M/s. Sical Logistics Limited, CHENNAI V. ADIT, CHENNAI

ITA 74/CHNY/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60950 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-04-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2007-2008
• Appeal Filed On: 12-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K E B RENGARAJAN JR
• Assessee Lawyers: S SATHIYANAR AYANAN
• Keywords: Double taxation relief
• Section: 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI BEFORE DR. O.K.NARAYANAN, VICE-PRESIDENT AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ITA NO. 74/(MDS)/2012 ASSESSMENT YEAR : 2007-08 M/S. SICAL LOGISTICS LTD., SOUTH INDIA HOUSE, 73, ARMENIAN STREET, CHENNAI 600 001. VS. THE ASSISTANT DIRECTOR OF INCOME-TAX, INTERNATIONAL TAXATION-II, CHENNAI - 34. PAN AAACS 3789 B (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S.SA THIYANARAYANAN, ADVOCATE RESPONDENT BY : SHRI KEB RENG ARAJAN, JR. STANDING COUNSEL DATE OF HEARING : 3 RD APRIL, 2012 DATE OF PRONOUNCEMENT : 3 RD APRIL, 2012 O R D E R PER DR. O.K. NARAYANAN, VICE-PRESIDENT THIS APPEAL IS FILED BY THE ASSESSEE. THE RELEVAN T ASSESSMENT YEAR IS 2007-08. THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS)-IV AT CHENNAI ITA 74/12 :- 2 -: DATED 11.11.2011 AND ARISES OUT OF THE ASSESSMENT ORDER PASSED UNDER SEC.143(3) READ WITH SEC.147 AND SEC.163 OF T HE INCOME- TAX ACT, 1961. 2. THE ASSESSEE IS CARRYING ON THE BUSINESS OF TRAN SPORTING COAL BY TIME CHARTERING OF VESSELS. IN THE COURSE OF BUSINESS, THE ASSESSEE HAD AVAILED THE SERVICES OF VESSELS OWNED BY FOREIGN SHIPPING COMPANIES(FSC), AS WELL. THE ASSESSEE HAD PAID CHARGES TO THOSE FOREIGN COMPANIES FOR MOVING COAL FROM VARIOUS PORTS IN INDIA DESTINED TO CHENNAI AND TUTICORIN PO RTS. THE COAL IS BROUGHT TO TAMILNADU PORTS FOR THE CONSUMPTION OF T AMILNADU ELECTRICITY BOARD. 3. ON GOING THROUGH THE RECORDS, THE ASSESSING OFFI CER OBSERVED THAT THE ASSESSEE HAD ENGAGED TWO FSCS IN THE PREVIOUS YEAR RELEVANT TO THE IMPUGNED ASSESSMENT Y EAR FOR MOVING COAL AS STATED ABOVE. HE ALSO FOUND THAT TH E ASSESSEE HAD PAID HIRE CHARGES FOR ENGAGING THOSE VESSELS. HE FURTHER NOTICED THAT THE FSCS HAVE NOT FILED ANY RETURN FOR THE INCOME ACCRUING AND ARISING IN INDIA. ITA 74/12 :- 3 -: 4. IN VIEW OF THE ABOVE POSITION, HE TREATED THE AS SESSEE- COMPANY AS REPRESENTATIVE ASSESSEE UNDER SEC.163 OF THE ACT AND ISSUED NOTICE UNDER SEC.148 AND THEREAFTER COMP LETED THE ASSESSMENT UNDER SEC.143(3) READ WITH SEC.147. 