Kreuz Challenger Pte Ltd. Vs ACIT (ITAT Delhi)
Conclusion: Hire charges of a vessel did not constitute ‘Royalty’ as it was in the nature of business income and as there was no Permanent Establishment therefore, no taxability arose on account of business income. Merely because of the fact that assessee had applied for lower deduction certificate u/s 197, that in itself could not be a basis for imposing a tax liability as no admission against the interest of person was conclusive as far as it could be explained.
Held: AO observed that the hire charges earned by assessee from provision of vessels fall within the definition of royalty as prescribed u/s 9(1)(vi) or Article 12 of the Tax Treaty and if the assessee wanted to be governed by the provisions of Tax Treaty, the revenue earned by assessee would be taxable as per Article 12 of the Tax Treaty. On the other hand, taxability of the income earned by assessee was held to be falling within the ambit of section 115A if the assessee didn’t have a PE in India/section 44DA if the assessee had a PE in India. AO observed that as the vessel was provided by assessee company for the purpose of providing services/facilities for extraction or production of mineral oil in India, therefore, such services fall within the provisions of section 44BB and that this section did not embargo any addition on the assessee to have earned for PE in India. Further, AO had taken into consideration a letter issued from the assessee for withholding tax certificate u/s 197 wherein assessee had claimed applicability of section 44BB. Therefore, the amount of Rs.30,50,33,034/- were held to be received for provision of offshore services vessel and taxable u/s 44BB. DRP had sustained this addition for which assessee was in appeal. It was held that payments received by assessee were business receipts and assessee did not have a PE in India. Therefore, assessee was entitled to be benefitted of the DTAA provisions. Now, merely because of the fact that assessee had applied for lower deduction certificate u/s 197, that in itself could not be a basis for imposing a tax liability as no admission against the interest of person was conclusive as far as it could be explained. To be more precise, determination of income and tax liability of a person could not be decided based on concession given by any party at any stage of proceedings. If the assessee, in order to be cautious has sought this certificate u/s 197 of the Act, that could not act as an estoppel. Thus, on that basis alone any adverse inference by tax authorities below was not justified.
