Case Law Details
DECIDED BY: ITAT, MUMBAI BENCH `A’, MUMBAI, IN THE CASE OF: DDIT Vs. Nederlandsche Overzee Baggermaatschappiji B.V., APPEAL NO: ITA Nos. 8352/Mum/2004, 8888/Mum/2004, 1542/Mum/2005 and 2118/Mum/2006 C.O. No. 256/Mum/2006, DECIDED ON May 14, 2010
O R D E R
Per J. Sudhakar Reddy, A.M.
All these appeals are filed by the Department. The Cross Objection is filed by the assessee for the assessment year 2002-03. As the issues arising in all these appeals are common, for the sake of convenience, they are heard together and disposed of by way of this common order.
2. Fact in brief:
The AO in his order for the assessment year 2002-03 at para 2 narrated the facts as follows :
“Nederlandsche Overzee Baggermaatschapij bv (NOB) is a company incorporated in Netherlands and is tax resident of Netherlands for the purposes of Double Taxation Avoidance Agreement (DTAA) between India and Netherlands. The business of the company is to provide ‘dredgers’ on charter hire to other parties. During the previous year relevant to A.Y. 2002-03, the assessee has given a dredger ‘Sagar Manthan’ on charter hire on bare boat basis to Van Oord Dredging and Marine Contractors BV (formerly known as Ballast Ham Dredging BV). (Van Oord). Van Oord required the said dredger for carrying out the dredging operation in relation to the contract entered by it with the Mumbai Port Trust. Van Oord placed its own crew and employees on the dredger to carry out the dredging operations. The dredger was under the control, management and supervision of the Van Oord at all times. As per the terms of the agreement, the dredger is to be taken by Van Oord from NOB from the port of delivery, i.e. Singapore and returned to the port of re-delivery. Further, the role of NOB ends with the giving of dredger on hire and at agreed location for an agreed duration.”
3. The assessee entered into a contract with Hollandsche Anneming Maatschappij by (herein after called as HAM), on 16th August, 1997 for lease of dredger. The contract was renewed periodically by entering into separate/fresh agreement. The assessee received charter hire rentals from HAM on account of lease of dredger for the first time in the assessment year 1998-99 and offered the same for tax as royalty. The AO accepted the same vide assessment order passed u/s 143(3) on 21-03-2001. Thus for the first assessment year, during which the dredger was leased, the rentals were offered to tax as a royalty, and was also taxed as such by the Revenue as per the prevailing provisions of the Double Taxation Avoidance Agreement with Netherlands.
4. For the assessment year 1999-2000, the assessee filed a return of income on 22-11-1999 declaring Nil income. The assessee claimed that the hire rentals were not taxable, in view of the amendment to Article 12 of the India Netherlands (IN) treaty vide notification dated 30-08-1999 wherein “payments for the use of equipment” was excluded from the purview of royalty. The amendment to the DTAA, was effective from 1st April, 1998. The AO requested the assessee for additional information such as, as to who supplied the crew to the dredger, the period of business operation in India etc. The assessee filed details. The AO observed that the assessee is not giving material information asked by the Department. The AO concluded that the assessee is not cooperating with the Department in filing of the details and giving explanation. Thereafter he rejected the contention of the assessee that the new definition of royalties does not include “payment for use or right to use industrial, commercial or scientific equipment” and that the assessee does not have a permanent establishment in India as defined in Article 5 of the Dutch Treaty and that business income from rental of equipment is not taxable in India. After examining the agreement of charter with HAM and the reply of the assessee, the AO concluded that the agreement does not mention whatsoever about the basic aspects like officials who would handle the vessels and as to who would be the employer of personal working on the vessel etc. He noticed that the assessee raises the bill on the charters, as a part of the hire for increase in pay and wages of the masters, officers and crew and that, this makes it clear that the masters, officers and crew are the employees of the assessee, NOB. He further observed that the vessel has not been delivered in Penang, Malesia, though claimed to be so, in view of the fact that the agreement dated 01-04-1998 indicate the position of the vessel, to be in Mumbai, India. He also observed that there is substantial difference in the rate quoted between the first agreement and the second agreement and that there is a time gap between