5. IN RESPONSE TO THE NOTICE ISSUED UNDER SEC.148, THE REPRESENTATIVE ASSESSEE HAD FILED THE RETURN OF I NCOME ALONG WITH A STATEMENT OF COMPUTATION OF INCOME AND TAX. IN THE SAID STATEMENT, THE ASSESSEE HAS MADE IT CLEAR THAT THE TAX LIABILITY WAS COMPUTED AT 7.5% OF GROSS INCOME ON PRESUMPTIVE BASIS AND THE ASSESSEE HAD CLAIMED RELIEF UNDER THE DTAA OF T HE RESPECTIVE COUNTRIES IN RESPECT OF TWO FSCS. THE ASSESSEE HAS ALSO EXPLAINED BEFORE THE ASSESSING AUTHORITY THAT AS TH E PAYMENTS OF TAXES HAVE ALREADY BEEN MADE UNDER SEC.172 OF THE A CT ON THE GROSS HIRE CHARGES PAID TO THE FSCS, THERE IS NO OT HER INCOME LIABLE FOR TAXATION IN THE HANDS OF THOSE FOREIGN C OMPANIES AND AS SUCH THE ASSESSEE HAS NO LIABILITY TO PAY ANY TAX. 6. ANYHOW, OBJECTIONS WERE RULED OUT BY THE ASSESSI NG AUTHORITY AND FINALLY ASSESSED THE ASSESSEE-COMPANY ADOPTING 10% RATE IN RESPECT OF INDIAN COMPANY AND 20% IN RE SPECT OF DENMARK COMPANY, ON THE BASIS OF RESPECTIVE DTAA. ITA 74/12 :- 4 -: 7. IN FIRST APPEAL, THE COMMISSIONER OF INCOME-TAX( APPEALS) HELD THAT THE ASSESSING AUTHORITY HAS RIGHTLY TREAT ED THE ASSESSEE COMPANY AS REPRESENTATIVE ASSESSEE OF THE FSCS UN DER SEC.163. THE COMMISSIONER OF INCOME-TAX(APPEALS) RELIED ON THE DECISION OF ITAT, CHENNAI B BENCH DATED 23.06 .2006 IN ITA NOS.99 & 100/MDS/2006 WHEREIN THE TRIBUNAL HAS UPHE LD THE ORDER OF THE ASSESSING OFFICER TREATING THE ASSESSE E AS AN ASSESSEE UNDER SEC.163. THE APPEAL WAS ACCORDINGL Y, DISMISSED. 8. THEREAFTER, THE ASSESSEE HAS FILED A PETITION FO R RECTIFICATION UNDER SEC.154 STATING THAT THE RELEVANT ORDER OF IT AT, CHENNAI D BENCH DATED 4.10.2011 PASSED IN ITA NSO.1206/MDS/11 AND 779/MDS/2011 WAS NOT CONSIDERED BY THE COMMISSIONER (APPEALS) WHERE THE NATURE OF PAYMENTS MADE TO FSCS HAVE BEEN ADJUDICATED AND AS SUCH, THERE IS A MISTAKE APPAREN T IN THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX(APPEALS). THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS REJECTED TH E PETITION FILED BY THE ASSESSEE, STATING THAT THERE IS NO SU CH MISTAKE, AS HE HAS CONSIDERED ALL THE ORDERS OF THE TRIBUNAL RELIE D ON BY THE ASSESSEE. ITA 74/12 :- 5 -: 9. NOW, IN THE PRESENT APPEAL, THE ASSESSEE HAS RAI SED THE FOLLOWING GROUNDS : 2.1 THE LD. COMMISSIONER OF INCOME-TAX(APPEALS) OUGHT TO HAVE FOLLOWED THE DECISION OF THE HONBLE ITAT IN THE APPELLANTS OWN CASE FOR THE SAME ASSESSMENT YEAR I.E. ITA NO.779/CHNY/2011. 2.2 THE LD. COMMISSIONER OF INCOME-TAX(APPEALS) OUGHT TO HAVE APPRECIATED THAT THE DECISION OF THE HONBLE INCOME-TAX APPELLATE TRIBUNAL, IN THE SAME ASSESSMENT YEAR IN THE APPELLANTS OWN CASE, HAD HELD THAT THE PAYMENTS MADE TO THE FOREIGN SHIPPING COMPANIES ARE NOT IN THE NATURE OF ROYALTY. 