THE DY DIT (I.T) 3(2), V. M/S. MEDERLAND SCHE OVERZEE BAGGERMADATS CHAPPIJ BV,

ITA 8352/MUM/2004

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 2113 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 5 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-05-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: L
• Assessment Year: 1999-2000
• Appeal Filed On: 19-11-2004
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NARENDRA SINGH
• Assessee Lawyers: K R PRADEEP; SAMIR H KANABAR
• Keywords: Business income; Double taxation relief; Deemed to accrue or arise in india; Permanent establishment; Wholly owned subsidiary
• Section: 143(3); 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI. BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYRAGHAVAN, JUDICIAL MEMBER. S.NO. I.T.A. NO. ASSTT. YEAR. 1. 8352/MUM/2004 1999-2000 2. 8888/MUM/2004 2000-2001 3. 1542/MUM/2005 2001-2002 4. 2118/MUM/2006 2002-2003. DY. DIRECTOR OF INCOME TAX, M/S NED ERLANDSCHE OVERZEE (IT)-3(2), MUMBAI. VS. BAGGERMAATSCHAPPIJI BV R.NO.132, 1 ST FLOOR, M/S ARTHUR AND ERSON 7 CO., CAS N.M. ROAD, 18 TH FLOOR, EXPRESS TOWERS, MUMBAI -38. NARIMAN POINT, MUMBAI-21. PAN AAACN5617P APPELLANT RESPONDENT C.O. NO. 256/MU M/2006 (IN ITA NO. 2118/M UM/2006) ASSESSMENT YEAR : 2002-03. M/S NEDERLANDSCHE OVERZEE ASSTT. D IRECTOR OF INCOME TAX BAGGERMAATSCHAPPIJI BV. VS. (IT)- 3(2), MUMBAI. CROSS OBJECTOR RESPONDENT. DEPARTMENT BY : SHRI NARENDRA SINGH. ASSESSEE BY : SHRI K.R. PRADEEP AND SHRI SAMIR H. KANABAR. 2 O R D E R PER J. SUDHAKAR REDDY, A.M. ALL THESE APPEALS ARE FILED BY THE D EPARTMENT. THE CROSS OBJECTION IS FILED BY THE ASSESSEE FOR THE ASSESSME NT YEAR 2002-03. AS THE ISSUES ARISING IN ALL THESE APPEALS ARE COMMON, FOR THE SAKE OF CONVENIENCE, THEY ARE HEARD TOGETHER AND DISPOSED O F BY WAY OF THIS COMMON ORDER. 2. FACT IN BRIEF: THE AO IN HIS ORDER FOR THE ASSESSMENT YEAR 2002- 03 AT PARA 2 NARRATED THE FACTS AS FOLLOWS : NEDERLANDSCHE OVERZEE BAGGERMAATSCHAPIJ BV (NOB) IS A COMPANY INCORPORATED IN NETHERLANDS AND IS TAX RESI DENT OF NETHERLANDS FOR THE PURPOSES OF DOUBLE TAXATION AVO IDANCE AGREEMENT (DTAA) BETWEEN INDIA AND NETHERLANDS. THE BUSINESS OF THE COMPANY IS TO PROVIDE DREDGERS ON CHARTER HIRE TO OTHER PARTIES. DURING THE PREVIOUS YEAR RELEVANT TO A.Y. 2002-03, THE ASSESSEE HAS GIVEN A DREDGER SAGAR MANTHAN ON CHA RTER HIRE ON BARE BOAT BASIS TO VAN OORD DREDGING AND MARINE CON TRACTORS BV (FORMERLY KNOWN AS BALLAST HAM DREDGING BV). (VAN O ORD). VAN OORD REQUIRED THE SAID DREDGER FOR CARRYING OUT THE DREDGING OPERATION IN RELATION TO THE CONTRACT ENTERED BY I T WITH THE MUMBAI PORT TRUST. VAN OORD PLACED ITS OWN CREW AND EMPLOY EES ON THE DREDGER TO CARRY OUT THE DREDGING OPERATIONS. THE D REDGER WAS UNDER THE CONTROL, MANAGEMENT AND SUPERVISION OF TH E VAN OORD AT ALL TIMES. AS PER THE TERMS OF THE AGREEMENT, THE D REDGER IS TO BE TAKEN BY VAN OORD FROM NOB FROM THE PORT OF DELIVER Y, I.E. SINGAPORE AND RETURNED TO THE PORT OF RE-DELIVERY. FURTHER, THE ROLE OF NOB ENDS WITH THE GIVING OF DREDGER ON HIRE AND AT AGREED LOCATION FOR AN AGREED DURATION. 3 3. THE ASSESSEE ENTERED INTO A CONTRACT WITH HOLLA NDSCHE ANNEMING MAATSCHAPPIJ BV (HEREIN AFTER CALLED AS HA M), ON 16 TH AUGUST, 1997 FOR LEASE OF DREDGER. THE CONTRACT WAS RENEWED PERIODICALLY BY ENTERING INTO SEPARATE/FRESH AGREEMENT. THE ASSESSE E RECEIVED CHARTER HIRE RENTALS FROM HAM ON ACCOUNT OF LEASE OF DREDGER FOR THE FIRST TIME IN THE ASSESSMENT YEAR 1998-99 AND OFFERED THE SAME FOR TA X AS ROYALTY. THE AO ACCEPTED THE SAME VIDE ASSESSMENT ORDER PASSED U/S 143(3) ON 21-03- 2001. THUS FOR THE FIRST ASSESSMENT YEAR, DURING WH ICH THE DREDGER WAS LEASED, THE RENTALS WERE OFFERED TO TAX AS A ROYALT Y, AND WAS ALSO TAXED AS SUCH BY THE REVENUE AS PER THE PREVAILING PROVISION S OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT WITH NETHERLANDS. 4. FOR THE ASSESSMENT YEAR 1999-2000, THE ASSESSEE FILED A RETURN OF INCOME ON 22-11-1999 DECLARING NIL INCOME . THE ASSESSEE CLAIMED THAT THE HIRE RENTALS WERE NOT TAXABLE, IN VIEW OF THE AMENDMENT TO ARTICLE 12 OF THE INDIA NETHERLANDS (IN) TREATY VIDE NOTIFICATION DATED 30-08-1999 WHEREIN PAYMENTS FOR THE USE OF EQUIPME NT WAS EXCLUDED FROM THE PURVIEW OF ROYALTY. THE AMENDMENT TO THE D TAA, WAS EFFECTIVE FROM 1 ST APRIL, 1998. THE AO REQUESTED THE ASSESSEE FOR ADD ITIONAL INFORMATION SUCH AS, AS TO WHO SUPPLIED THE CREW TO THE DREDGER, THE PERIOD OF BUSINESS OPERATION IN INDIA ETC. THE ASSE SSEE FILED DETAILS. THE AO OBSERVED THAT THE ASSESSEE IS NOT GIVING MATERIA L INFORMATION ASKED BY THE DEPARTMENT. THE AO