(Cochin) (31 SOT 375)
S. 9, S. 40(a)(i), S. 195, Income-tax Act
A.Y. : 2004-05. Dated : 26-3-2009
Issue :
Payments made for charter hire charges to a non resident
shipping company for transporting merchandise from one foreign port to another
foreign port is not royalty chargeable to tax in term of provision of S. 9 of
the Act.
Facts :
The assessee is engaged in shipping and other related
activities such as stevedoring, clearing and forwarding. During A.Y. 2004-05,
the assessee made certain payments to non resident companies for charter hire
charges.
The Assessing Officer (AO) held that payments made by the
assessee on account of charter hire charges were in the nature royalties and
therefore such payments were taxable in the hands of recipients in term of S.
9(1)(vi) of the Act. The AO disallowed the payment by invoking provisions of
S. 40(a)(i) of the Act by alleging that the assessee failed to deduct tax at
source.
The assessee contended that the payments made for charter
ship hire is not in the nature of royalty. It was claimed that the assessee
had not acquired any right on the foreign ships nor had it acquired any
property in the ship by chartering it. The ships were hired following
international chartering protocol for transporting merchandise from foreign
port to another foreign port and hence the payments cannot be held to be in
the nature of royalty.
The CIT(A) accepted the contentions of the assessee by
relying on the ruling in the case of Ind Telesoft (P) Ltd. (267 ITR 725) (AAR
New Delhi).
Held :
The ITAT held :
(a) The payments made by the assessee company were in the
nature of payments for chartering ships on hire for doing the business
outside India. The payments did not satisfy the test laid down in S. 9 of
the Income-tax Act, 1961.
(b) To constitute royalty, payments have to be for use of
specified assets. The tribunal concluded that the ship hire charges did not
satisfy this test by observing :
‘Royalty means consideration for the transfer of all or
any rights in respect of a patent, invention, model design, secret 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 nay of these
characteristics.’
(c) The liability to deduct tax at source 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 Income-tax Act. In the present case
since 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,
provisions of S. 195 are not applicable.
(d) When S. 195 does not apply, there cannot be a
violation of that section and consequently question of disallowance
u/s.40(a)(i) does not arise.
