW FOR 24 HOU RS. THE ASSESSEE TOOK THE DREDGER ONLY ON HIRE AND PAID ONL Y HIRE CHARGES. THEREFORE, THE EQUIPMENT HIRED BY THE ASSESSEE FROM THE FOREIGN COMPANY CANNOT BE CONSTRUED AS PLACE OF BUSINESS OF THE FOREIGN COMPANY. IT IS ONLY HIRING OF THE EQUIPMENT SIMPLI CITOR AND THE ASSESSEE DID NOT USE THE DREDGER OR ANY PART THEREO F ON ITS OWN NEITHER IT WAS GIVEN ANY RIGHT TO USE. NEITHER IT HAD ACQUIRED ANY RIGHT TO USE FROM EMPL. HENCE THE PAYMENT CANNOT B E TREATED AS 'ROYALTY'. FURTHER IN ORDER TO ASSESS THE PAYMENT AS BUSINESS RECEIPT OF THE EMPL IT HAS TO BE ESTABLISHED THAT T HERE IS A PERMANENT ESTABLISHMENT OF EMPL IN INDIA WHICH IS N OT POSSIBLE SINCE THE DREDGER KETAM HAS BEEN OPERATED IN INDIA FOR LESS THAN 183 DAYS. THE LIABILITY U/S 195 TO DEDUCT TDS DEPE NDS UPON CHARGEABILITY OF TAX IN THE HANDS OF RECIPIENT. I N THE PRESENT CASE, THE ENTIRE DREDGING OPERATION WAS CARRIED OUT BY EA ST MARINE PTE. LIMITED, SINGAPORE AND PAYMENT MADE TO M/S EAST MAR INE IS A CONTRACTUAL PAYMENT FOR EXECUTION OF WORKS CONTRACT ASSIGNED TO THEM. IT IS ADMITTED FACT THAT EQUIPMENT USED BY M /S EAST MARINE WAS UNDER THE CUSTODY AND CONTROL BY THEM AND UNDER THEIR SUPERVISION AND INSTRUCTIONS OF THE ASSESSEE. THE ASSESSEE DID NOT USE THE DREDGER OR ANY PART THEREOF ON ITS OWN, NOR HAD APPARENT ACQUIRED ANY RIGHT TO USE IT FROM EAST MARINE. FURT HER, CLAUSE 3(A) OF ARTICLE 12 OF THE TREATY DEFINES THE TERM ROYAL TY AS PAYMENTS I.T.A. NO. 396/HYD/2010 M/S. DHARTI DREDGING & INFRASTRUCTURE LTD. =============================== 10 OF ANY KIND RECEIVED AS A CONSIDERATION FOR THE USE OF OR THE RIGHT TO USE, ANY COPYRIGHT OF LITERARY, ARTISTIC OR SCIE NTIFIC WORK INCLUDING CINEMATOGRAPH FILMS, OR TAPES USED FOR RA DIO OR TELEVISION BROADCASTING, ANY PATENT, TRADE MARK, DESIGN OR MOD EL, PLAN, SECRET FORMULA OR PROCESS, OR FOR INFORMATION CONCE RNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE, INCLUDING GAIN S DERIVED FROM THE ALIENATION THEREOF. CLAUSE 3(B) SPECIFIES ANY INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT. CLASE 4 OF ART ICLE 12 OF THE TREATY DEFINES THE TERM FEES FOR TECHNICAL SERVICE S TO MEAN PAYMENTS MADE IN CONSIDERATION FOR SERVICES OF A M ANAGERIAL, TECHNICAL OR CONSULTANCY NATURE. FROM THE DESCRIP TION OF THE WORK ASSIGNED BY DHARTI TO EAST MARINE PTE LTD., SINGAPU RE IT WOULD BE SEEN THAT PAYMENTS MADE BY THEM ARE IN CONSIDERATIO N OF THE EXECUTION OF JOBS ASSIGNED TO THEM FOR DREDGING CHA NNEL AT VISAKHAPATNAM PORT WORK UNDERTAKEN BY THEM. AS THE PAYMENTS WERE NOT MADE FOR ANY SERVICES, THE APPLICATION OF CLAUSE 4 OF ARTICLE 12 OF THE TREATY IS NOT CALLED FOR. IN OUR OPINION, THE PAYMENT MADE BY THE ASSESSEE TO M/S EAST MARINE NE ITHER BE CONSTRUED AS ROYALTIES NOR IT IS FEES FOR TECHNI CAL SERVICES AND IT IS NOTHING BUT HIRE CHARGES. THEREFORE, WE CONF IRM THE ORDER OF THE CIT(A) AND DISMISS THE APPEAL OF THE REVENUE. 19. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON _15 TH FEBRUARY, 2012. SD/- SD/- SD S D/ (CHANDRA POOJARI) ACCOUNTANT MEMBER SD/ - (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER HYDERABAD, DATED THE 15 TH FEBRUARY, 2012 I.T.A. NO. 396/HYD/2010 M/S. DHARTI DREDGING & INFRASTRUCTURE LTD. =============================== 11 COPY FORWARDED TO: 1. THE DY. DIRECTOR OF INCOME - TAX (INTL. TAXATION) - I, 6 TH FLOOR, 'C' BLOCK, IT TOWERS, AC GUARDS, HYDERABAD. 2. M/S. DHARTI DREDGING & INFRASTRUCTURE LTD., 1 ST FLOOR, POINT OF VIEW, B.S. MAKTHA, BEGUMPET, HYDERABAD. 3. THE CIT(A) - VI, HYDERABAD. 4 . THE DIRECTOR OF I NCOME - TAX (INTERNATIONAL TAXATION), 6 TH FLOOR, R.P. BHAVAN, 14/3 NRUPATHUNGA ROAD, BANGALOR E- 560 001. 5. THE DR A BENCH, ITAT, HYDERABAD. TPRAO