CONCLUDED THAT THE ASSESSEE IS NOT COOPERATING WITH THE DEPARTMENT IN FILING OF THE DETAILS AND GI VING EXPLANATION. THEREAFTER HE REJECTED THE CONTENTION OF THE ASSESS EE THAT THE NEW DEFINITION OF ROYALTIES DOES NOT INCLUDE PAYMENT F OR USE OR RIGHT TO USE INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT AND THAT THE ASSESSEE DOES NOT HAVE A PERMANENT ESTABLISHMENT IN INDIA AS DEF INED IN ARTICLE 5 OF THE DUTCH TREATY AND THAT BUSINESS INCOME FROM RENTAL O F EQUIPMENT IS NOT 4 TAXABLE IN INDIA. AFTER EXAMINING THE AGREEMENT OF CHARTER WITH HAM AND THE REPLY OF THE ASSESSEE, THE AO CONCLUDED THAT TH E AGREEMENT DOES NOT MENTION WHATSOEVER ABOUT THE BASIC ASPECTS LIKE OFF ICIALS WHO WOULD HANDLE THE VESSELS AND AS TO WHO WOULD BE THE EMPLO YER OF PERSONAL WORKING ON THE VESSEL ETC. HE NOTICED THAT THE ASSE SSEE RAISES THE BILL ON THE CHARTERS, AS A PART OF THE HIRE FOR INCREASE IN PAY AND WAGES OF THE MASTERS, OFFICERS AND CREW AND THAT, THIS MAKES IT CLEAR THAT THE MASTERS, OFFICERS AND CREW ARE THE EMPLOYEES OF THE ASSESSEE , NOB. HE FURTHER OBSERVED THAT THE VESSEL HAS NOT BEEN DELIVERED IN PENANG, MALESIA, THOUGH CLAIMED TO BE SO, IN VIEW OF THE FACT THAT T HE AGREEMENT DATED 01- 04-1998 INDICATE THE POSITION OF THE VESSEL, TO BE IN MUMBAI, INDIA. HE ALSO OBSERVED THAT THERE IS SUBSTANTIAL DIFFERENCE IN THE RATE QUOTED BETWEEN THE FIRST AGREEMENT AND THE SECOND AGREEMEN T AND THAT THERE IS A TIME GAP BETWEEN THE EXPIRY OF THE FIRST AGREEMENT AND THE COMMENCEMENT OF THE SECOND AGREEMENT, OF ABOUT LESS THAN TWO MONTHS. THE AO NOTED THAT IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 1998-99, THE INCOME OF THE ASSESSEE WAS CHARGEABLE TO TAX AT THE RATE OF 10% IN TERMS OF DTAA BETWEEN INDIA AND NETHERLANDS. HE WAS OF THE OPINION THAT IN THE PRESENT ASSESSMENT YEAR, THE RE NTALS HAVE BEEN SUBSTANTIALLY JACKED UP. HE SUSPECTED THAT THIS COU LD BE A CASE WHETHER THE ASSESSEE IS A DUMMY OR A FRONT COMPANY OF HAM O R VICE-VERSA. NO DOUBT AS THE AO FELT THAT THERE IS NO SUFFICIENT M ATERIAL AVAILABLE ON RECORD, IN THIS REGARD AND HENCE HE WOULD NOT BE AB LE TO COMMENT CONCLUSIVELY ON THE SAME. AT PAGE 12 PARA 2 AND 3 O F THE ASSESSMENT ORDER, THE AO CONCLUDED AS FOLLOWS : AS ALREADY STATED ABOVE, THE ASSESSEES VESSEL HA S BEEN CHARTERED TO HAM AND THE MASTER, OFFICERS AND CREW WHO ARE EMPLOYEES OF THE ASSESSEE ARE DEPLOYED ON THE VESSE L. AS PER ARTICLE 21(C) OF THE AGREEMENT, THE ASSESSEE HAS TO BE MADE GOOD 5 ANY INCREASE IN COST IN RESPECT OF MASTER, OFFICERS AND CREW AND HENCE, IT CAN BE CLEARLY CONCLUDED THAT THEY ARE NO T EMPLOYEES OF HAM BUT IN EFFECT, THEY ARE EMPLOYEES OF THE ASSESS EE ITSELF. THE VESSEL HAD BEEN CHARTERED FOR A PERIOD OF 78 WEEKS FROM 01.04.1998 WHICH EFFECTIVELY SPANS OVER THE ENTIRE OF FINANCIAL YEAR 1998-99 AND HALF OF 1999-2000. THUS, AS THE EM PLOYEES OF THE ASSESSEE ARE ON BOARD THE VESSEL, THE FACT THAT THE VESSEL HA BEEN DELIVERED IN INDIA CLEARLY ESTABLISHES THE FACT THA T THE TRANSACTION HAS BEEN EFFECTED IN INDIA. THE EMPLOYEES OF THE AS SESSEE ON BOARD SAGAR MANTHAN IMPLIES THAT THE VESSEL I / CONSTIT UTES A BRANCH / OFFICE OF THE ASSESSEE AND HENCE, PE OF THE ASSESSE E IN INDIA, WITHIN THE MEANING OF ARTICLE 5 OF THE INDO-DUTCH DTAA. TH E RECEIPTS WOULD, THEREFORE, BE CHARGEABLE TO TAX AS BUSINESS INCOME IN INDIA AS PER ARTICLE 7 OF THE INDO-DUTCH DTAA. AS THE CHARTER OF THE DREDGER IS A WET LEASE, THERE IS NO DISPUTE THAT WET LEASE CONSTITUTE A PE IN INDIA. TH IS VIEW IS ALSO SUPPORTED BY VARIOUS COURT RULINGS AS WELL AS THE M ODEL COMMENTARIES ON INTERPRETATION OF THE DOUBLE TAXATI ON AGREEMENTS. THE ASSESSEE HAS ALSO NOT DISPUTED THAT IF IT IS A WET LEASE, IT WILL CONSTITUTE A PE IN INDIA. THE VARIOU S COMMENTARIES GIVEN BY THE ASSESSEE IN SUPPORT OF ITS CLAIM ALSO SUPPORT THE VIEW HAT WET LEASE OF A DREDGER WOULD CONSTITUTE A PE IN INDIA. 5. AFTER FINDING THAT THE AGREEMENT OF THE ASSESSE E IS A WET LEASE AGREEMENT, AS AGAINST THE CLAIM OF THE ASSES SEE THAT IT WAS A BEAR BOAT/DRY LEASE AGREEMENT, THE AO CONCLUDED THAT THE RE IS A PE IN INDIA. THEREAFTER HE WORKED OUT THE INCOME AT RS.8,2814,69 0/- AND HELD THAT AS PER ARTICLE 7 OF THE INDO-DOUTCH DTAA, IT WOULD BE TAXED AT THE RATE OF 48%. AGGRIEVED, THE ASSESSEE CARRIED THE MATER IN A PPEAL. 