the expiry of the first agreement and the commencement of the second agreement, of about less than two months. The AO noted that in the previous year relevant to the assessment year 1998-99, the income of the assessee was chargeable to tax at the rate of 10% in terms of DTAA between India and Netherlands. He was of the opinion that in the present assessment year, the rentals have been substantially jacked up. He suspected that this could be a case whether the assessee is a dummy or a front company of HAM or vice-versa. No doubt as the AO felt that there is no sufficient material available on record, in this regard and hence he would not be able to comment conclusively on the same. At page 12 para 2 and 3 of the assessment order, the AO concluded as follows:
“As already stated above, the assessee’s vessel has been chartered to HAM and the master, officers and crew who are employees of the assessee are deployed on the vessel. As per Article 21(C) of the Agreement, the assessee has to be made good any increase in cost in respect of master, officers and crew and hence, it can be clearly concluded that they are not employees of HAM but in effect, they are employees of the assessee itself. The vessel had been chartered for a period of 78 weeks from 01.04.1998 which effectively spans over the entire of financial year 1998-99 and half of 1999-2000. Thus, as the employees of the assessee are on board the vessel, the fact that the vessel ha been delivered in India clearly establishes the fact that the transaction has been effected in India. The employees of the assessee on board “Sagar Manthan” implies that the vessel I / constitutes a branch /office of the assessee and hence, PE of the assessee in India, within the meaning of Article 5 of the Indo-Dutch DTAA. The receipts would, therefore, be chargeable to tax as business income in India as per Article 7 of the Indo-Dutch DTAA.
As the charter of the dredger is a wet lease, there is no dispute that wet lease constitute a PE in India. This view is also supported by various court rulings as well as the model commentaries on interpretation of the Double Taxation Agreements. The assessee has also not disputed that if it is a wet lease, it will constitute a PE in India. The various commentaries given by the assessee in support of its claim also support the view hat wet lease of a dredger would constitute a PE in India.”
5. After finding that the agreement of the assessee is a wet lease agreement, as against the claim of the assessee that it was a bear boat/dry lease agreement, the AO concluded that there is a PE in India. Thereafter he worked out the income at Rs.8,2814,690/- and held that as per Article 7 of the Indo-Doutch DTAA, it would be taxed at the rate of 48%. Aggrieved, the assessee carried the mater in appeal.
6. The first appellate authority considered not only the arguments of the assessee, but also the additional documents filed by it, to substantiate that the dredger was operated and managed by the Charterer “HAM”. The list of documents are at pages 3 and 4 of the CIT(Appeals)’ order. The CIT(Appeals) called for the remand report from the AO on these documentary evidences. After considering the remand report given by the AO as well as the submissions of the assessee, the first appellate authority at para 5.6 held as follows:
“ I have considered the rival submissions, assessment order and all relevant materials available on record. The main contention of the Appellant is that the AO without considering the agreement and the relevant clause, which were mutually truck off by both the parties i.e. HAM & NOB (Tax residents of Nederlands), documentary evidence filed by the Appellant held that the lease of the dredger “Sagar Manthan” on hire to HAM was a wet lease and thus constituted a PE of the Appellant in India. Accordingly, the AO has applied Rule 10 of the I.T. Rules and determined total taxable income of the Appellant for the year under consideration at Rs.8,28,14,690/-. It is also contended that on the same facts and circumstances of the case, in the A.Y. 1998-99, the AO had acknowledged the Appellant’s claim that the dredger had been leased on a bareboat basis and thus accepted the Appellants claim as returned by it. However, in the A.Y. 1999-2000, the AO arrived at a different conclusion by holding that the lease of dredger was a wet lease. I have also perused the documentary evidence filed by the Appellant which clearly indicates that the operation, management & control of the dredger were with HAM and not the Appellant. All the documentary evidence were also remanded to the AO, who in his report dated 2/8/2004 after considering the paper books submitted by the Appellant has stated that the