In ITA no.816/Mum/2023 -ITAT- ITAT (Mumbai) rules Time Charter Services provided by Smit Singapore for vessel Smit Borneo not taxable as Royalty under India-Singapore DTAA
Members Amarjit Singh (Accountant) & Sandeep Singh Karhail (Judicial) [12-06-2023]

Read Order: Smit Singapore Pte. Ltd v. Dy. Commissioner of Income Tax International Taxation Circle–4(2)(1), Mumbai

Chahat Varma

New Delhi, June 15, 2023: In a recent ruling, the Mumbai bench of the Income Tax Appellate Tribunal has held that the receipts generated from the time charter services provided by Smit Singapore (appellant) for the vessel 'Smit Borneo' to Boskalis Offshore Contracting BV in India was not taxable as royalty under Article 12(4) of the India - Singapore Double Tax Avoidance Agreement (DTAA).

Factual matrix of the case was that the assessee, a Singapore-based company operating in the maritime sector, was primarily involved in salvage, wreck removal, environment protection, and consultancy services. In the year under consideration, the assessee generated revenue through its contract with Boskalis Offshore Contracting BV (BOC BV) related to the charter of the vessel named Smit Borneo. The assessee chartered the vessel, Smit Borneo, along with its crew to BOC BV. BOC BV, in turn, had a contract with BG Exploration and Production India Ltd for conducting specific activities related to the exploration and extraction of mineral oils in the Tapti Gas Field.

During the assessment proceedings, the assessee, who declared a total income of Rs. Nil and claimed a refund of Rs. 1,25,41,070, was asked to provide reasons as to why the receipts from BOC BV should not be considered taxable as royalty. The assessee contended that since the vessel along with the crew was used by the assessee for rendering services to BOC BV, it cannot be held as being in the nature of contract of hiring equipment by BOC BV from the assessee and should not be taxable as royalty under the Income Tax Act. However, the Assessing Officer held that the consideration received by the assessee was in the nature of royalty, since control and ‘use’ or ‘right to use’ had been passed on to BOC BV by the assessee.

The bench comprising of Amarjit Singh (Accountant) and Sandeep Singh Karhail (Judicial) noted that the Co-ordinate bench in assessee’s own case in Smit Singapore Pte Ltd v. Deputy Commissioner of Income Tax (I.T.) - 4(2)(1), Mumbai [LQ/ITAT/2020/5762], had ruled that the receipts earned by the assessee from the hire of the vessel, Smit Borneo, on a time charter basis to Leighton India Contractors Private Limited, were not considered as royalty under Article 12 of the India-Singapore DTAA.

The bench held that nothing had been brought on record to show that during the entire operation, navigation and management of the vessel, it was not in exclusive control and command of the assessee.

Thus, the bench upheld the plea of the assessee and deleted the addition in respect of receipts on hire of vessel on a time charter basis.