6. THE FIRST APPELLATE AUTHORITY CONSIDERED NOT ON LY THE ARGUMENTS OF THE ASSESSEE, BUT ALSO THE ADDITIONAL DOCUMENTS FILED BY IT, TO SUBSTANTIATE THAT THE DREDGER WAS OPERATED AND MANA GED BY THE CHARTERER HAM. THE LIST OF DOCUMENTS ARE AT PAGES 3 AND 4 O F THE CIT(APPEALS) ORDER. THE CIT(APPEALS) CALLED FOR THE REMAND REPOR T FROM THE AO ON THESE DOCUMENTARY EVIDENCES. AFTER CONSIDERING THE REMAND REPORT GIVEN 6 BY THE AO AS WELL AS THE SUBMISSIONS OF THE ASSESSE E, THE FIRST APPELLATE AUTHORITY AT PARA 5.6 HELD AS FOLLOWS : I HAVE CONSIDERED THE RIVAL SUBMISSIONS, ASSESSME NT ORDER AND ALL RELEVANT MATERIALS AVAILABLE ON RECORD. THE MAIN CONTENTION OF THE APPELLANT IS THAT THE AO WITHOUT CONSIDERING THE AGREEMENT AND THE RELEVANT CLAUSE, WHICH WERE MUTUALLY TRUCK OFF BY BOTH THE PARTIES I.E. HAM & NOB (TAX RESIDENTS OF NEDERLANDS ), DOCUMENTARY EVIDENCE FILED BY THE APPELLANT HELD TH AT THE LEASE OF THE DREDGER SAGAR MANTHAN ON HIRE TO HAM WAS A WE T LEASE AND THUS CONSTITUTED A PE OF THE APPELLANT IN INDIA. AC CORDINGLY, THE AO HAS APPLIED RULE 10 OF THE I.T. RULES AND DETERM INED TOTAL TAXABLE INCOME OF THE APPELLANT FOR THE YEAR UNDER CONSIDERATION AT RS.8,28,14,690/-. IT IS ALSO CONTENDED THAT ON THE SAME FACTS AND CIRCUMSTANCES OF THE CASE, IN THE A.Y. 1998-99, THE AO HAD ACKNOWLEDGED THE APPELLANTS CLAIM THAT THE DREDGER HAD BEEN LEASED ON A BAREBOAT BASIS AND THUS ACCEPTED THE AP PELLANTS CLAIM AS RETURNED BY IT. HOWEVER, IN THE A.Y. 1999-2000, THE AO ARRIVED AT A DIFFERENT CONCLUSION BY HOLDING THAT THE LEASE OF DREDGER WAS A WET LEASE. I HAVE ALSO PERUSED THE DOCUMENTARY EVID ENCE FILED BY THE APPELLANT WHICH CLEARLY INDICATES THAT THE OPER ATION, MANAGEMENT & CONTROL OF THE DREDGER WERE WITH HAM A ND NOT THE APPELLANT. ALL THE DOCUMENTARY EVIDENCE WERE ALSO R EMANDED TO THE AO, WHO IN HIS REPORT DATED 2/8/2004 AFTER CONS IDERING THE PAPER BOOKS SUBMITTED BY THE APPELLANT HAS STATED T HAT THE CONTRACTS WERE ENTERED INTO WITH HAM DREDGING AND M ARINE CONTRACTORS AND NOT WITH HAM BV. IN THIS REGARD, IT IS FOUND THAT THE CERTIFICATE OF INCORPORATION OF HAM CLEARLY IND ICATES ITS LEGAL NAME ALONG WITH ITS TRADE NAME HAM DREDGING & MARI NE CONTRACTORS. ACCORDINGLY, I AGREE WITH THE CONTENT ION OF THE APPELLANT THAT THE NAME HAM DREDGING & MARINE CONTR ACTORS IS MERELY A TRADE NAME AND THAT HAM DREDGING & MARINE CONTRACTORS ARE NOT TWO SEPARATE ENTITIES. I FIND M ERITS IN THE APPELLANTS CONTENTION THAT MERELY BECAUSE THE APPE LLANT IS A WHOLLY OWNED SUBSIDIARY OF HAM, IT CAN NOT BE CONCL UDED THAT IT HAS RETAINED OPERATION, MANAGEMENT AND CONTROL OF T HE DREDGER WITH ITSELF THEREBY CONSTITUTING A WET LEASE. ALL T HE DOCUMENTARY EVIDENCE LIKE INVOICES RAISED BY THE THIRD PARTY IN THE NAME OF HAM CLEARLY SHOWS THAT THE MANAGEMENT AND CONTROL O F THE DREDGER WERE WITH HAM AND NOT THE APPELLANT. ON THE CONTRARY THE AO TO SUPPORT ITS CONTENTION THAT IT WAS A WET LEAS E HAS BROUGHT NO MATERIAL ON RECORD. IN HIS REPORT, THE AO STATED TH AT THE 7 CONTRACTS/ARRANGEMENTS WERE NOT WITH HAM BV, THE NE THERLAND BUT WITH HAM, DREDGING AND MARINE CONTRACTORS, WHICH OV ERSEE THE ACTIVITIES IN INDIA ON BEHALF OF HAM BV, THE NETHER LANDS AND ON EXTENSION ON BEHALF OF NOB ALSO, SINCE NOB IS A SUB SIDIARY COMPANY OF HAM AND PRESUMABLY CONTROLLED BY THE SAM E MANAGEMENT. THE AO SHOULD HAVE GONE INTO FURTHER D ETAILS AND THE FINDING OF THE AO SHOULD NOT BASED ON PRESUMPTI ON. ALSO ARTICLE 5(7) OF THE INDIA NETHERLANDS TREATY, STATE S THE FACT THAT A COMPANY IN INDIA IS CONTROLLED BY A COMPANY IN NETH ERLANDS SHALL NOT RESULT IN THE COMPANY IN INDIA BEING CONSIDERED AS PE OF THE COMPANY IN NETHERLANDS. AS REGARDS, TO THE APPLICAB ILITY TO ARTICLE 9 OF THE INDIA NETHERLANDS TREATY, I AGREE WITH T HE CONTENTION OF THE APPELLANT THAT THE PROVISIONS OF ARTICLE 9 OF T HE INDIA NETHERLANDS TREATY ARE APPLICABLE TO ENTERPRISES IN TWO DIFFERENT CONTRACTING STATES (IE INDIA AND NETHERLANDS). IN T HE INSTANT CASE, BOTH THE ENTITIES IE THE APPELLANT AND HAM ARE RESI DENTS OF THE NETHERLANDS (IE NEITHER OF THE ENTITIES ARE RESIDEN T IN INDIA). ACCORDINGLY, THE PROVISIONS OF ARTICLE 9 OF THE IND IA NETHERLANDS TREATY ARE OUTRIGHT NOT APPLICABLE TO IT. BESIDES T HIS I ALSO AGREE WITH THE CONTENTION OF THE APPELLANT THAT SINCE THE LEAS E IS IN THE NATURE OF DRY LEASE THE PERIOD OF THE LEASE IS NOT RELEVAN T. FURTHER, AS REGARDS APPELLANTS CONSTITUTING A PE, BASED ON THE DOCUMENTARY EVIDENCE, AGREEMENT AND CONSIDERING OECD/INTERNATIO NAL TAX COMMENTARY THAT THE APPELLANT DID NOT HAVE A PE IN INDIA SINCE IT DID NOT HAVE RESPONSIBILITY BEYOND THE PROVISION OF THE DREDGER ON CHARTER HIRE, I, HOLD THAT SINCE THE LEASE OF THE D REDGER WAS MERELY A DRY LEASE THE APPELLANT DOES NOT CONSTITUTE A PE IN INDIA. THIS GROUND OF APPEAL IS DECIDED IN APPELLANTS FAVOUR. 