| SooperKanoon Citation | sooperkanoon.com/75036 |
| Court | Income Tax Appellate Tribunal ITAT Chennai |
| Decided On | Jun-23-2006 |
| Judge | M Chaturvedi, Vice-, K Ranjan |
| Reported in | (2007)109ITD226(Chennai) |
| Appellant | Poompuhar Shipping Corpn. Ltd. |
| Respondent | The Income-tax Officer, |
2. The solitary common issue raised in these appeals relates to the question whether on the facts and in the circumstances of the case the assessee was liable to deduct tax at source while remitting payments to various shipping companies under time charter agreements.
3. We have heard the rival submissions in the light of the material placed before us and the precedents relied upon. The assessee is a Tamil Nadu Government Undertaking. It is engaged in the business of transport of coal from various ports in India on behalf of the Tamil Nadu State Electricity Board, Chennai. For the transportation of coal the assessee charters vessels from India as well as from Foreign Shipping Companies(hereinafter called FSC). For this purpose the assessee entered into standard time chartered agreements with various FSC. While remitting the charter payments to the FSC the assessee did not make deduction in respect of withholding tax. In the opinion of the Assessing Officer the assessee was liable to deduct tax at source while remitting the payments to FSC. As the tax was not deducted at source, the Assessing Officer passed orders under Sections 201(1) and 201(1A) of the Income-tax Act, 1961 (hereinafter called the Act). The Commissioner (Appeals) confirmed the orders of the Assessing Officer for the assessment years 2002-2003 and 2004-2005. However, for the assessment year 2003-2004 the Commissioner(Appeals) allowed the appeal.
4. At the outset it was contended that the payment was not exigible to tax as such there was no liability to deduct the tax at source. It was contended that the payment would not fall within the expression 'royalty' as defined under Section 9(1)(vi) of the Act as well as under the Double Taxation Avoidance Agreement. The agreement was made in the context of time charter. Time charter is not a contract for hiring an equipment effecting liability under Section 9(1)(vi) of the Act.
Referring to the provisions of Section 195 of the Act it was stated that the liability to deduct tax at source would arise only if the payment could be considered as royalty, Since the payment is not royalty, the prescription of Section 195 of the Act cannot be applied in the facts of the present case.
5. Royalty has been defined in Explanation 2 Clause (iva) to Section 9(1)(vi) as the consideration for the use or right to use any industrial, commercial or scientific equipment, but not including the amounts referred to in Section 44BB. From this it follows that royalty includes any consideration for the use of equipment. It was contended before us that ship cannot be construed to be an equipment. The word 'equipment' is neither defined under the Act nor under the treaty. As per the New Oxford Advanced Leaners Dictionary 'equipment' means 'the things that are needed for a particular purpose or activity'. As per Websters Dictionary 'equipment' means 'all fixed assets other than land and building' used in a business enterprise. A fixed asset is an asset held with an intention of being used for the purpose of producing or providing goods or services and is not held for sale in the normal course of business. As per the Strouds Judicial Dictionary, the term 'equipment' for the purpose of the Employer's Liability (Defective Equipment) Act, 1969 was held to be wide enough to include a ship of whatever size notwithstanding that ships are not specifically mentioned in the definition of the equipment under the Act.
6. The official USA Government Website on the North American Industry Classification system includes shipping under the category of the transportation equipment. In the interpretation of tax treaties, aircrafts and ships have always been considered to fall within the meaning of the term industrial equipment.