contracts were entered into with HAM Dredging and Marine Contractors and not with HAM bv. In this regard, it is found that the certificate of incorporation of HAM clearly indicates its legal name along with its trade name ‘HAM Dredging & Marine Contractors’. Accordingly, I agree with the contention of the Appellant that the name HAM Dredging & Marine Contractors is merely a trade name and that HAM Dredging & Marine Contractors are not two separate entities. I find merits in the appellant’s contention that merely because the Appellant is a wholly owned subsidiary of HAM, it can not be concluded that it has retained operation, management and control of the dredger with itself thereby constituting a wet lease. All the documentary evidence like invoices raised by the third party in the name of HAM clearly shows that the management and control of the dredger were with HAM and not the Appellant. On the contrary the AO to support its contention that it was a wet lease has brought no material on record. In his report, the AO stated that “the contracts/ arrangements were not with HAM by, the Netherland but with HAM, dredging and marine contractors, which oversee the activities in India on behalf of HAM by, the Netherlands and on extension on behalf of NOB also, since NOB is a subsidiary company of HAM and presumably controlled by the same management.” The AO should have gone into further details and the finding of the AO should not based on presumption. Also Article 5(7) of the India Netherlands Treaty, states the fact that a company in India is controlled by a company in Netherlands shall not result in the company in India being considered as PE of the company in Netherlands. As regards, to the applicability to Article 9 of the India – Netherlands treaty, I agree with the contention of the Appellant that the provisions of Article 9 of the India – Netherlands treaty are applicable to enterprises in two different Contracting States (i.e. India and Netherlands). In the instant case, both the entities i.e. the Appellant and HAM are residents of the Netherlands (i.e. neither of the entities are resident in India).
Accordingly, the provisions of Article 9 of the India – Netherlands treaty are outright not applicable to it. Besides this I also agree with the contention of the Appellant that since the lease is in the nature of dry lease the period of the lease is not relevant. Further, as regards Appellants constituting a PE, based on the documentary evidence, agreement and considering OECD/International Tax Commentary that the Appellant did not have a PE in India since it did not have responsibility beyond the provision of the dredger on charter hire, I, hold that since the lease of the dredger was merely a dry lease the Appellant does not constitute a PE in India. This ground of appeal is decided in Appellant’s favour. ”
7. Aggrieved, the Revenue has filed this appeal on the following grounds:
1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that Nederlandsche Overzwee baggermaatschappij by (NOB) does not have a Permanent Establishment in India without appreciating the facts of the case.
2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that the assessee is not required to pay interest under section 234B of the I.T. Act.
8. Similar are the facts for other years.
9. The learned DR, Mr. Narendra Singh, relied on page 4 para 3 of the assessment order and submitted that the assessee had failed to furnish the details of the crew, period of stay of dredger etc. He highlighted the fact that the dredger in question was manned by the crew of the assessee and also the fact that the ship had not been delivered by the assessee outside India. He submitted that the CIT(Appeals) merely accepted the claim of the assessee that the agreement in question, is a bare boat charter and not a wet lease. He contended that the AO was not given adequate opportunity consequent to the furnishing of additional documentation by the assessee before the CIT(Appeals). He relied on the order of the AO and supported the same. He contended that the income in question is business income and that the assessee has a PE in India and thus has been rightly taxed by the AO. He submitted that the case of the Revenue is that the nature of receipts of lease rentals does not constitute royalty within the meaning of Article 12(4) of DTAA and hence the AO has rightly held the income from lease rentals as income from business. Thus he submits that the Tribunal should address the sole ground raised by the Revenue i.e. whether the assessee has a Permanent Establishment in India or not. He filed a copy of a letter written by the Director of Income Tax (I.T.) to him which is dated 9-3-2010 on the issue.