7. AGGRIEVED, THE REVENUE HAS FILED THIS APPEAL ON THE FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT NEDERLANDSCHE OVER ZWEE BAGGERMAATSCHAPPIJ BV (NOB) DOES NOT HAVE A PERMANE NT ESTABLISHMENT IN INDIA WITHOUT APPRECIATING THE FAC TS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT THE ASSESSEE IS NO T REQUIRED TO PAY INTEREST UNDER SECTION 234B OF THE I.T. ACT. 8. SIMILAR ARE THE FACTS FOR OTHER YEARS. 8 9. THE LEARNED DR, MR. NARENDRA SINGH, RELIED ON P AGE 4 PARA 3 OF THE ASSESSMENT ORDER AND SUBMITTED THAT THE AS SESSEE HAD FAILED TO FURNISH THE DETAILS OF THE CREW, PERIOD OF STAY OF DREDGER ETC. HE HIGHLIGHTED THE FACT THAT THE DREDGER IN QUESTION W AS MANNED BY THE CREW OF THE ASSESSEE AND ALSO THE FACT THAT THE SHIP HAD NOT BEEN DELIVERED BY THE ASSESSEE OUTSIDE INDIA. HE SUBMITTED THAT THE C IT(APPEALS) MERELY ACCEPTED THE CLAIM OF THE ASSESSEE THAT THE AGREEME NT IN QUESTION, IS A BARE BOAT CHARTER AND NOT A WET LEASE. HE CONTENDED THAT THE AO WAS NOT GIVEN ADEQUATE OPPORTUNITY CONSEQUENT TO THE FURNIS HING OF ADDITIONAL DOCUMENTATION BY THE ASSESSEE BEFORE THE CIT(APPEAL S). HE RELIED ON THE ORDER OF THE AO AND SUPPORTED THE SAME. HE CONTENDE D THAT THE INCOME IN QUESTION IS BUSINESS INCOME AND THAT THE ASSESSEE H AS A PE IN INDIA AND THUS HAS BEEN RIGHTLY TAXED BY THE AO. HE SUBMITTED THAT THE CASE OF THE REVENUE IS THAT THE NATURE OF RECEIPTS OF LEASE REN TALS DOES NOT CONSTITUTE ROYALTY WITHIN THE MEANING OF ARTICLE 12(4) OF DTA A AND HENCE THE AO HAS RIGHTLY HELD THE INCOME FROM LEASE RENTALS AS I NCOME FROM BUSINESS. THUS HE SUBMITS THAT THE TRIBUNAL SHOULD ADDRESS TH E SOLE GROUND RAISED BY THE REVENUE I.E. WHETHER THE ASSESSEE HAS A PERM ANENT ESTABLISHMENT IN INDIA OR NOT. HE FILED A COPY OF A LETTER WRITTE N BY THE DIRECTOR OF INCOME TAX (I.T.) TO HIM WHICH IS DATED 9-3-2010 ON THE ISSUE. 10. THE LEARNED COUNSEL FOR THE ASSESSEE, MR. K.R. PRADEEP, ON THE OTHER HAND, SUBMITTED THAT THE DREDGER IN QUEST ION WAS GIVEN TO A BARE BOAT LEASE BASIS ON CHARTER TO HAM. HE SUBMITTED TH AT THE CONTRACT WAS ENTERED INTO IN NETHARLAND AND THE CHARTER IN QUEST ION WAS BETWEEN THE ASSESSMENT YEARS 1998-99 TO 2002-03. HE SUBMITTED T HAT THE ASSESSEE HAD PRODUCED VOLUMINOUS DETAILS, BEFORE THE FIRST APPEL LATE AUTHORITY TO MEET THE OBJECTIONS RAISED BY THE AO IN THE ASSESSMENT O RDER, TO ESTABLISH THE 9 FACT THAT THE CHARTER IN QUESTION WAS ON A BARE BOA T BASIS. HE POINTED OUT THAT THESE VOLUMINOUS DETAILS WERE FORWARDED BY THE FIRST APPELLATE AUTHORITY TO THE AO AND A REMAND REPORT CALLED FOR. THE AO IN THE REMAND REPORT HAD NOT OFFERED ANY COMMENT ON THE VOLUMINOU S DOCUMENTATION FURNISHED BY THE ASSESSEE BUT ON THE OTHER HAND, TR IED TO RAISE NEW ISSUES. HE SUBMITTED THAT THE AO COULD NOT SUBSTANTIATE HIS CONTENTION THAT THE LEASE WAS WET LEASE. HE POINTED OUT THAT THE ASSESS EE SUBMITTED EVIDENCES TO SHOW THAT THE MANAGEMENT AND CONTROL WAS IN THE HANDS OF HAM AND NOT THE ASSESSEE AND HENCE THE LEASE WAS DRY LEASE. HE POINTED OUT THAT FOR THE INITIAL YEAR I.E. ASSESSMENT YEAR 1998-99, THE AO HIMSELF, ACKNOWLEDGED THE ASSESSEES CLAIM THAT THE DREDGER HAS BEEN LEASED OUT ON A BARE BOAT CHARTER BASIS AND TREATED THE BARE BOAT LEASE RENT AS ROYALTY. THUS HE SUBMITS THAT, ON FACTS THE LEASE R ENTALS IN QUESTION ARE NOTHING BUT ROYALTY. 11. ON LAW, THE LEARNED COUNSEL SUBMITTED THAT ROY ALTY IS COVERED U/S 9(1)(VI) READ WITH ARTICLE 12 OF THE DTAA. HE P OINTED OUT THAT UPTO THE ASSESSMENT YEAR 1998-99 THE AMOUNT BEING PAYME NTS FOR THE USE OF EQUIPMENT WAS IN THE NATURE OF ROYALTY COVERED UND ER ARTICLE 12. HOWEVER, VIDE NOTIFICATION DATED 30-08-1999, HE POI NTED OUT, THAT THE AMENDMENT WAS MADE TO ARTICLE 12 OF THE TREATY WITH EFFECT FROM 01-04- 1998, WHEREBY, PAYMENT FOR USE OF EQUIPMENT WAS E XCLUDED FROM THE PURVIEW OF ROYALTY. HE TOOK THIS BENCH THROUGH THE NOTIFICATION AS WELL AS THE AMENDMENT TO THE DTAA AND SUBMITTED THAT, WHILE SECTION 9(1)(VII) CONTINUES TO BE THE CHARGING SECTION FOR ROYALTY UN DER THE INCOME TAX ACT, INDO DUTCH TREATY EXCLUDES SUCH PAYMENTS. HE SUBMITS THAT IN VIEW OF THE SPECIFIC EXCLUSION OF THE ABOVE AMOUNTS FROM DTAA FROM ASSESSMENT YEAR 1999-2000, THOUGH CONSIDERED AS ROY ALTY UNDER THE DOMESTIC LAW, ROYALTY WAS RENDERED NOT LIABLE TO TA X IN THE HANDS OF THE 10 ASSESSEE. ON A QUERY FROM THE BENCH, HE SUBMITTED THAT CHARTER RENTS IS COVERED U/S 9(1)(VI) WHICH IS A SPECIFIC CLAUSE AND HENCE THEY CANNOT BE BROUGHT U/S 9(1)(I) WHICH IS A GENERAL CLAUSE. IN S UPPORT OF THIS PROPOSITION, HE RELIED ON THE DECISION OF THE HONB LE GUJARAT HIGH COURT IN THE CASE OF METEROR SATELLITE LTD. 121 ITR 311 ( GUJ). HE SUBMITTED THAT THIS DECISION HAS BEEN FOLLOWED BY THE CHENNAI BENC H OF HONBLE ITAT IN THE CASE OF