TMI Blog2009 (3) TMI 219X X X X Extracts X X X X X X X X Extracts X X X X ..... also has no case that the extent of services utilized by the assessee-company from the employees of M/s M. Bhaskar Kini Co. (P) Ltd. was not necessary to carry on the business of the assessee. Therefore, we find that the disallowance was not justified and CIT(A) has rightly deleted the same. This issue is decided against the Revenue. Non-deduction of tax for payment of ship charter hire charges - Royalty u/s 9(1)(vi) - Whether the payment made by the assessee is a royalty and whether it is taxable in India - AO has erred in invoking s. 40(a)(i) to disallow the expenses - - Ejusdem generis - CIT(A) has erred in not confirming the disallowance made by the AO - HELD THAT:- The assessing authority has treated. the payments made by the assessee-company under the category of royalty. The expression 'royalty' further means the use of any patent, invention, model, design, secret formula or process or trade mark or similar property. The meaning of the word property should be read in the company of the words like patent, invention, model, etc. The principle of interpretation of ejusdem generis applies here. The assessee has not made the payments for the purpose of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CIT(A) has rightly deleted the same. - Member(s) : DR. O. K. NARAYANAN., N. VIJAYAKUMARAN. ORDER-DR. O.K. NARAYANAN, A.M.: This. is an appeal filed by the Revenue. The relevant assessment year is 2004-05. The appeal is directed against the order of the CIT(A)-II at Kochi dt. 27th March, 2007. The appeal arises out of the assessment completed under s. 143(3) of the IT Act, 1961. 2. The first ground raised by the Revenue in this appeal is that the CIT(A) has erred in ignoring the grounds made out in the assessment order for part disallowance of staff salary and allied expenses pertaining to sister concern, while deleting the addition of Rs. 8,50,000. 3. The assessee is engaged in shipping and other related activities such as stevedoring, clearing and forwarding. In the past, the very same business was carried on by the sister concern of the assessee, M/s M. Bhaskar Kini Co. (P) Ltd. The said company was facing a lot of problems on account of labour unrest. In order to avoid this problem, the assessee-company was formed to start a new-business in the same line but with the ultimate object of taking over the business as well as assets and the personnel of M/s M. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by the assessee-company should be examined in the above factual matrix. The AO has no case that no such payments were made by the assessee-company to M/s M. Bhaskar Kini Co. (P) Ltd. There is also no case that the services of the employees of M/s M. Bhaskar Kini Co. (P) Ltd. were not utilized by the assessee-company. The legal requirements of claiming the expenditure have been established by the assessee-company. The AO has not brought anything on record to show that the payments made by the assessee-company to M/s M. Bhaskar Kini Co. (P) Ltd. were excessive when compared to the remuneration attributable to the services rendered by the employees. The AO also has no case that the extent of services utilized by the assessee-company from the employees of M/s M. Bhaskar Kini Co. (P) Ltd. was not necessary to carry on the business of the assessee. Therefore, in these facts and circumstances of the case, we find that the disallowance was not justified and CIT(A) has rightly deleted the same. Therefore, we hold that the CIT(A) is justified in deleting the disallowance of Rs. 8,50,000. This issue is decided against the Revenue. 8. The next ground raised by the Revenue is tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, in that decision there was no occasion to consider the nature of royalty payments. The other case law relied on by the AO was the decision in the case of CIT vs. Neyveli Lignite Corporation Ltd. (2000) 162 CTR (Mad) 206 : (2000) 243 ITR 459 (Mad). In that decision it was held that royalty means payment for physical or intellectual property which covers a restrictive and exclusive right over something patented or protected. The CIT(A) held that the simple hiring of a ship does not amount to use of physical or intellectual property. 11. The CIT(A), on the other hand, found that the contentions advanced by the assessee are supported by the ruling of AAR in the case of Ind Telesoft (P) Ltd., In re (2004) 189 CTR (AAR.) 287 : (2004) 267 ITR 725 (AAR). That case relate to payment of commission to a non-resident. In the light of the said decision, the CIT(A) held that the hire charges of ships paid by the assessee to non-resident ship owners were not royalty payments so as to attract the provisions of s. 195. He accordingly held that the AO has erred in invoking s. 40(a)(i) to disallow the expenses of charter hire charges. He deleted the disallowance. 12. Sec. 9(1)(vi)(c) provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lies here. The assessee has not made the payments for the purpose of any such property. 15. Therefore, it is very clear that the payments made by the assessee-company were in the nature of simple payments for chartering ships on hire for doing the business outside India. Therefore, the payments do not satisfy the test laid down in s. 9 of the IT Act, 1961. When s. 9 is not satisfied, there cannot be a case that income is deemed to accrue or arise in India as a result of hire payments made by the assessee-company to foreign ships. 16. The liability under 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 IT Act. Here, the payments made by the assessee do not fall under s. 9 and the payments do not take the character of any sum chargeable to tax under this Act. Therefore, s. 195 docs not come into operation. 17. When s. 195 does not apply to the present case, there is no violation of that section and consequently invoking of s. 40 (a)(i) does not arise. Therefore, we find that the CIT(A) is justified in deleting the disallowance made by the AO. This issue is decided against the Revenue. 18. The third ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only self-made vouchers. One should appreciate that the expenses clarified by the assessee are very much inherent in the nature of the business carried on by the assessee. A commercial port is not a smooth sailing area. The assessee has to carry on its own operations in the port with a number of constrains as well as bottlenecks created by the system. The assessee has to ensure the timely shipment of merchandise entrusted to it by various customers. If the shipments are not made in time, the assessee may lose future business. Therefore, the assessee has to incur various expenses including 'speed money' so that the available facilities are optimum utilized for the movement and shipment of the goods of the assessee. In such circumstances, there cannot be a question of third party evidence in the form of vouchers and receipts. The assessee has to satisfy with the self-made vouchers. What is to be looked into is whether such expenses are necessary for carrying on the business of the assessee-company. The claim of expenses cannot be disallowed only on the ground that the mode of evidence produced by the assessee is not sufficient. The deductibility of the expenditure has to be examined ..... X X X X Extracts X X X X X X X X Extracts X X X X
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