10. The learned counsel for the assessee, Mr. K.R. Pradeep, on the other hand, submitted that the dredger in question was given to a bare boat lease basis on charter to HAM. He submitted that the contract was entered into in Netharland and the charter in question was between the assessment years 1998-99 to 2002-03. He submitted that the assessee had produced voluminous details, before the first appellate authority to meet the objections raised by the AO in the assessment order, to establish the fact that the charter in question was on a bare boat basis. He pointed out that these voluminous details were forwarded by the first appellate authority to the AO and a remand report called for. The AO in the remand report had not offered any comment on the voluminous documentation furnished by the assessee but on the other hand, tried to raise new issues. He submitted that the AO could not substantiate his contention that the lease was wet lease. He pointed out that the assessee submitted evidences to show that the management and control was in the hands of HAM and not the assessee and hence the lease was dry lease. He pointed out that for the initial year i.e. assessment year 1998-99, the AO himself, acknowledged the assessee’s claim that the dredger has been leased out on a bare boat charter basis and treated the bare boat lease rent as royalty. Thus he submits that, on facts the lease rentals in question are nothing but royalty.
11. On law, the learned counsel submitted that royalty is covered u/s 9(1)(vi) read with Article 12 of the DTAA. He pointed out that upto the assessment year 1998-99 the amount being “payments for the use of equipment” was in the nature of royalty covered under Article 12. However, vide notification dated 30-08-1999, he pointed out, that the amendment was made to Article 12 of the treaty with effect from 01-04-1998, whereby, “payment for use of equipment” was excluded from the purview of royalty. He took this Bench through the notification as well as the amendment to the DTAA and submitted that, while section 9(1)(vii) continues to be the charging section for royalty under the Income Tax Act, Indo Dutch Treaty excludes such payments. He submits that in view of the specific exclusion of the above amounts from DTAA from assessment year 1999-2000, though considered as royalty under the domestic law, royalty was rendered not liable to tax in the hands of the assessee. On a query from the Bench, he submitted that charter rents is covered u/s 9(1)(vi) which is a specific clause and hence they cannot be brought u/s 9(1)(i) which is a general clause. In support of this proposition, he relied on the decision of the Hon’ble Gujarat High Court in the case of Meteror Satellite Ltd. 121 ITR 311 (Guj). He submitted that this decision has been followed by the Chennai Bench of Hon’ble ITAT in the case of NODIT Ltd. 42 ITD 187. He further relied upon the opinion communicated by the CBDT to the Ministry of Shipping vide letter No.AOO 17A/11/03 dated January 29, 2003 and submitted that this indicates the CBDT’s intention was to treat the ship as an equipment and to tax rentals as royalty. He further relied on the decision of the Chennai Bench of the ITAT in the case of M/s Van Oord ACZ Equiopment BV, a group company of the assessee and submitted that the issue is squarely covered by that decision. The assessee further relied on the decision of the Cochin Bench of the Tribunal in the case of Kin Ship Services (I)(P) Ltd. in ITA No. 537/Coch/07. He emphasized that the nature of income in question is royalty and covered under Article 12 of DTAA and due to specific exclusion in the DTAA, these payments get exempted from purview of taxation.
12. On the issue whether a Permanent Establishment exists, he submitted that the issue would come up only if the income is treated as business income and included under Article 7 of the DTAA. He submitted that the assessee does not have a fixed place in India through which it is carrying on business. It had merely leased a dredger to HAM on bare boat charter basis and that the dredger was under the control and management of the HAM and not the assessee. He submitted that the assessee has no employees in India nor did the assessee render any dredger services in India and that mere leased of a dredger does not amount to establishing a PE. He took this Bench through the order of the CIT(Appeals) as well as the written submissions made by the assessee before the CIT(Appeals) in support of his claim that the assessee does not have a PE in India. He also relied on the decision of the Mumbai Bench of the Tribunal in the case of Reliance Industries 81 TTJ 787. He prayed that the order of the first appellate authority be upheld.
13. On the second ground i.e. deletion of interest u/s 234B, he submitted that the assessee would not be liable to pay interest under the said section for the reason that no tax is payable by the assessee on the amounts received by it.
14. Rival contentions heard. On a careful consideration of the facts and circumstances of the case and a perusal of the papers on record and the orders of the authorities below as well as the case laws cited, we hold as follows.
