MATHEWSONS EXPORTS & IMPORTS PVT. LTD. Vs. ACIT
LAWS(IT)-2014-10-22
INCOME TAX APPELLATE TRIBUNAL
Decided on October 21,2014

Mathewsons Exports And Imports Pvt. Ltd. Appellant
VERSUS
ACIT Respondents

JUDGEMENT

N.R.S.Ganesan, Member (J) - (1.) THIS appeal of the assessee is directed against the order of the CIT(A) -II, Kochi dated 22 -10 -2013 and pertains to assessment year 2006 -07.
(2.) THE only issue arises for consideration is non deduction of tax for payment of ship charter hire charges. Shri K.P. Paulson, the ld. representative for the assessee submitted that the assessee is engaged in the business of import and export of merchandise goods. According to the ld. representative, the assessee exports goods mainly to Maldives. The ld. representative further submitted that for the purpose of export of goods the assessee hired a vessel named "M.V. Thekkady' from Lots International Ltd., Dubai on the basis of a time charter agreement dated 07 -05 -2005 for a period of three months. According to the ld. representative, the assessee has to pay hire charges of USD 725 per day. The charter agreement was also renewed for a further period of three months by another agreement dated 03 -08 -2005. According to the ld. representative, the owner of the vessel, viz. Lots International Ltd. is a company incorporated in Dubai. According to the ld. representative, what was paid by the assessee is hire charges for hiring the vessel to run the same in the international waters. However, the assessing officer found that what was paid by the assessee is royalty. Therefore, the assessee had to deduct tax u/s. 195 of the Act. According to the ld. representative, what was paid by the assessee is not royalty. A fully operational vessel with necessary permits and trained crew was hired by the assessee for use of the same for transportation of goods in the international waters. The owner of the vessel/recipient of the payment is a non resident Indian (NRI) based in Dubai, UAE. Therefore, according to the ld. representative, the Double Taxation Avoidance Agreement (DTAA) between the two sovereign countries, viz. Government of India and Government of UAE would come into operation. According to the ld. representative, the royalty arising in a contracting state and paid to the recipients of the other contracting state shall be taxed in the other contracting state. Referring to Article 12(4) of DTAA, the copy of which is available at page 9 to 23 of the paper book, the ld. representative submitted that the payment received by the NRI has to be treated as business income, therefore, it cannot be treated as royalty. According to the ld. representative, the NRI had no permanent establishment in India, therefore, no income accrued to the NRI in India on the payment of hire charges for the charter of vessel for operating the same in international water. According to the ld. representative, the provisions of section 195 would apply only in case the payment was received or deemed to be received in India. In this case, the payment was not received in India and not deemed to be received in India. Therefore, according to the ld. representative, the assessing officer is not justified in disallowing the claim of the assessee.
(3.) THE ld. representative further submitted that DTAA between the two sovereign countries would override the provisions of Indian Income -tax Act insofar as it is more beneficial to the assessee. According to the ld. representative, Article 8 of the DTAA clearly says that the profit derived by an enterprise of a contracting state from the operation of ships in international water shall be taxable only in that state. Therefore, in view of the specific clause in the DTAA, more particularly, Article 8, the income received by the NRI has to be taxed only in the other contracting state, viz. UAE. On a query from the bench only if the ship was operated in the international traffic/waters then only the profit was taxable in the other contracting state, then how can the assessee substantiate claim that the vessel was operated in the international waters, the ld. representative by placing several documents issued by Tuticorin Port Trust and Customs (C Cargo) submitted that the vessel 'M.V. Thekkadi' arrived to Tuticorin Port from foreign country without any load/material/goods. Therefore, it is obvious that empty vessel sailed all the way from Maldives to Tuticorin. After loading goods at Tuticorin Port, the vessel M.V. Thekkadi sailed to Maldives which is obvious from the documents issued by the customs' authorities (C -Cargo) at Tuticorin Port. No domestic sailing of the ship was undertaken at any point of time. The vessel, M.V. Thekkadi sailed between Tuticorin Port to Maldives Port. Therefore, the operation of vessel M.V. Thekkadi is only in the international waters/traffic, therefore, according to the ld. representative, Article 8 of the DTAA would come into operation. Article 8 of the DTAA would override the provisions of section 9 of the I.T. Act since admittedly, Article 8 is more beneficial to the assessee.;


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