Case Law Details
RELEVANT PARAGRAPH
12. Section 9(l)(vi)(c) provides that any income by way of royalty payable by a person who is a resident except where the royalty is payable in respect of any right, property or information used or services utilized for the purpose of a business or profession carried on by such person outside India or for the purposes of business or profession carried on by such person outside India or for the purpose of making or earning any income from any source outside India shall be deemed to accrue or arise in India and hence chargeable to tax. Royalty for that purpose means consideration for the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB.
13. We have to examine whether the charter hire payments made by the assessee company amounted to royalty payment within the above legal context. In the present case, the payments cannot be held to be royalty paid for obtaining any right for the assessee for any purposes explained in the section. The assessee has not acquired any right on the foreign ships. Likewise, the assessee has not acquired any property in the ship by chartering it. The assessee has simply hired the ships following international chartering protocol for transporting merchandise from foreign port to another foreign port. These payments cannot be held to be in the nature of royalty within the meaning of section 9.
14. The assessing authority has treated the payments made by the assessee company under the category of royalty. Royalty means consideration for the transfer of all or any rights in respect of a patent, invention, model, design, secrete formula or processes or trade mark or similar property. A plain reading makes it clear that the charter ship hire payments made by the assessee do not fall under the above category. The royalty also means consideration for imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property. The payments made by the assessee do not have any of these characteristics. The expression ‘royalty’ further means the use of any patent, invention, model, design, secrete formula or process or trade-mark or similar property. The meaning of the word “property” should be read in the company of the words like patent, invention, model, etc. The principle of interpretation of ejusdum generis applies here. The assessee has not made the payments for the purpose of any such property.
15. Therefore, it is very clear that the payments made by the assessee company were in the nature of simple payments for chartering ships on hire for doing the business outside India. Therefore, the payments do not satisfy the test laid down in section 9 of the I.T.Act,1961. When section 9 is not satisfied, there cannot be a case that income is deemed to accrue or arise in India as a result of hire payments made by the assessee company to foreign ships.
16. The liability u/s.195 is cast on the assessee only when the payment is made to a non-resident, which is chargeable under the provisions of the I.T.Act. Here, the payments made by the assessee do not fall u/s.9 and the payments do not take the character of any sum chargeable to tax under this Act. Therefore, section 195 does not come into operation.
17. When section 195 does not apply to the present case, there is ho violation of that section and consequently invoking of section 40(a)(i) does not arise. Therefore, we find that the CIT(Appeals) is justified in deleting the disallowance made by the Assessing Officer. This issue is decided against the Revenue.