2.3 THE LD. CIT(A) OUGHT TO HAVE NOTED THAT THE CRUCIAL POINT IS WHETHER THE PAYMENTS MADE IS ROYA LTY OR NOT AND THAT THE LD. CIT(A) OUGHT TO HAVE APPLIE D THE RATIO DECIDENDI OF THE HONBLE ITAT IN THE APPELLANTS OWN CASE FOR THE SAME ASSESSMENT YEAR. 2.4 THE CIT(A) HAS ERRED IN FOLLOWING AN IRRELEVANT JUDGMENT AND FAILED TO NOTE AND APPRECIATE THE DIFFERENCES IN THE FACTS AND CIRCUMSTANCES IN THE ITA 74/12 :- 6 -: ASSESSMENT YEAR UNDER THIS APPEAL VIS A VIS THE JUDGMENT RELIED BY HIM. 2.5 THE LD. CIT(A) FAILED TO RECOGNIZE THE FACT THA T THE APPEAL FILED BY THE APPELLANT AGAINST TREATING THEM AS REPRESENTATIVE ASSESSEE U/S 163 IS STILL PENDI NG BEFORE THE CIT(A) AND THAT THE APPEAL AGAINST SECTI ON 163 ORDER OUGHT TO HAVE BEEN FIRST DECIDED BEFORE DECIDING THE TAXABILITY IN THE HANDS OF THE APPELLA NT. 10. WE HEARD SHRI S.SATHIYANARAYANAN, THE LEARNED C OUNSEL APPEARING FOR THE ASSESSEE AND SHRI KEB RENGARAJAN, THE LEARNED STANDING COUNSEL APPEARING FOR THE REVENUE. 11. IN THE PRESENT CASE, THE ASSESSING AUTHORITY HA S APPLIED THE PROVISIONS OF THE DTAA TO LEVY TAX ON HIRE CHARGES PAID TO FSCS. WHILE APPLYING THE PROVISIONS OF THE DTAA TO LEVY T AXES, THE ASSESSING AUTHORITY HAS TREATED THE HIRE CHARGES PA ID TO FSCS AS ROYALTY. 12. IN FIRST APPEAL, THE ONLY ISSUE DECIDED BY THE COMMISSIONER OF INCOME-TAX(APPEALS) IS THAT THE ASSESSING OFFICE R IS JUSTIFIED IN TREATING THE ASSESSEE AS A REPRESENTATIVE ASSESSEE UNDER ITA 74/12 :- 7 -: SEC.163. APART FROM THAT HE HAS NOT DECIDED ANYTHI NG ON THE MERITS OF THE CASE. THE APPEAL FILED BEFORE HIM DO ES NOT GET DISPOSED OF, ON DECIDING ONLY ONE OF THE ISSUES TH AT WHETHER THE ASSESSEE COULD BE RIGHTLY TREATED AS A REPRESENTAT IVE ASSESSEE OR NOT. IT IS TO BE SEEN THAT EVEN IF THE ASSESSEE HAS BEEN RIGHTFULLY TREATED AS A REPRESENTATIVE ASSESSEE, STILL WHETHER THE HIRE CHARGES PAID TO THE FSCS ARE EXIGIBLE TO TAXES OR NOT? 13. THE INCOME-TAX APPELLATE TRIBUNAL, CHENNAI D BENCH HAD AN OCCASION TO CONSIDER THE NATURE OF HIRE CHARGES PAID BY THE ASSESSEE TO FSCS. THE ISSUE WAS CONSIDERED BY THE TRIBUNAL IN ITS COMMON ORDER DATED 4.10.2011 PASSED IN ITA NOS. 1206 & 779/MDS/2011. THOSE APPEALS ALSO RELATED TO THE IM PUGNED ASSESSMENT YEAR 2007-08. THOSE APPEALS ARISE OUT O F THE ASSESSMENT ORDER PASSED IN THE HANDS OF THE ASSESSE E AS SUCH AND THE ISSUE CONSIDERED IN THOSE APPEALS WAS WHETH ER THE ASSESSEE WAS LIABLE TO MAKE DEDUCTION OF TAX AT SOU RCE UNDER SEC.195 OR NOT. THIS IS BECAUSE, THE ASSESSING OF FICER HAD DISALLOWED THE EXPENDITURE CLAIMED BY THE ASSESSEE UUNDER SEC.40(A)(IA) ON THE GROUND THAT THE ASSESSEE HAD NOT MADE TDS WHILE MAKING PAYMENTS TO FSCS UNDER SEC.195. THE T RIBUNAL ITA 74/12 :- 8 -: FOUND THAT THE PAYMENTS MADE BY THE ASSESSEE TO FSC S WERE NOT IN THE NATURE OF ROYALTY AND THEREFORE, SEC.195 DOE S NOT APPLY AS SUCH AND THERE CANNOT BE ANY DISALLOWANCE OF EXPEND ITURE UNDER SEC.40(A)(IA). 