DDIT v. Dharti Dredging & Infrastructural Ltd (9 taxmann.com 327) (Hyd ITAT)

Facts: The assessee was engaged in the business of marine dredging and port construction. It was awarded a contract at Visakhapatnam Port Trust. For the purpose of executing the contract of dredging the assessee hired equipment from MA, Netherlands. During the relevant AYs, the assessee made payments to “MA” in respect of usage of the equipment.  The AO was of the view that the equipment hired by the company constituted PE of the Netherland entity, MAin India.  The AO held the assessee to be in default within the meaning of section 201 since it had not deducted tax at source u/s 195.  On appeal, the Commissioner (Appeals), however, set aside the order of the AO. 

Issues: What is the characteristic of the payment made to the overseas entity?

Decision:

•        The Tribunal held that the payment made by the assessee to the Netherlands company was nothing but hire charges

•        Section 195 provides for deduction of tax at source when the payment is made to non-resident which is chargeable to tax under the ITA. Therefore, if the payment which made to foreign company was chargeable to tax, the assessee had to deduct tax at source

•        For the purpose of taxing to income of the foreign company, the foreign company shall have a PE in India. Hiring equipment in the territory of India on could not be construed as a PE of a foreign company. For the purpose of PE of a foreign company, the foreign company should have a permanent place in order to control its business activity. Merely because the equipment was equipped with place for residence of its crew and operator and installed with the latest communication facilities, it does not mean that it was a PE

•        In the absence of any PE, the payment made by the assessee to MA was not liable to be taxed in India, and, therefore, there was no requirement of deduction of tax under section 195

DDIT v. Dharti Dredging & Infrastructural Ltd (9 taxmann.com 327) (Hyd ITAT)

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