NODIT LTD. 42 ITD 187. HE FURTHER RE LIED UPON THE OPINION COMMUNICATED BY THE CBDT TO THE MINISTRY OF SHIPPIN G VIDE LETTER NO.AOO 17A/11/03 DATED JANUARY 29, 2003 AND SUBMIT TED THAT THIS INDICATES THE CBDTS INTENTION WAS TO TREAT THE SHI P AS AN EQUIPMENT AND TO TAX RENTALS AS ROYALTY. HE FURTHER RELIED ON THE DECISION OF THE CHENNAI BENCH OF THE ITAT IN THE CASE OF M/S VAN OORD ACZ E QUIOPMENT BV, A GROUP COMPANY OF THE ASSESSEE AND SUBMITTED THAT TH E ISSUE IS SQUARELY COVERED BY THAT DECISION. THE ASSESSEE FURTHER RELI ED ON THE DECISION OF THE COCHIN BENCH OF THE TRIBUNAL IN THE CASE OF KI N SHIP SERVICES (I)(P) LTD. IN ITA NO. 537/COCH/07. HE EMPHASIZED THAT THE NATURE OF INCOME IN QUESTION IS ROYALTY AND COVERED UNDER ARTICLE 12 OF DTAA AND DUE TO SPECIFIC EXCLUSION IN THE DTAA, THESE PAYMENTS GET EXEMPTED FROM PURVIEW OF TAXATION. 12. ON THE ISSUE WHETHER A PERMANENT ESTABLISHMENT EXISTS, HE SUBMITTED THAT THE ISSUE WOULD COME UP ONLY IF THE INCOME IS TREATED AS BUSINESS INCOME AND INCLUDED UNDER ARTICLE 7 OF THE DTAA. HE SUBMITTED THAT THE ASSESSEE DOES NOT HAVE A FIXED P LACE IN INDIA THROUGH WHICH IT IS CARRYING ON BUSINESS. IT HAD MERELY LEA SED A DREDGER TO HAM ON BARE BOAT CHARTER BASIS AND THAT THE DREDGER WAS UNDER THE CONTROL AND MANAGEMENT OF THE HAM AND NOT THE ASSESSEE. HE SUBM ITTED THAT THE ASSESSEE HAS NO EMPLOYEES IN INDIA NOR DID THE ASSE SSEE RENDER ANY DREDGER SERVICES IN INDIA AND THAT MERE LEASED OF A DREDGER DOES NOT 11 AMOUNT TO ESTABLISHING A PE. HE TOOK THIS BENCH THR OUGH THE ORDER OF THE CIT(APPEALS) AS WELL AS THE WRITTEN SUBMISSIONS MAD E BY THE ASSESSEE BEFORE THE CIT(APPEALS) IN SUPPORT OF HIS CLAIM THA T THE ASSESSEE DOES NOT HAVE A PE IN INDIA. HE ALSO RELIED ON THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF RELIANCE INDUSTRIES 81 TTJ 787. HE PRAYED THAT THE ORDER OF THE FIRST APPELLATE AUTHORITY BE UPHELD. 13. ON THE SECOND GROUND I.E. DELETION OF INTEREST U/S 234B, HE SUBMITTED THAT THE ASSESSEE WOULD NOT BE LIABLE TO PAY INTEREST UNDER THE SAID SECTION FOR THE REASON THAT NO TAX IS PAYABLE BY THE ASSESSEE ON THE AMOUNTS RECEIVED BY IT. 14. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDER ATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND A PERUSAL O F THE PAPERS ON RECORD AND THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE CASE LAWS CITED, WE HOLD AS FOLLOWS. 15. THE FIRST ISSUE THAT HAS TO BE ADDRESSED BY US IS WHETHER THE SAID LEASE IN QUESTION IS A BAREBOAT LEASE OR WET LEASE. IN OUR CONSIDERED OPINION, THE ASSESSEE HAS DEMONSTRATED, WITH DOCUME NTARY EVIDENCE THAT THE OPERATIONS OF THE DREDGER WERE WITH HAM AND NO T WITH THE ASSESSEE. AS PER CLAUSE 3.9 AND 10 OF THE CHARTER HIRE AGREEM ENTS, THE RESPONSIBILITIES FOR THE OPERATION AND MAINTENANCE OF THE DREDGER, INCLUDED THE PROVISION OF THE MASTER, OFFICERS AND CREW FOR THE DREDGER IS ON HAM. IN ADDITION, CLAUSE 13 OF THE AGREEMENT AL SO STATES THAT NOB WOULD NOT BE RESPONSIBLE FOR LOSS OR DAMAGE TO HAM AS A RESULT OF STRIKES, LOCK OUT OR A RESTRAIN OF LABOUR ON THE DR EDGER. THE ASSESSEE HAS FILED COPIES OF INVOICES RAISED BY M/S ARYA OFFSHOR E ON HAM EVIDENCING THAT THE EXPENSES IN CONNECTION WITH ARRIVAL OF DRE DGER IN INDIAN WATER SUCH AS PORT DUES, PILOT CHARGES ETC. SHOULD INCUR BY HAM. THE 12 EMPLOYMENT CONTRACTS BETWEEN HAM AND THE CAPTAIN OF THE HASSLES, COPY OF THE WAGES SLIPS AND CHEQUES ISSUED IN FAVOUR OF CAPTAIN BY HAM, COPY OF THE SERVICE AGREEMENT ENTERED INTO BETWEEN HAM A ND THE THIRD PARTY OCS CONSULTANCY AND SERVICES P.LTD. FOR HIRING OF O FFICERS AND CREWS FOR THE VESSELS AND OTHER EVIDENCES, WERE FILED SHOWING THAT THE DREDGER WAS MANNED BY EMPLOYEES OF HAM AND NOT THE ASSESSEE. EV IDENCES WERE ALSO FILED TO DEMONSTRATE THAT THE DREDGER WAS SERVICED AND MAINTAINED BY THE CHARTER HAM. THUS THE ASSESSEE HAS DEMONSTRATED TH AT AT ANY POINT OF TIME, THE OPERATION, MANAGEMENT AND CONTROL OF THE DREDGER WAS WITH HAM AND NOT NOB. THE AO HAS NOT BROUGHT OUT ANY EVI DENCE TO CONTRADICT THE CLAIM OF THE ASSESSEE NOR DID HE PR ODUCE EVIDENCE TO SUPPORT HIS CONCLUSION THAT THE LEASE IN QUESTION I S ON WET LEASE. THUS ON THIS FACTUAL MATRIX, WE UPHOLD THE FINDINGS OF THE FIRST APPELLATE AUTHORITY AT PARA 5.6 OF HIS ORDER WHICH IS EXTRACTED FOR REA DY REFERENCE: I HAVE ALSO PERUSED THE DOCUMENTARY EVIDENCE FILE D BY THE APPELLANT WHICH CLEARLY INDICATES THAT THE OPERATIO N, MANAGEMENT & CONTROL OF THE DREDGER WERE WITH HAM AND NOT THE APPELLANT. ALL THE DOCUMENTARY EVIDENCE WERE ALSO REMANDED TO THE AO, WHO IN HIS REPORT DATED 2/8/2004 AFTER CONSIDERING THE PAPER BOOKS SUBMITTED BY