15. The first issue that has to be addressed by us is whether the said lease in question is a bareboat lease or wet lease. In our considered opinion, the assessee has demonstrated, with documentary evidence that the operations of the dredger were with HAM and not with the assessee. As per clause 3.9 and 10 of the charter hire agreements, the responsibilities for the operation and maintenance of the dredger, included the provision of the master, officers and crew for the dredger is on HAM. In addition, clause 13 of the agreement also states that NOB would not be responsible for loss or damage to HAM as a result of strikes, lock out or a restrain of labour on the dredger. The assessee has filed copies of invoices raised by M/s Arya Offshore on HAM evidencing that the expenses in connection with arrival of dredger in Indian water such as port dues, pilot charges etc. should incur by HAM. The employment contracts between HAM and the captain of the hassles, copy of the wages slips and cheques issued in favor of Captain by HAM, copy of the service agreement entered into between HAM and the third party OCS Consultancy and Services P.Ltd. for hiring of officers and crews for the vessels and other evidences, were filed showing that the dredger was manned by employees of HAM and not the assessee. Evidences were also filed to demonstrate that the dredger was serviced and maintained by the charter HAM. Thus the assessee has demonstrated that at any point of time, the operation, management and control of the dredger was with HAM and not NOB. The AO has not brought out any evidence to contradict the claim of the assessee nor did he produce evidence to support his conclusion that the lease in question is on wet lease. Thus on this factual matrix, we uphold the findings of the first appellate authority at para 5.6 of his order which is extracted for ready reference:
“I have also perused the documentary evidence filed by the Appellant which clearly indicates that the operation, management & control of the dredger were with HAM and not the Appellant. All the documentary evidence were also remanded to the AO, who in his report dated 2/8/2004 after considering the paper books submitted by the Appellant has stated that the contracts were entered into with Ham Dredging and Marine Contractors and not with HAM by. In this regard, it is found that that the certificate of incorporation of HAM clearly indicates its legal name along with its trade name ‘HAM Dredging & Marine Contractors’. Accordingly, I agree with the contention of the Appellant that the name HAM Dredging & Marine Contractors is merely a trade name and that HAM and HAM Dredging & Marine Contractors are not two separate entities. I find merits in the appellant’s contention that merely because the Appellant is a wholly owned subsidiary of HAM, it can not be concluded that it has retained operation, management and control of the dredger with itself thereby constituting a wet lease. All the documentary evidence like invoices raised by the third party in the name of HAM clearly shows that the management and control of the dredger were with HAM and not the Appellant. On the contrary, the AO to support its contention that it was a wet lease has brought no material on record. In his report, the AO stated that “the contracts/arrangements were not with HAM by, the Netherland but with HAM, dredging and marine contractors, which oversee the activities in India on behalf of HAM by, the Netherlands and on extension on behalf of NOB also, since NOB is a subsidiary company of HAM and presumably controlled by the same management.” The AO should have gone into further details and the findings of the AO should not based on presumption.”
16. Thus we uphold the contention of the assessee that the income in question is royalty being payment for the use of equipment.
17. Now we come to the issue whether the amount received by the assessee as royalty can be brought to tax in view of the Double Taxation Avoidance Agreement. Under the Indian Income Tax Act, 1961, as far as royalty is concerned, it is covered by section 9(1)(vi) which reads as follows :
9. (1) (vi) : income by way of royalty payable by Explanation 2 – For the purposes of this clause, “royalty” means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head “(capital gains”) for –
(iva) the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB.
18. Coming to Article 12 of the DTAA, the amendments are extracted as below :
DTAA – India and Netherlands Notification No. G.S.R. 382(E) Dt. 27th March 1989.
In the above Notification, scope of Article 12 dealing with Royalty covered “payments for use of equipment”. The said payment was defined in Clause 6 of the Article which defined it as “payments of any kind received as consideration for the use of, or the right to use industrial, commercial or scientific equipment”.
DTAA – India and Netherlands Notification No. 11050 Dt. 30thAugust 1999 Amendments in the above notification with effective dates are as below :
Para III w.e.f. 01.04.1997.
Article 12 was amended to exclude “payments for use of equipment” from purview of royalty under Clause 1.
