The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) ruled that the payment received by assessee for Time Charter of ship does not come under the ambit of ‘Royalty’ and the same is not taxable under section 9(1)(vi) of Income Tax Act, 1961.
The appeal was filed by the assessee against the final assessment order passed by Assessing Officer (AO) under section 143(3) of Income Tax Act read with section 144C(13) for the AY 2019-20.
The assessee Nan Lian Ship Management LLC, company incorporated in and tax resident of UAE and is engaged in the business of shipping operation. It has entered into a Time Charter contract with M/s Poompuhar Shipping Corp. Ltd. (PSCL) dated 18.04.2018 for transporting coal from Paradeep port to Tutucorine in TamilNadu, through its ship ‘MV Eastern View’.
Further, the contract was for a period of 13 months. The assessee in turn has chartered the vessel ‘MV Eastern View’ from M/s Power Overseas Investment LLC, again on Time Charter Basis.
The assessee has disclosed the receipts of transporting coal from port to port from (PSCL) as shipping business and offered to tax under section 44B of the Income Tax Act, i.e. @ 7.5% of the gross receipt attributable to shipping operations carried out in India.
The AO concluded after examining the contract between the assessee and M/s PSCL that the assessee is only leasing the vessel, while PSCL has chartered the vessel for a term of 13 months in order to transport coal from Paradip port to Tuticorin, Tamil Nadu.
Furthermore, AO determined that because PSCL is paying the assessee for the use or right to use the vessel through leasing or renting it out, such payment is subject to “royalty” taxation under Section 9(1)(vi) of Income Tax Act.
The AO held that the assessee is not being paid for transporting coal from one port to another within India territory albeit for leasing the vessel. Therefore, it cannot be taxed under section 44B of the Income Tax Act.
Soumendu Kumar Das, Department Representative relied on the case of Poompuhar Shipping Corporation Ltd, where the Madras High Court has clearly held that the payment was made to a non-resident company who has given the ship on time charter basis to Poompuhar Shipping Corp. Ltd. is a ‘Royalty’ within the meaning of section 9(1)(vi).
The bench of members Gagan Goyal and Amit Shukla observed that the clauses and the freight calculation clearly showed that the payment was subject to load of the cargo and it was not simply for leasing or renting out the ship for the time charter period.
Further observed that the concept of dominance or control over ship by the charterer on the equipment is paramount in determining the character of payment as payment of ‘royalty’ and in absence of the same cannot be treated as royalty.
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