THE APPELLANT HAS STATED THAT THE CONT RACTS WERE ENTERED INTO WITH HAM DREDGING AND MARINE CONTRACTO RS AND NOT WITH HAM BV. IN THIS REGARD, IT IS FOUND THAT THAT THE CERTIFICATE OF INCORPORATION OF HAM CLEARLY INDICATES ITS LEGAL NA ME ALONG WITH ITS TRADE NAME HAM DREDGING & MARINE CONTRACTORS. ACCORDINGLY, I AGREE WITH THE CONTENTION OF THE APP ELLANT THAT THE NAME HAM DREDGING & MARINE CONTRACTORS IS MERELY A TRADE NAME AND THAT HAM AND HAM DREDGING & MARINE CONTRAC TORS ARE NOT TWO SEPARATE ENTITIES. I FIND MERITS IN THE APP ELLANTS CONTENTION THAT MERELY BECAUSE THE APPELLANT IS A WHOLLY OWNED SUBSIDIARY OF HAM, IT CAN NOT BE CONCLUDED THAT IT HAS RETAINED O PERATION, MANAGEMENT AND CONTROL OF THE DREDGER WITH ITSELF T HEREBY CONSTITUTING A WET LEASE. ALL THE DOCUMENTARY EVIDE NCE LIKE INVOICES RAISED BY THE THIRD PARTY IN THE NAME OF H AM CLEARLY SHOWS THAT THE MANAGEMENT AND CONTROL OF THE DREDGE R WERE WITH HAM AND NOT THE APPELLANT. ON THE CONTRARY, THE AO TO SUPPORT ITS 13 CONTENTION THAT IT WAS A WET LEASE HAS BROUGHT NO M ATERIAL ON RECORD. IN HIS REPORT, THE AO STATED THAT THE CONTRACTS/ARRANGEMENTS WERE NOT WITH HAM BV, THE NE THERLAND BUT WITH HAM, DREDGING AND MARINE CONTRACTORS, WHICH OV ERSEE THE ACTIVITIES IN INDIA ON BEHALF OF HAM BV, THE NETHER LANDS AND ON EXTENSION ON BEHALF OF NOB ALSO, SINCE NOB IS A SUB SIDIARY COMPANY OF HAM AND PRESUMABLY CONTROLLED BY THE SAM E MANAGEMENT. THE AO SHOULD HAVE GONE INTO FURTHER D ETAILS AND THE FINDINGS OF THE AO SHOULD NOT BASED ON PRESUMPT ION. 16. THUS WE UPHOLD THE CONTENTION OF THE ASSESSEE THAT THE INCOME IN QUESTION IS ROYALTY BEING PAYMENT FOR THE USE OF EQUIPMENT. 17. NOW WE COME TO THE ISSUE WHETHER THE AMOUNT RE CEIVED BY THE ASSESSEE AS ROYALTY CAN BE BROUGHT TO TAX IN VI EW OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT. UNDER THE INDIAN INCO ME TAX ACT, 1961, AS FAR AS ROYALTY IS CONCERNED, IT IS COVERED BY SE CTION 9(1)(VI) WHICH READS AS FOLLOWS : 9. (1) ( VI ) : INCOME BY WAY OF ROYALTY PAYABLE BY - - - - - - - - - - - - - - - - - - - - -- - - - -- - - - -- - - - - EXPLANATION 2 FOR THE PURPOSES OF THIS CLAUSE, R OYALTY MEANS CONSIDERATION (INCLUDING ANY LUMP SUM CONSIDE RATION BUT EXCLUDING ANY CONSIDERATION WHICH WOULD BE THE INCOME OF THE RECIPIENT CHARGEABLE UNDER THE HEAD (CAPITA L GAINS) FOR (I) -- - - - - - - - - - - - - - - - - - - - (IVA) THE USE OR RIGHT TO USE ANY INDUSTRIAL, COMM ERCIAL OR SCIENTIFIC EQUIPMENT BUT NOT INCLUDING THE AMOUNTS REFERRED TO IN SECTION 44BB. 18. COMING TO ARTICLE 12 OF THE DTAA, THE AMENDME NTS ARE EXTRACTED AS BELOW : 14 DTAA INDIA AND NETHERLANDS NOTIFICATION NO. G.S.R . 382(E) DT. 27 TH MARCH 1989. IN THE ABOVE NOTIFICATION, SCOPE OF ARTICLE 12 DEAL ING WITH ROYALTY COVERED PAYMENTS FOR USE OF EQUIPMENT. THE SAID P AYMENT WAS DEFINED IN CLAUSE 6 OF THE ARTICLE WHICH DEFINED IT AS PAYMENTS OF ANY KIND RECEIVED AS CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT. DTAA INDIA AND NETHERLANDS NOTIFICATION NO. 11050 DT. 30 TH AUGUST 1999 AMENDMENTS IN THE ABOVE NOTIFICATION WITH EFFECTIVE DATES ARE AS BELOW : PARA III W.E.F. 01.04.1997. ARTICLE 12 WAS AMENDED TO EXCLUDE PAYMENTS FOR USE OF EQUIPMENT FROM PURVIEW OF ROYALTY UNDER CLAUSE 1. HOWEVER, CLAUSE 4 OF THE ARTICLE WAS ALSO AMENDED I NSERTING SUB-CLAUSE (B) TO THE SAID CLAUSE 4 INCLUDING PAYMENTS OF ANY KIND RECEIVED AS CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE I NDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT TO THE DEFINITION OF ROYALTY. HENCE, THOUGH THE SAID PAYMENTS WERE EXCLUDED FROM SCOPE OF ROYALTY, IT WAS INCLUDED IN THE DEFINITION OF ROYALTY IN CLA USE 4 INDIRECTLY RENDERING THE SAID PAYMENTS TAXABLE. PARA VI W.E.F. 01.04.1998. THE ABOVE CLAUSE 4 WAS AGAIN AMENDED TO EXCLUDE PA YMENTS OF ANY KIND RECEIVED AS CONSIDERATION FOR THE USE OF, OR T HE RIGHT TO USE INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT BY DELETING SUB-CLAUSE (B) IN THE DEFINITION OF ROYALTY. HOWEVER, NO AMENDMENT WAS MADE TO CLAUSE 1 AND THER EBY PAYMENTS FOR USE OF EQUIPMENT REMAINED EXCLUDED FROM SCOPE OF ROYALTY. THEN, THE POSITION AFTER 01.04.1998 IS THAT PAYMEN TS FOR USE OF EQUIPMENT STOOD EXCLUDED FROM THE SCOPE OF ROYALTY UNDER CLAUSE 1 W.E.F. 01.04.1947 AND THE SAME ALSO STOOD EXCLUDED FROM THE DEFINITION OF ROYALTY UNDER CLAUSE 4. 