However, clause 4 of the Article was also amended inserting sub-clause (b) to the said clause 4 including “payments of any kind received as consideration for the use of, or the right to use industrial, commercial or scientific equipment” to the definition of Royalty.
Hence, though the said payments were excluded from scope of royalty, it was included in the definition of royalty in clause 4 indirectly rendering the said payments taxable.
Para VI – w.e.f. 01.04.1998.
The above clause 4 was again amended to exclude “payments of any kind received as consideration for the use of, or the right to use industrial, commercial or scientific equipment” by deleting sub-clause (b) in the definition of Royalty.
However, no amendment was made to clause 1 and thereby “payments for use of equipment” remained excluded from scope of royalty.
Then, the position after 01.04.1998 is that “payments for use of equipment” stood excluded from the scope of Royalty under Clause 1 w.e.f. 01.04.1947 and the same also stood excluded from the definition of Royalty under Clause 4.
All the above amendments render the said “payment for use of equipment” excluded from scope of Article 12 and thereby excluded from purview of tax ability, under the DTAA.
From the above it is clear that under the DTAA agreement, the receipt of bare boat rentals i.e. rent for use of or payment for use of equipment is not brought to tax as royalty consequent to the amendment. Thus though under domestic law, the charging section treats the receipts as royalty, under the treaty, royalty cannot be brought to tax in view of the amendments. At this juncture, we also referred to notification dated 30-8-1999 whereby amendment was made to article 12 of the treaty with effect from 01-04-1998, which is as follows:
“And whereas Article IV of the Protocol dated the 30th July, 1988, to the aforesaid Convention provides that if after the signature of the aforesaid Convention under any convention or Agreement between India and a third State which is a member of the Organisation for Economic Co-operation and Development, India should limit its taxation at source on dividends, interest, royalties, fees for technical services or payments for the use of equipment to a rate lower or a scope more restricted than the rate or scope provided for in this Convention on the said items of income, then, as from the date on which the relevant Indian Convention or Agreement enters into force the same rate or scope as provided for in that Convention or Agreement on the said items of income shall also apply under this Convention;
And whereas in the Convention between India and Germany which entered into force on 26th October, 1996, the Convention between India and Sweden which entered into force on 25th December, 1997, the Convention between India and the Swiss Confederation which entered into force on 19th October, 1994 and the Convention between India and the United States of America which entered into force on 18th December, 1990 which states are members of the Organization for Economic co-operation and Development, the Government of India has limited the taxation at source on dividends, interest, royalties, fees for technical services and payments for the use of equipments to a rate lower or a scope more restricted than that provided in the Convention between India and Netherlands on the said items of income;”
19. The rational of this amendment was to limit/ lower the taxation in respect of certain items of income, so as to bring the taxation in line with that of other countries.
20. As far as the issue whether the said charter rentals could be classified as regular business income, under the domestic law in view of section 9(1)(i), though they are specifically covered u/s 9(1)(vi), we find that the issue is covered by the decision of the Hon’ble Gujarat High Court in the case of Meteror Satellite Ltd. 121 ITR 311 wherein it is held as follows :
“…….Clause (vi) of section 9(1) deals with a specific type of income, namely, income by way of royalty, whereas clause (i) of section 9(1) is a more general provision, which deals with all incomes accruing or arising, whether directly or indirectly, through or from, any business connection in India. Income by way of royalty is a species or one of the categories of a larger class mentioned in clause (i) of section 9(1) and, hence, the specific instance having been provided by clause (vi), once we come across the question of royalty, we have only to look at that clause (vi) and not to the more general provision of clause (i) of section 9(1). Similarly, income by way of fees for technical assistance, which is covered by clause (vii) of section 9(1), is a more general category as compared to the royalty which is referred to in clause (vi), particularly in the light of the definition of “royalty” in explanation 2 to clause (vi) of section 9(1). Again, the same principle of particular excluding the general has to be applied in this case and if the case falls under clause (vi) and is exempted from the operation of clause (vi) by virtue of the proviso, then we cannot refer to clause (vii) which is a general clause. Therefore, the only question that we have to consider is whether the proviso to section 9(1), clause (vi), is applicable to the facts of this case. Under the proviso, there must be an agreement made before the 1st day of April, 1976, and the agreement must be approved by the Central Govt. If these two conditions are satisfied and the other requirements of the proviso are operable, then, income by way of royalty is not to be deemed to accrue or arise in India. Under the main portion of clause (vi), income by way of royalty covered by clauses (a), (b) or (c) of clause (vi), is to be deemed to accrue or arise in India but if by virtue of the proviso, nothing contained in clause (vi) is to apply in relation to remittance of income by way of royalty or that portion of income by way of royalty is not to be deemed to accrue or arise in India and, therefore, will not be liable to be assessed under the provisions of the Income-tax Act. That seems to be clear enough from the consideration of the principles of interpretation of statutes….”
