Mobilisation Fees Received from Time Charter of Vessel won’t fall within definition of ‘Royalty’ under the India-Singapore Tax Treaty: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Mumbai Bench held that the mobilisation fees received from the time charter of the vessel would not fall within definition of ‘royalty’ under the India-Singapore tax treaty.

The assessee, Smit Singapore Pte Ltd. is a company incorporated in Singapore, operating in the maritime sector and primarily engaged in the business of salvage, wreck removal, environmental protection and consultancy. During the year under consideration the assessee company had time chartered its vessel, Smit Borneo along with crew to M/s Leighton India Contractors Pvt. Ltd., for providing services for exploration or extraction of mineral oils to Oil and Natural Gas Corporation (ONGC), in connection with I-tube and Flexible pipe installations for ONGC Pipeline Replacement Project-3 and Heera RD Phrase-II Pipeline Project.

The genesis of the controversy involved in the present appeal primarily hinges around the aspect that as to whether or not the lower authorities were right in concluding that the consideration received by the assessee from the time charter of the vessel viz. ‘Smit Borneo’ alongwith the crew was to be treated as ‘royalty’, both as per the clause (iva) of the Explanation 2 to Sec. 9(1)(vi) of the Act, and Article 12(3)(b) of the India-Singapore Tax Treaty.

The assessee submitted that its case does not fall within the meaning of the term ‘royalty’ as defined in Explanation 2 to Section 9(1)(vi) of the Act, had come forth with two fold contentions.

Firstly, as the assessee had time chartered its vessel ‘Smit Borneo’ along with the crew to Leighton India Contractor Pvt. Ltd., and had not given or parted with the use or right to use of the said vessel to the charterer viz. Leighton India Contractor Pvt. Ltd, therefore, the consideration received in lieu thereof could not be held as royalty,

Secondly, as the services provided by the assessee by time charter of its vessel viz. Smit Borneo were inextricably connected with prospecting extraction and production of mineral oils, the consideration therein received from the charterer being in the nature of amounts referred to in Section 44BB of the Act, would thus fall within the exclusion carved out in the definition of the term royalty as contemplated in clause (iva) of the Explanation 2 to Section 9(1)(vi) of the Act.

The coram headed by the Vice President Pramod Kumar observed that the consideration received by the assessee from the time charter of the vessel viz. Smit Borneo would not fall within the realm of the definition of the term royalty as contemplated in Article 12 of the India-Singapore tax treaty, therefore, the mobilisation fees, which as observed by the AO/DRP formed an inextricable part of such time charter services has to be similarly construed.

Therefore, the ITAT vacated the treatment of the mobilisation fees received by the assessee as royalty by the lower authorities.