15 ALL THE ABOVE AMENDMENTS RENDER THE SAID PAYMENT F OR USE OF EQUIPMENT EXCLUDED FROM SCOPE OF ARTICLE 12 AND TH EREBY EXCLUDED FROM PURVIEW OF TAXABILITY, UNDER THE DTAA. FROM THE ABOVE IT IS CLEAR THAT UNDER THE DTAA AGRE EMENT, THE RECEIPT OF BARE BOAT RENTALS I.E. RENT FOR USE OF OR PAYMENT FOR U SE OF EQUIPMENT IS NOT BROUGHT TO TAX AS ROYALTY CONSEQUENT TO THE AMENDMENT. THUS THOUGH UNDER DOMESTIC LAW, THE CHARGING SECTION TREATS THE RECEIPTS AS RO YALTY, UNDER THE TREATY, ROYALTY CANNOT BE BROUGHT TO TAX IN VIEW OF THE AMENDMENTS. AT THIS JUNCTURE, WE ALSO REFERRED TO NOTIFICATION DATED 30-8-1999 WHEREBY AM ENDMENT WAS MADE TO ARTICLE 12 OF THE TREATY WITH EFFECT FROM 01-04-199 8, WHICH IS AS FOLLOWS : AND WHEREAS ARTICLE IV OF THE PROTOCOL DATED THE 3 0TH JULY, 1988, TO THE AFORESAID CONVENTION PROVIDES THAT IF AFTER THE SIG NATURE OF THE AFORESAID CONVENTION UNDER ANY CONVENTION OR AGREEMENT BETWEE N INDIA AND A THIRD STATE WHICH IS A MEMBER OF THE ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT, INDIA SHOULD LIMIT ITS TAXATION AT SOU RCE ON DIVIDENDS, INTEREST, ROYALTIES, FEES FOR TECHNICAL SERVICES OR PAYMENTS FOR THE USE OF EQUIPMENT TO A RATE LOWER OR A SCOPE MORE RESTRICTED THAN THE RATE OR SCOPE PROVIDED FOR IN THIS CONVENTION ON THE SAID ITEMS OF INCOME, THEN, AS FR OM THE DATE ON WHICH THE RELEVANT INDIAN CONVENTION OR AGREEMENT ENTERS INTO FORCE THE SAME RATE OR SCOPE AS PROVIDED FOR IN THAT CONVENTION OR AGREEME NT ON THE SAID ITEMS OF INCOME SHALL ALSO APPLY UNDER THIS CONVENTION; AND WHEREAS IN THE CONVENTION BETWEEN INDIA AND GER MANY WHICH ENTERED INTO FORCE ON 26TH OCTOBER, 1996, THE CONVENTION BETWEEN INDIA AND SWEDEN WHICH ENTERED INTO FORCE ON 25TH DECEMBER, 1997, THE CONV ENTION BETWEEN INDIA AND THE SWISS CONFEDERATION WHICH ENTERED INTO FORCE ON 19TH OCTOBER, 1994 AND THE CONVENTION BETWEEN INDIA AND THE UNITED STATES OF A MERICA WHICH ENTERED INTO FORCE ON 18TH DECEMBER, 1990 WHICH STATES ARE MEMBE RS OF THE ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT, THE GOVERNME NT OF INDIA HAS LIMITED THE TAXATION AT SOURCE ON DIVIDENDS, INTEREST, ROYA LTIES, FEES FOR TECHNICAL SERVICES AND PAYMENTS FOR THE USE OF EQUIPMENTS TO A RATE LO WER OR A SCOPE MORE RESTRICTED THAN THAT PROVIDED IN THE CONVENTION BET WEEN INDIA AND NETHERLANDS ON THE SAID ITEMS OF INCOME; 19. THE RATIONAL OF THIS AMENDMENT WAS TO LIMIT/LO WER THE TAXATION IN RESPECT OF CERTAIN ITEMS OF INCOME, SO AS TO BRING THE TAXATION IN LINE WITH THAT OF OTHER COUNTRIES. 20. AS FAR AS THE ISSUE WHETHER THE SAID CHARTER R ENTALS COULD BE CLASSIFIED AS REGULAR BUSINESS INCOME, UNDER THE DO MESTIC LAW IN VIEW OF SECTION 9(1)(I), THOUGH THEY ARE SPECIFICALLY COVER ED U/S 9(1)(VI), WE FIND THAT 16 THE ISSUE IS COVERED BY THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF METEROR SATELLITE LTD. 121 ITR 311 WHEREIN IT IS HELD AS FOLLOWS : .CLAUSE (VI) OF SECTION 9(1) DEALS WITH A SPECIF IC TYPE OF INCOME, NAMELY, INCOME BY WAY OF ROYALTY, WHEREAS C LAUSE (I) OF SECTION 9(1) IS A MORE GENERAL PROVISION, WHICH DEA LS WITH ALL INCOMES ACCRUING OR ARISING, WHETHER DIRECTLY OR INDIRECTLY , THROUGH OR FROM, ANY BUSINESS CONNECTION IN INDIA. INCOME BY WAY OF ROYALTY IS A SPECIES OR ONE OF THE CATEGORIES OF A LARGER CLASS MENTIONED IN CLAUSE (I) OF SECTION 9(1) AND, HENCE, THE SPECIFIC INSTAN CE HAVING BEEN PROVIDED BY CLAUSE (VI), ONCE WE COME ACROSS THE QU ESTION OF ROYALTY, WE HAVE ONLY TO LOOK AT THAT CLAUSE (VI) AND NOT TO THE MORE GENERAL PROVISION OF CLAUSE (I) OF SECTION 9(1) . SIMILARLY, INCOME BY WAY OF FEES FOR TECHNICAL ASSISTANCE, WHICH IS COVERED BY CLAUS E (VII) OF SECTION 9(1), IS A MORE GENERAL CATEGORY AS COMPARED TO THE ROYALTY WHICH IS REFERRED TO IN CLAUSE (VI), PARTICULARLY IN THE LIG HT OF THE DEFINITION OF 'ROYALTY' IN EXPLANATION 2 TO CLAUSE (VI) OF SECTI ON 9(1) . AGAIN, THE SAME PRINCIPLE OF PARTICULAR EXCLUDING THE GENERAL HAS TO BE APPLIED IN THIS CASE AND IF THE CASE FALLS UNDER CLAUSE (VI) A ND IS EXEMPTED FROM THE OPERATION OF CLAUSE (VI) BY VIRTUE OF THE PROVI SO, THEN WE CANNOT REFER TO CLAUSE (VII) WHICH IS A GENERAL CLAUSE. TH EREFORE, THE ONLY QUESTION THAT WE HAVE TO CONSIDER IS WHETHER THE PR OVISO TO SECTION 9(1), CLAUSE (VI), IS APPLICABLE TO THE FACTS OF TH IS CASE. UNDER THE PROVISO, THERE MUST BE AN AGREEMENT MADE BEFORE THE 1ST DAY OF APRIL, 1976, AND THE AGREEMENT MUST BE APPROVED BY THE CEN TRAL GOVT. IF THESE TWO CONDITIONS ARE SATISFIED AND THE OTHER RE QUIREMENTS OF THE PROVISO ARE OPERABLE, THEN, INCOME BY WAY OF ROYALT Y IS NOT TO BE DEEMED TO ACCRUE OR ARISE IN INDIA. UNDER THE MAIN PORTION OF CLAUSE (VI), INCOME BY WAY OF ROYALTY COVERED BY CLAUSES ( A), (B) OR (C) OF CLAUSE (VI), IS TO BE DEEMED TO ACCRUE OR ARISE IN INDIA BUT IF BY VIRTUE OF THE PROVISO, NOTHING CONTAINED IN CLAUSE (VI) IS TO APPLY IN RELATION TO REMITTANCE OF INCOME BY WAY OF ROYALTY OR THAT P ORTION OF INCOME BY WAY OF ROYALTY IS NOT TO BE DEEMED TO ACCRUE OR ARI SE IN INDIA AND, THEREFORE, WILL NOT BE LIABLE TO BE ASSESSED UNDER THE PROVISIONS OF THE INCOME-TAX ACT. THAT SEEMS TO BE CLEAR ENOUGH FROM THE CONSIDERATION OF THE PRINCIPLES OF INTERPRETATION OF STATUTES. THIS VIEW WAS FOLLOWED BY THE CHENNAI BENCH OF THE ITAT IN THE CASE OF NODIT LIMITED 42 ITD 187. 