INTERMARK SHIPPING AGENCIES P. LTD.,,GANDHIDHAM vs. THE INCOME TAX OFFICER, TDS-4,, GANDHIDHAM

On 18.11.2009 a survey action under section 133A was carried out at the business premises of the appellant company when it was found that the assessee had deducted tax at source on payment made on account of water front royalty charges under section 194C instead of under section 194J of the Income Tax Act. Thereafter, in response to the show-cause dated 12.12.2011 in order to explain that the assessee is not a defaulter in terms of short deduction by not deducting tax under section 194J of the Act the assessee submitted that the Mundra Port and Special Economic Zone and the Mundra International Container Terminal Pvt. Ltd. are the contractors for handling, discharging and loading of the containers of the assessee from the ships. The advance payment has been made to these parties after deducting lower TDS as per lower TDS certificates produced by those parties. It is also a fact brought to the notice of the authority that these parties are issuing separate invoices regarding water front royalty that is container handling and water front royalty. It was further specifically mentioned that such water front royalty is a Government of Gujarat levy, neither TDS is applicable on such payments made to the Government. This particular payment is merely a reimbursement and no TDS is applicable on Intermark Shipping Agencies Pvt. Ltd. vs. ITO AY 2010-11 - 3 - such reimbursement amount as the case made out by the assessee before the Revenue. However, such plea of the assessee was not found tenable. The Ld. AO was of the view that the certificate issued by the IT authority in favour of Mundra Port and Special Economic Zone for lower deduction under section 194C. The question raised by the Assessing Officer as to whether the payment classifies for deduction under section 194C or 194J. According to the learned Assessing Officer the name of Mundra Port and Special Economic Zone and Mundra International Containers Terminal Pvt. Ltd. are not mentioned in the list of port and the payment made by the assessee towards water front royalty to these agents is not a payment to the Government. The said payments are made for the use of a place such as port with multiple infrastructural facilities; such payments would be covered as royalty within the meaning of Section 194J of the Act as also observed by the Ld. Assessing Officer and, therefore, tax has to be deducted at source accordingly as per the rates provided in that section. He, thus, held the assessee to be in default within the meaning of the provision of Section 201(1) r.w.s. 194J for Rs 50,658/-and interest payable was determined that Rs.14,181/- under section 201(1A) of the Act. The said addition has been upheld by the First Appellate Authority. Hence, the instant appeal before us.

The short point involved in this particular case is this as to whether the payment in question can be termed as “Royalty” under section 9 of the Act and if that be so whether the assessee is liable to deduct tax under section 194J of the Act. Explanation 2 of clause(vi) of sub-section 1 of Section 9 defines “Royalty” as follows:-

Royalty defined as per the said explanation is related to consideration paid for transfer or use of right in respect to intellectual property such as patent, invention, model, design, copyright, secret formula, trademark etc. In the instant case, the appellant had not availed any of such right and therefore, the sum paid towards WFR cannot be equated with “Royalty” within the meaning of Section 194J of the Act. In view of the above, it is clear that Water Front Charges paid by the appellant to the MPSEZ AND MICPL cannot be equated with “Royalty” within the meaning of Section 194J of the Act. In this aspect we have carefully considered the judgment passed by the Co-ordinate Bench in the case of Gujarat Pipavav Port Ltd. vs. DCIT decided in and 615/Rjt/2012 as relied upon by the assessee. The Co-ordinate Bench has been pleased to hold that the payment made therein by the assessee being a port towards waterfront royalty to the tune of Rs. 1.93 crores to Gujarat Intermark Shipping Agencies Pvt. Ltd. vs. ITO AY 2010-11 - 5 - Maritime Board after deducting tax under section 194J is not in the nature of “Royalty”. The relevant portion of the written synopsis given by the appellant before us on this particular aspect of the matter on the basis of the said judgment is reproduced herein below: “Reliance placed on the decision of Hon’ble ITAT, Rajkot Bench, Rajkot in the case of Gujarat Pipavav Port Ltd. vs. DCIT in & 615/Rjt/2012 (copy attached at Page 53 to 69). In this case, the assessee being a “Port” paid Water Front Royalty of Rs. 1.93 Crores to Gujarat Maritime Board after deducting tax u/s. 194J of the Act. However, the AO and CIT(A) held that the sum paid by the assessee is not in the nature of “Royalty” and thereby, they treated the payment in the nature of rent and required the assessee to deduct tax u/s. 194-I of the Act. IN an appeal before Hon’ble ITAT, it was held as under: 14. Apropos the applicability of section 194J to the impugned payments, it was submitted by the ld. Authorized Representative for the assessee that impugned payments were in the nature “royalty” u/s 194J(c) of the Income-tax Act and hence the assessee was right in deducting tax at source u/s. 194J. At the time of hearing, the attention of the ld. Authorised Representative was invited to the definition of “royalty” as given in Explanation (ba) to section 194J read with Explanation 2 to clause (vi) of sub-section (1) of section 9. He was pointedly asked to state as to which clause of Explanation 2 to clause (vi) of section 9(1) would bring the impugned payments made by the assessee to GMB within the ambit of “royalty”. He was point blank at this stage. We have perused the definition of royalty as given in Explanation 2 to clause (vi) of section 9(1) and find that the scope of royalty is limited to consideration paid for transfer of certain rights in respect of, e.f., patent, invention, model, design, secret formula or process or trade mark or similar property, etc. The impugned sum paid by the assessee does not fall under any of the clauses of Explanation 2 to clause (vi) of sub-section (1) of section 9. As stated earlier, the ld. Authorised Representative for the assessee also could not establish as to how the impugned payments made by the assessee fell under Explanation 2 to clause (vi) of sub-section (1) of section 194J. In this view of the matter, it is held that there was no basis with the assessee for deducting tax at source u/s. 194J. In view of the above, it is clear that Water Front Charges paid by the appellant to the MPSEZ AND MICPL cannot be equated with “Royalty” within the meaning of Section 194J of the Act.” Respectfully relying upon the ratio laid down by the Co-ordinate Bench as reproduced hereinabove we are of the considered opinion that the payment in question made by the assessee to Mundra Port and Special Economic Zone and the Mundra International Containers Pvt. Ltd. cannot be termed as “Royalty” and hence the appellant cannot be made liable to deduct tax under section 194J of the act. In that view of the matter we find Intermark Shipping Agencies Pvt. Ltd. vs. ITO AY 2010-11 - 6 - no merit in such addition made by the authorities below. The same is thus hereby deleted.

In the result, appeal filed by the assessee is allowed. Order pronounced in the Court on 28th February, 2020 at Rajkot.