7. The views expressed by Klaus Vogel on Double Taxation Convention (Third Edition) are pertinent to construe the meaning of 'equipment' in the context of Article 8: ...leasing a ship or aircraft on charter fully equipped, manned and supplied is also considered as a form of operating ships or aircraft (para 5 MC COMM. Article 8, See m. No. 5). On the other hand leasing a ship on bareboat charter basis is not considered such a form of operation. Income from such a bareboat charter is, as a rule, treated as business income and thus falls under the Article 7 (MC.COMM.Para 5 supra m.no.5); to the extent that DTCs in accordance with the OECD MC valid prior to version 1922 and with the UN MC include 'income from leasing of industrial equipment' in Article 12(2) the earnings from bareboat charters are royalties (see the previous edition of this commentary m.no.32) 8. The learned departmental representative invited our attention on the decision of the Tribunal rendered in the case of West Asia Maritime Ltd. v. ITO in ITA Nos. 2376 and 2377(Mds)/2005 dated 19-5-2006. In this case it was held that ship is an equipment. The hire charges thus partakes the character of royalty for use of the equipment under the provisions of Section 9(1)(vi) of the Act. Shri Pardiwala submitted that in the aforesaid decision the Tribunal did not consider the definition of the term 'equipment' as defined under Sections 44BB and 43(3) of the Act.
9. It is pertinent to note that the aforesaid definitions were rendered in the context of Sections 44BB and 43(3) only. This is made clear in the sections themselves. These definitions therefore cannot be used to describe the word 'equipment' in the context of ship. Besides, in this definition the word 'plant' is defined and not the word 'equipment'.
The word 'equipment' has got various shades of meanings. Life boat is equipment qua the ship. Ship is equipment qua the business. Equipment denotes things that are needed for a particular purpose or activity. In the present case we find that the assessee is in the shipping business and as such in the context of the business of the assessee ship can be construed to be an equipment of the business. We, therefore following the ratio laid down in the case of West Asia Maritime Ltd., cited supra, hold that ship is an equipment.
10. Next it was argued that once the possession and control of the vessel is handed over then the payment made is to be regarded as for the use of the vessel. On the other hand, when the possession and control remains with the owner, the payment made by the charterer cannot be said to be for the user of the vessel. It is for availing services of the vessel. In time charter there is no payment for the use of the ship. The payment is for availing the transportation services offered by the owner. The time charter is not a contract for hire of ship but a contract for provision of standard services which the owner of the ship provides througnh their officers, crew and ship.
11. Our attention was invited on time charter agreement entered into by the assessee with a FSC, which is included at page 2 of the paperbook.
This agreement was approved by the New York Produce Exchange. Clause 4 of the agreement reads as under: 4. That the Charterers shall pay for the use and hire of the said vessel at the rate of USD 29,000 per day including overtime payable every 15 days in advance or pro rata for part of a day....United States Currency commencing on and from the day of her delivery, as aforesaid and at and after the same rate for any paty of a day; hire to continue until the hour of the day of her redelivery in like good order and condition, ordinary wear and tear excepted, to the Owners (unless lost) at...on dropping lasy outward sea pilot station at safe port ENNORE, MADRAS or TUTICORIN in Charterers' option ATDNSHINC...unless otherwise mutually agrees. Charterers are to give Owners not less than 15/10/7 days notice of vessels expected date of re-delivery, and probable port.
12. The learned departmental representative laid special emphasis on the words 'for the use and hire of the said Vessel'. Shri Pardiwala submitted that this is a standard form of contract. What is mentioned is not the real purport of the agreement. We find it difficult to accept this contention. The cardinal principle enshrined in the dictum DE NON APPARENTIBUS ET NON EXISTENTIBUS EADEM EST RATIO is that which does not appear will not be presumed to exist. What appears in the agreement can only be taken into consideration. Clause 4 of the agreement makes it abundantly clear that the consideration was paid for the user of the ship. When the terms of the contract are reduced into writing the intention of the parties is to be translated with reference to the written instrument. No other interpretation is possible.
13. It was submitted that in the absence of any business connection or permanent establishment of FSC in India their income cannot be made exigible to tax. We have noted that as per the existing agreement between Ennore Port and Tamil Nadu Electricity Board two berths in Ennore were kept under lease exclusively for ships chartered by the assessee. The facility that is placed for berthing is guaranteed for the foreign ships in coastal waters chartered by the assessee tantamounts to a permanent establishment for the foreign shipping companies. Nothing was placed before us to refute the contention of the department. As such we do not find merit in the argument of Mr.