21. THE CHENNAI BENCH OF THE TRIBUNAL IN THE CASE OF VAN OORD ACZ EQUIPMENT BV, HELD AS FOLLOWS: 17 ON CAREFUL CONSIDERATION, WE ARE SATISFIED THAT TH E LD. CIT(A) HAS RIGHTLY DELETED THE LEVY OF INCOME TAX AT THE RATE OF 10% ON EQUIPMENT RENT EARNED BY THE ASSESSEE COMPANY BY APPLYING THE AMEN DED PROVISIONS OF DTA AGREEMENT. IT COULD BE SEEN THAT THE AO HAS LEVIED INCOME TAX ON THE BASIS OF THE AMENDED PROVISIONS OF EXPLANATION 2 (IVA) TO SECTION 9 OF THE I.T.ACT WITHOUT TAKING INTO CONSIDERATION THE PROVISIONS OF DTA AGREEMENT BETWEEN THE TWO COUNTRIES. IT IS ALSO CLEAR FROM THE RECOR DS THAT THE ASSESSEE IS ENTITLED TO THE BENEFITS OF DTA AGREEMENT BETWEEN I NDIA AND THE NETHERLANDS IN VIEW OF THE FACT THAT AS PER CERTIFI CATES FURNISHED BY THE ASSESSEE FROM THE INCOME TAX DEPARTMENT OF THE NETH ERLANDS THE EQUIPMENT RENT IS INCLUDED IN THE TOTAL INCOME OF THE ASSESSE E ON WHICH TAX AS PER LAW OF THE NETHERLANDS HAVE BEEN PAID. WHEN THERE IS N O PERMANENT ESTABLISHMENT IN INDIA THERE IS NO CHARGING PROVISI ON UNDER THE I.T.ACT TO BRING THIS INCOME UNDER THE PROVISIONS OF THE SAID ACT FOR THE PURPOSE OF CHARGEABILITY. THE LD. DEPARTMENTAL REPRESENTATIVE COULD NOT CONTROVERT THESE FINDING OF THE FACTS ON THIS POINT. WE HAVE THEREFORE, NO HESITATION TO UPHOLD THE FINDING OF THE LD CIT(A) ON THIS ISSUE. THIS DECISION SQUARELY COVERS THE ISSUE ON HAND. RE SPECTFULLY FOLLOWING THE SAME, WE UPHOLD THE ORDER OF THE FIRST APPELLATE AU THORITY. 22. THE NEXT ISSUE IS WHETHER THE ASSESSEE HAS A P E IN INDIA OR NOT. AS PER ARTICLE 5 OF THE INDIA NETHERLANDS TAX TREAT Y, A PE MEANS A FIXED PLACE OF BUSINESS THROUGH WHICH BUSINESS OF AN ENTERPRISE IS WHOLLY OR PARTLY CARRYING OUT. MERE PROVISION OF A DREDGER ON DRY LEASE FOR C ARRYING OUT DREDGING ACTIVITY IN INDIA DOES NOT RESULT THE ASSESSEE HAVING A PE. OECD COMMENTARY ON THE SUBJECT STATES AS FOLLOWS : THE PARAGRAPH DEFINES THE TERM PERMANENT ESTABLI SHMENT AS A FIXED PLACE OF BUSINESS THROUGH WHICH THE BUSINESS OF AN ENTERPRISE IS WHOLLY OR PARTLY CARRIED ON. THIS DEFINITION THEREFORE CON TAINS THE FOLLOWING CONDITIONS: THE EXISTENCE OF A PLACE OF BUSINESS I.E. A FACIL ITY SUCH AS PREMISES OR IN CERTAIN INSTANCE, MACHINERY OR EQUIPMENT. 18 THIS PLACE OF BUSINESS MUST BE FIXED I.E. IT MUST BE ESTABLISHED A DISTRICT PLACE WITH A CERTAIN DEGREE OF PERMANENT. THE CARRYING ON OF THE BUSINESS OF THE ENTERPRISE T HROUGH THIS FIXED PLACE OF BUSINESS. THIS MEANS USUALLY THAT PERSONS WHO IN ONE WAY OR ANOTHER ARE DEPENDENT ON THE ENTERPRISE (PERSONNEL) CONDUCT THE BUSINESS OF THE ENTERPRISE IN THE STATE IN WHICH THE PLACE IS SITUA TED. 23. THE ASSESSEE HAS NO PERSONNEL LOCATED IN INDIA FOR THE PURPOSE OF EXECUTION OF THE CONTRACT ENTERED BY IT WITH HAM. T HE ASSESSEE DOES NOT HAVE ANY RESPONSIBILITY BEYOND THE PROVISION OF A DREDGE R ON CHARTER HIRE. THE DREDGER WAS OPERATED BY PERSONNEL APPOINTED BY HAM AND WAS USED BY HAM FOR THE PURPOSE OF BUSINESS. MERE DRY LEASE OF AN E QUIPMENT DOES NOT RESULT IN A PE. THUS, WE UPHOLD THE FINDINGS OF THE FIRST APPEL LATE AUTHORITY ON THIS ISSUE AND DISMISS THE APPEAL OF THE REVENUE ON THIS GROUN D. 24. COMING TO THE GROUND ON THE ISSUE OF LEVY OF I NTEREST U/S 234B, THE SAME IS CONSEQUENTIAL IN NATURE. 25. THUS, THE APPEAL FOR THE ASSESSMENT YEAR 1999- 2000 BY THE REVENUE IS DISMISSED. 26. FOR THE ASSESSMENT YEAR 2000-01 IN ITA NO. 888 8/MUM/2004, THE ISSUE IS IDENTICAL AND FOR THE DETAILED REASONS GIVEN FOR THE ASSESSMENT YEAR 2002-03 IN ITA NO.2118/MUM/2006 AND FOR ASSESSMENT YEAR 2001-02 IN ITA NO. 1542/MUM/2005, WE DISMISS THE REVENUE APPEALS . 27. COMING TO THE C.O. NO.256/MUM/2006, THE SOLE ISSUE IS LEVY OF INTEREST U/S 234B. THE SAME IS DISMISSED AS THE LEV Y IS MANDATORY AND CONSEQUENTIAL IN NATURE. 19 28. IN THE RESULT, THE APPEALS OF THE REVENUE ARE DISMISSED AND THE CROSS OBJECTION OF THE ASSESSEE IS ALSO DISMISSED. ORDER PRONOUNCED ON THIS 14 TH DAY OF MAY, 2010. SD/- SD/- (ASHA VIJAYRAGHAVAN) (J. SUDHAKAR REDDY) JUDICIAL MEMBER. ACCOUNTANT MEMBER. MUMBAI, DATED : 14 TH MAY, 2010. COPY FORWARDED TO : 1. APPELLANT. 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, A-BENCH. (TRUE COPY) BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI BENCHES, MUMBAI. WAKODE