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TMI Blog2024 (11) TMI 953X X X X Extracts X X X X X X X X Extracts X X X X ..... s made u/s. 40(a)(i) of the IT Act without appreciating the fact that the ocean freight charges paid by the assessee company for availing those services falls under the definition of 'Royalty' as per article 12.3 of India-Korea DTAA. 4. The Ld. CIT(A) erred in deleting the disallowances made u/s. 40(a)(i) of the IT Act without appreciating the fact that the Ocean Freight Charges received by the Hyupjin. Shipping Co. Ltd, Korea was deemed to accrue or arise in India and the assessee is liable for deduction of tax on the said payments u/s. 195 of the Act. 5. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored." Further, the revenue has raised the following additional ground of appeal : Whether the Ld.CIT(A) - NFAC erred in deleting the disallowance made u/s. 40(a)(i) of the Act relying on the order passed by Hon'ble Tribunal in assessee's case for the A.Y. 2013-14 and 2014-15 wherein this Tribunal itself had relied on revised DTAA between India and Korea which was neither applicable for A.Y.2013-14 and 2014-15 nor for the year 2015-16as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hin the ambit of provisions of Section 9(1)(vi) of the Act. Further, the Ld. CIT(A) erred in deleting the disallowances made u/s. 40(a)(i) of the IT Act without appreciating the fact that the ocean freight charges paid by the assessee company for availing those services falls under the definition of 'Royalty' as per article 12.3 of India-Korea DTAA. 6. The Ld.DR argued that the Ld.CIT(A) erred in deleting the disallowances made u/s. 40(a)(i) of the IT Act without appreciating the fact that the Ocean Freight Charges received by the Hyupjin Shipping Co. Ltd, Korea was deemed to accrue or arise in India and the assessee is liable for deduction of tax on the said payments u/s. 195 of the Act. The Ld.DR also drew our attention to order of Ld.CIT(A)-NFAC and stated that disallowance made u/s. 40(a)(i) of the Act was wrongly deleted by relying on the order passed by Hon'ble Tribunal in assessee's case for the A.Y. 2013-14 and 2014-15 wherein this Tribunal itself had relied on revised DTAA between India and Korea which was neither applicable for A.Y. 2013-14 and 2014-15 nor for the year 2015-16 as the revised DTAA between India & Korea came into effect from 01.04.2017, and prayed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e shared by the agents." The Hon'ble Chennai Tribunal in the case of Sical Logistics Ltd. v ADIT (2017) (78 taxmann.com 158) (Chennai Tribunal). The Hon'ble Mumbai Tribunal in the case of Nan Lian Ship Management LLC v. ACIT(Int. Tax) (2023) 147 taxmann.com 524 (Mumbai Tribunal). The Hon'ble Mumbai Tribunal in the case of Smit Singapore Pte Ltd. v. Dy.CIT [2021] 125 taxmann.com 349 (Mumbai Tribunal). 9. NO INCOME IS DEEMED TO ACCRUE OR ARISE OR RECEIVED IN THE HANDS OF HSC IN INDIA. 9.1 The Ld. AR argued that HSC does not have any place of business/office in India and no activities are being carried out by HSC in India, there exists no business connection for HSC in India. Therefore, no income arises through business connection in India under s. 9(1)(i). Further, as per the India-Korea tax treaty, the business profits of a foreign company would not be taxable in India if such company does not have a permanent establishment in India through which the business is carried on. In this regard, the ld.AR draws attention to Article 7(1) of the India-Korea tax-treaty, (as it stood during the relevant AY 2015-16) which deals with taxability of business profits reads as under: "7(1) T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . We have heard the rival contentions, perused the orders, paper books and gone through the orders of lower authorities. The assessee is a resident Indian Company, is engaged in the business of manufacture / job work of boiler pressure parts, panels, header and coils and designing, building, installation and maintaining engineering plants relating to thermal and coal power plants. During the assessment year the assessee had incurred expenses towards freight charges paid to a non-resident logistic company - Hyupjin Shipping Co. Ltd., Korea ('HSC'). The Assessee had engaged HSC, a Korean logistics company for availing logistics services along with coordinating with port authorities for vessel berthing, loading, unloading, port clearances, approvals, licenses, permits etc. at various ports outside India. The charges paid to HSC comprises of the following: i. Freight charges for shipment of goods from various ports outside India to Chennai, India. ii. Cost-to-cost reimbursement in relation to incidental expenses such as port dues, surcharges, demurrage/ detention charges, etc. 12. During the reassessment proceedings the AO held that the payment of freight charges to HSC as above q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ight to a non-resident company does not tantamount to royalty. DIT vs. A.P. Moller Maersk AS, Civil Appeal No.8040 of 2015, wherein the Hon'ble Supreme Court observed that: "12. Pertinently, the Revenue itself has given the benefit of Indo- Danish DTAA to the assessee by accepting that under Article 9 thereof, freight income generated by the assessee in these Assessment Years is not chargeable to tax as it arises from the operation of ships in international waters. Once that is accepted and it is also found that the Maersk Net System is an integral part of the shipping business and the business cannot be conducted without the same, which was allowed to be used by the agents of the assessee as well in order to enable them to discharge their role more effectively as agents, it is only a facility that was allowed to be shared by the agents." - Sical Logistics Ltd.V. ADIT (2017) (78 taxmann.com 158) (Chennai Tribunal). - Nan Lian Ship Management LLC v. ACIT (Int. Tax) (2023) 147 taxmann.com 524 (Mumbai Tribunal). - Smit Singapore Pte Ltd. v. Dy. CIT [2021] 125 taxmann.com 349 (Mumbai Tribunal). 15. Now, we will analyse the DTAA between India & Korea existing during the A.Y. 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 327 ITR 456 (SC). The Supreme Court held as under: "This reasoning flows from the words 'sum chargeable under the provisions of the Act' in Section 195(1). The fact that the Revenue had not obtained any information per se cannot be a ground to construe Section 195 widely so as to require deduction of TAS even in a case where an amount paid is not chargeable to tax in India at all. We cannot read Section 195, as suggested by the Department, namely, that the moment there is remittance the obligation to deduct TAS arises. If we were to accept such a contention it would mean that on mere payment income would be said to arise or accrue in India. Therefore, as stated earlier, if the contention of the Department was accepted it would mean obliteration of the expression sum chargeable under the provisions of the Act from Section 195(1)." 18. In the present facts and circumstances of the case and relying on the decisions of the Hon'ble courts (supra), since, HSC does not have any place of business/office in India, the profits arising from logistics services would be taxable only in the resident state i.e., Korea, no taxes were required to be withheld by the assessee while making the rem ..... X X X X Extracts X X X X X X X X Extracts X X X X
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