Pardiwala on this count.
14. The assessee did file before the Commissioner(Appeals) the present appeals under Section 246A(1)(ha). This section reads as under: 246A(1) Any assessee aggrieved by any of the following orders(whether made before or after the appointed day) may appeal to the Commissioner (Appeals) against: These are not appeals under Section 248 which prescribes for appeal by a person denying liability to deduct tax. This section reads as under: Any person having in accordance with the provisions of Sections 195 and 200 deducted and paid tax in respect of any sum chargeable under this Act, other than interest, who denies his liability to make such deduction, may appeal to the Commissioner(Appeals) to be declared not liable to make such deduction.
195(1) Any person responsible for paying to a non resident, not being a company, or to a foreign company, any interest or any other sum chargeable under the provisions of this Act (not being income chargeable under the head 'Salaries' shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force.
As per the mandate of this section it is obligatory on the part of the person responsible for making payment to the non resident to deduct tax at source in respect of any sum chargeable under the provisions of the Act. The fact that non resident did earn the income in India constitute raison d'etre for its chargeability. If there exists doubt in regard to the taxability of such income the person responsible may make an application to the Assessing Officer in this regard. Therefore it is clear that the fact whether the sum is chargeable to tax or not is to be determined by the Assessing Officer. The assessee cannot decide it suo motu. However if the assessee is not satisfied with the decision of the assessing Officer he may ventilate his grievance by filing appeal under Section 248 before the Commissioner (Appeals) in regard to the taxability of the sum and the issuance of certificate for not deducting tax or for deducting tax at a lower rate.
15. The Mumbai Bench-D of the Tribunal in the case of DCIT v. Arthur Anderson & Co., Mumbai in ITA No. 9125(Mds)/1995 dated 29-7-2003 has held that where there esists a doubt as to the chargeability of income to tax there also tax is to be deducted at source EX ABUNDANTI CAUTELA.The fact that whether income is exigible to tax or not can only be determined after the assessment. The Hon'ble apex court in the case of Transmission Corporation of A.P. Ltd. and Anr. v. CIT 239 ITR 587 has held that the scheme of Sub-sections (1), (2) and (3) of Section 195 and Section 197 leaves no doubt that the expression 'any other sum chargeable under the provisions of this Act' would mean 'sum' on which income-tax is leviable. In other words, the said sum is chargeable to tax and could be assessed to tax under the Act. The consideration would be whether payment of the sum to the non resident is chargeable to tax under the provisions of the Act or not.
16. Once the amount of tax is deducted at source the person against whose income the tax is deducted could claim credit of that amount by filing the appropriate return. If tax is deducted on an amount which is not exigible to tax, the Assessing Officer makes refund of that amount after the completion of the assessment. Deduction of tax at source is a convenient method of tax collection since it effects early realization and is less painful to the person from whose income such tax is deducted. Moreover it saves time on the part of the Revenue inasmuch as all calculation and other attendant work are performed by the person responsible for paying. It also acts as a check on tax evasion.
17. In the present case we find that the amount payable to the non resident was exigible to tax. No tax was deducted on that amount. The Assessing Officer, therefore, rightly treated the assessee as an assessee in default in respect of the tax within the meaning of Section 201 of the Act. We have perused the reasonings adduced in the impugned order for the assessment years 2002-2003 and 2004-2005. In our opinion the Commissioner (Appeals) took a correct view in the matter.
Accordingly we uphold the impugned order for these two years. For the same reasonings we reverse the order of the Commissioner (Appeals) for the assessment year 2003-2004.
18. In the result the assessee's appeals in ITA Nos. 2841 and 2842(Mds)/2005 for the assessment years 2002-2003 and 2004-2005 stand dismissed and the departmental appeal in ITA No. 1191(Mds)/2004 for the assessment year 2003-2004 stands allowed.