14. A PORTION OF THE ORDER OF THE TRIBUNAL REFLECTE D IN PAGES 14 AND 15 IS REPRODUCED BELOW TO MAKE THE MATTER CLEAR : IT IS NOT THE CASE THAT ANYBODY OR EVERYBODY CAN OPERATE A VESSEL. THE POWERS OF CHARTER (IN THIS C ASE THIS ASSESSEE) UNDER THE TIME CHARTER AGREEMENT IS EXTREMELY LIMITED LIKE THE CHARTERER CANNOT DRY-DOC K THE VESSEL AND THE VESSEL IS OPERATED BY ITS CAPTAIN/MASTER AND ITS CREWS, WHO ARE APPOINTED BY THE SHIP OWNER AND NOT BY THE CHARTERER (THE ASSESSEE). THERE IS A DISTINCTION BETWEEN LETTING THE ASSET AND USE OF ASSET BY THE OWNER PROVIDING SERVICES. THE PAYMENT MADE FOR THE USE OF ASSET BY OWNER FOR THE PURPOSES CANNOT BE TANTAMOUNT TO A ROYALTY. IN THIS CASE, THE CONSIDERATION IS NOT FOR USE OF THE SHIP ONLY, BUT ALSO FOR THE SERVICES OF MOVI NG THE GOODS BY A FULLY MANNED SHIP. IN THE DECISION OF T HE HONBLE DELHI HIGH COURT IN THE CASE OF ASIA SATELL ITE ITA 74/12 :- 9 -: TELECOMMUNICATIONS CO. LTD. (SUPRA), THE PAYMENT SO MADE BY THE ASSESSEE CANNOT BE TREATED AS ROYALTY FOR THE USE OF INDUSTRIAL OR COMMERCIAL OR SCIENTIF IC USE OF THE EQUIPMENT. THE LD. CIT(A) SHOULD HAVE APPRECIATED THAT THE CASE HAS ONLY BOOKED THE FREIG HT SPACE IN THE SHIP (TIME CHARTER) AND HAS NOT TAKEN THE VESSEL ON HIRE, IT IS DONE UNDER WHAT IS CALLED BA RE BOAT CHARTER. THEREFORE, THE PAYMENT MADE IN TH IS CASE WOULD NOT CONSTITUTE ROYALTY PAID FOR THE US E OF INDUSTRIAL, OR COMMERCIAL, OR SCIENTIFIC EQUIPMENTS . THE ESSENCE OF THE TIME CHARTER AGREEMENT EXECUTED BETWEEN THE PARTIES SPEAKS CLEARLY THAT THE ASSESSE E CAN UTILIZE THE SPACE IN THE VESSEL AND NOT THAT TH E ASSESSEE IS AUTHORIZED TO OPERATE OR EXERCISE CONT ROL OVER THE VESSEL. THE HONBLE KARNATKA HIGH COURT I N THE CASE OF CBDT VS. CHOWGULE & CO. LTD. 192 ITR 40 AND IN THE CASE OF KAR AND LIMA LETTOA & CO. LTD. V S. UOI 70 ITR 518 HAS HELD THAT SECTION 172 IS A COMPLETE CODE BY ITSELF. THUS, THE AMOUNT PAID BY THE ASSESSEE TO THE FSC ON TIME CHARTER AGREEMENT WOULD NOT AMOUNT TO ROYALTY NEITHER UNDER ITA 74/12 :- 10 -: EXPLANATION 2 OR UNDER SECTION 9(1)(B)(II) OR UNDER THE DTAA AND IN THIS CASE ONLY SECTION 172 APPLIES. TH IS, NO TAX IS NEEDED TO BE DEDUCTED AT SOURCE UNDER SECTION 195 AS THE AMOUNT PAID DOES NOT AMOUNT TO ROYALTY NEITHER UNDER EXPLANATION 2 OR UNDER SEC TION 9(1)(B)(II) OR UNDER THE DTAA AND IN THIS CASE ONLY SECTION 172 APPLIES. THIS, NO TAX IS NEEDED TO BE DEDUCTED AT SOURCE UNDER SECTION 195 AS THE AMOUNT PAID DOES NOT AMOUNT TO ROYALTY. 