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2017 (2) TMI 1099 - ITAT CHENNAITDS u/s 195 - Non deduction TDs on remitting charter payments (hire charges) to Foreign Shipping Companies - whether payment made for using ship on time chartered basis to non-resident shipping company amounts to ‘royalty’ since ship is equipment? - question of invoking sec.172 - DTAA - Held that:- In this case, the requisite approvals have to be obtained from Maritime Authorities to hold and operate the vessels. It is not the case that anybody or everybody can operate a vessel. The powers of charterer (in this case this assessee) under the time charter agreement is extremely limited like the charterer cannot dry-dock the vessel and the vessel is operated by its Captain/Master and its crews, who are appointed by the ship owner and not by the charterer (the assessee). There is a distinction between ‘letting the asset’ and ‘use of asset’ by the owner for providing services. The payment made for the use of asset by owner for the purposes cannot be tantamount to a ‘royalty’. In this case, the consideration is not for use of the ship only, but also for the services of moving the goods by a fully manned ship. In the decision of Asia Satellite Telecommunications Co. Ltd. (2011 (1) TMI 47 - DELHI HIGH COURT ) the payment so made by the assessee cannot be treated as royalty for he use of industrial or commercial or scientific use of the equipment. The Id. CIT(A) should have appreciated that the case has only booked the freight space in the ship (time charter) and has not taken the vessel on hire, it is done under what is called “bare boat charter. Therefore, the payment made in this case would not constitute ‘royalty’ paid for the use of industrial, or commercial, or scientific equipments. The essence of the time charter agreement executed between the parties speaks clearly that the asessee can utilize the space in the vessel and not that the assessee is authorized to operate or exercise control over the vessel. In the case of CBDT vs. Chowgule & Co. Ltd. [1991 (6) TMI 53 - KARNATAKA High Court] and in the case of Kar and Lima Lettoa & Co. Ld. Vs. UOI [1967 (11) TMI 27 - GOA High Court] has held that section 172 is a complete code by itself. Thus, the amount paid by the assessee to the FSC on time charter agreement would not amount to ‘royalty’ neither under Explanation 2 or under section 9(1)(b)(ii) or under the DTAA and in this case only section 172 applies. This, no tax is needed to be deducted at source under section 195 as the amount paid does not amount to ‘royalty’. Therefore, the disallowance under section 40(a)(i) for non-deduction at source on the amount paid to FSC for the time charter hire is erroneous. - Decided in favour of assessee.
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