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TMI Blog2016 (7) TMI 1699X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer as well as the learned DRP has erred in determining ALP by making downward adjustment of Rs. 2,23,00,288/- in respect of fees paid for technical services to AEs." 3. Brief facts of the case are that the assessee is a limited company engaged in the business of dredging and marine engineering services involving designing, construction, developing, modernizing, extending and maintaining ports and harbors filed its return of income for the assessment year 2010-11 on 07.10.2010 declaring loss of Rs. 87,26,34,000/-. Thereafter, the case was taken up for scrutiny under section 143(3) of the Act and finally order was passed by the learned Assessing Officer under section 143(3) r.w.s 143C(13) of the Act, aggrieved by which the assessee is in appeal before us. Ground No. 1: Disallowance of Rs. 50,80,13,185/- being bareboat hire charges for non-deduction of tax at source under section 195 of the Act by invoking the provisions of section 40(a)(i) of the Act: 4.1 The learned Assessing Officer in its draft assessment order has observed that the assessee has made payment of Rs. 50,80,13,185/- to M/s. Societe De Dragage International, France for bare boat charter hire rental charges fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... correct. Article 13 of India-France clearly defined the words Royalties and fees for technical services and payments for the use of equipment. The term "payments for the use of equipment" as used in this Article means payment of any kind received as a consideration for the use of, or the right to use industrial, commercial, or scientific equipment. These payments are in the nature of royalty. Further, in the case of India-Sweden treaty, there was no specific restrictive clause excluding the equipment hire charges from the scope of royalty. Therefore, as per treaty charging provision of the India-France treaty, the hire charges of the above equipment should be considered as Royalty payments "for the use of or the right to use of industrial, commercial or scientific equipment". Hence, the assessee's bareboat hire charges clearly forms royalty u/s. 9(i)(vi) of the Income Tax Act and accordingly the payments come under the purview of Section 195. 3.2.7 Further, as observed by the Assessing Officer, the protocol of the treaty is not categorically speaking about scope for restriction only. It also tells about adoption of lower rate in case of use of equipment and payments made ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at payments for use of equipments under Article 13 of the treaty between India and France, if any convention or agreement or protocol are signed after 01.09.1989 between India and a third State which is a member of OECD, then for the purpose of taxation in India, the scope of taxation shall be restricted to such treaty signed after 01.09.1989 if its terms are beneficial to the assessee and as rightly pointed out by the assessee India has signed a treaty with Sweden subsequently wherein payments made for hiring equipments are excluded from taxing in the contracting State. Therefore, as claimed by the assessee income arising out of the payment made by the assessee towards hiring equipments will not be taxable in India, accordingly assessee will not be liable for deducting tax at source. Needless to mention that protocol will form an integral part of the convention and it has to be duly respected as the same is signed between two countries under agreement for avoidance of double taxation. Therefore, the assessee succeeds in its appeal on this issue. Ground No. 2: Determining ALP by making downward adjustment of Rs. 2,23,00,288/- in respect of excess fees paid for technical services t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee has raised invoices. During the relevant previous year the eligible turnover represented by invoices raised on third parties, which in other words amounts to billed income of Rs. 233,55,79,617/-. The turnover as per Profit and Loss Account represents billed income and unbilled income aggregating to Rs. 353,08,59,355/-. As per the agreement with AE, assessee is not under obligation to make payment by way of Technical Assistance Fee on the unbilled income. The turnover on which there is an obligation on the part of the assessee to make payment to AE is only on the billed income of Rs. 2,33,55,79,617. Taking this as the basis, as per the terms and conditions of the agreement, the assessee has to pay technical fees of only Rs. 7,97,34,655/- (including forex variation of Rs. 18,82,001/- to its AE. However, the assessee has paid Rs. 10,20,34,943/- as technical assistance fee to its AE which includes excess payment of Rs. 2,23,00,288/-. 10.3 The assessee in this regard vide its submission dated 24.12.2013 mentioned that it has computed fees on the basis of accrued turnover vis-à-vis actual turnover. As such excess fee paid during the F.Y. 2009-10 (A.Y. 2010-11) and in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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