15. THE ABOVE DISCUSSION REFLECTED IN THE ORDER OF THE TRIBUNAL PASSED IN ASSESSEES OWN CASE WITH REFERENCE TO THE SAME PAYMENT OF HIRE CHARGES TO FSCS CLEARLY SHOWS THAT WHAT WAS ENJOYED BY THE ASSESSEE ON THE TIME CHARTER SHALL BE ONLY A PERMISSIVE RIGHT TO USE THE SPACE PROVIDED BY THE CAPTAIN OF THE SHIP. THE TRIBUNAL HAS, THEREFORE, CATEGORICALLY H ELD THAT THE PAYMENT IS NOT ROYALTY AND THE PAYMENT IS COVERED B Y SEC.172 OF THE ACT. 16. THE ABOVE DECISION OF THE TRIBUNAL STRAIGHTAWAY GOES TO DECIDE THE ISSUE IN THE PRESENT APPEAL PLACED BEFOR E US. THE TAX AT COMPOUNDING RATE HAS ALREADY BEEN ESTIMATED AS P ROVIDED ITA 74/12 :- 11 -: UNDER SEC.172 ON THE GROSS HIRE CHARGES PAID TO FSC S. SEC.172 IS ONE OF THE VERY FEW SECTIONS AVAILABLE FOR MAKIN G AN ASSESSMENT AND PAYMENT OF TAX IN A PREVIOUS YEAR IT SELF. THIS SPECIAL PROVISION IS AVAILABLE ONLY IN CASE OF FORE IGN SHIP LEAVING INDIAN PORTS, A DISCONTINUED BUSINESS AND IN CASE O F A PERSON LEAVING INDIA. THE ASSESSMENTS ARE MADE IN THE PRE VIOUS YEAR ITSELF. IN THAT SPECIAL SCHEME, THE TAX ON SHIPS L EAVING INDIAN PORTS IS CALCULATED AT A PRESUMPTIVE RATE. ONCE TH E TAX IS PAID ON THE BASIS OF THAT PRESUMPTIVE RATE, THE LIABILITY O F THE FOREIGN SHIP LEAVING THE PORTS IS DISCHARGED. IN THE PRESENT CA SE, THE TAX HAS BEEN PAID UNDER SEC.172, THEREBY THE FSCS HAVE DIS CHARGED THEIR LIABILITIES TOWARDS INDIAN INCOME-TAX. WHEN THE FSCS THEMSELVES HAVE DISCHARGED THEIR LIABILITIES TOWARD S TAX BY COMPLYING WITH THE PROVISIONS OF SEC.172, THERE IS NO QUESTION OF ANY FURTHER LIABILITY IN THEIR HANDS. WHEN THERE I S NO SUCH TAX LIABILITY IN THEIR HANDS, THERE IS NO JUSTIFICATION IN MAKING THE ASSESSMENT AGAIN IN THE HANDS OF THE ASSESSEE COMP ANY IN THE STATUS OF REPRESENTATIVE ASSESSEE, WHICH TANTAMO UNTS TO DOUBLE ASSESSMENT, WHICH IS NOT PERMISSIBLE UNDER THE LAW. THE PAYMENT OF TAX MADE BY THE FSCS. UNDER SEC.172 TAN TAMOUNTS TO DISCHARGING OF TAX LIABILITY OF THOSE COMPANIES AND THERE IS NO ITA 74/12 :- 12 -: REASON WHY THOSE COMPANIES AGAIN BE ASSESSED. WHEN THE PRINCIPAL ITSELF DOES NOT MAKE ANY LIABILITY, THE A GENT CANNOT BE FASTENED WITH ANY LIABILITY. THEREFORE, THE IMPUGN ED ASSESSMENT MADE IN THE HANDS OF THE ASSESSEE IS NOT IN ACCORDA NCE WITH LAW. IT IS CANCELLED. 17. IN RESULT, THIS APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON TUESDAY, THE 3 RD OF APRIL , 2012 AT CHENNAI. SD/- SD/- (CHALLA NAGENDRA PRASAD) (DR.O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED THE 3 RD APRIL, 2012 MPO* COPY TO : APPELLANT/RESPONDENT/CIT/CIT(A)/DR