This view was followed by the Chennai Bench of the ITAT in the case of Nodit Limited 42 ITD 187.
21. The Chennai Bench of the Tribunal in the case of Van Oord ACZ Equipment by, held as follows:
“On careful consideration, we are satisfied that the Ld. CIT(A) has rightly deleted the levy of income tax at the rate of 10% on equipment rent earned by the assessee company by applying the amended provisions of DTA agreement. It could be seen that the AO has levied income tax on the basis of the amended provisions of Explanation 2 (iva) to section 9 of the I.T.Act without taking into consideration the provisions of DTA agreement between the two countries. It is also clear from the records that the assessee is entitled to the benefits of DTA agreement between India and The Netherlands in view of the fact that as per certificates furnished by the assessee from the Income tax Department of The Netherlands the equipment rent is included in the total income of the assessee on which tax as per law of the Netherlands have been paid. When there is no permanent establishment in India there is no charging provision under the I.T.Act to bring this income under the provisions of the said Act for the purpose of charge ability. The ld. Departmental representative could not controvert these finding of the facts on this point. We have therefore, no hesitation to uphold the finding of the ld CIT(A) on this issue.”
This decision squarely covers the issue on hand. Respectfully following the same, we uphold the order of the first appellate authority.
22. The next issue is whether the assessee has a PE in India or not. As per Article 5 of the India Netherlands Tax Treaty, a PE means a fixed place of business through which business of an enterprise is wholly or partly carrying out. Mere provision of a dredger on dry lease for carrying out dredging activity in India does not result the assessee having a PE. OECD commentary on the subject states as follows :
“The paragraph defines the term “permanent establishment” as a fixed place of business through which the business of an enterprise is wholly or partly carried on. This definition therefore contains the following conditions: the existence of a “place of business” i.e. a facility such as premises or in certain instance, machinery or equipment. This place of business must be “fixed” i.e. it must be established a district place with a certain degree of permanent. The carrying on of the business of the enterprise through this fixed place of business. This means usually that persons who in one way or another are dependent on the enterprise (personnel) conduct the business of the enterprise in the State in which the place is situated.”
23. The assessee has no personnel located in India for the purpose of execution of the contract entered by it with HAM. The assessee does not have any responsibility beyond the provision of a dredger on charter hire. The dredger was operated by personnel appointed by HAM and was used by HAM for the purpose of business. Mere dry lease of an equipment does not result in a PE. Thus, we uphold the findings of the first appellate authority on this issue and dismiss the appeal of the Revenue on this ground.
24. Coming to the ground on the issue of levy of interest u/s 234B, the same is consequential in nature.
25. Thus, the appeal for the assessment year 1999-2000 by the Revenue is dismissed.
26. For the assessment year 2000-01 in ITA No. 8888/Mum/2004, the issue is identical and for the detailed reasons given for the assessment year 2002-03 in ITA No.2118/Mum/2006 and for assessment year 2001-02 in ITA No. 1542/Mum/2005, we dismiss the revenue appeals.
27. Coming to the C.O. No.256/Mum/2006, the sole issue is levy of interest u/s 234B. The same is dismissed as the levy is mandatory and consequential in nature.
28. In the result, the appeals of the Revenue are dismissed and the cross objection of the assessee is also dismissed.
