BAGGERWERKEN DECLOEDT EN ZOON,CHENNAI vs. DCIT INTERNATIONAL TAXATION 1(1), CHENNAI

ITTPA 69/CHNY/2018Status: DisposedITAT Chennai25 February 2025AY 2014-1539 pages
AI SummaryAllowed

What were the facts?

The assessee, Baggerwerken Decloedt En Zoon, a Belgian company, appealed against the final assessment order dated 26.10.2018, passed by the Deputy Commissioner of Income Tax, International Taxation 1(1), Chennai, for Assessment Year 2014-15. The order was passed pursuant to directions from the Dispute Resolution Panel-2, Bengaluru. The assessee had let out one of its dredgers, 'Nile River', on a bareboat charter basis to its Associated Enterprise, International Seaport Dredging Private Limited (ISDPL), for projects in India. The consideration received was INR 105.67 crores. The assessee declared Nil taxable income. The Assessing Officer (AO) proposed to treat the hire charges as royalty and business income, relying on survey statements from ISDPL's premises. The AO concluded that the assessee constituted a Permanent Establishment (PE) in India and arbitrarily attributed 25% of hire charges, taxing it at 40%. The Dispute Resolution Panel upheld the AO's order. The final demand raised was INR 18.40 crores.

What did the Tribunal hold?

The Tribunal held that the assessee did not constitute a PE in India. Firstly, the hiring of the dredger on a bareboat charter basis did not qualify as a PE under the relevant provisions of the DTAA. The Tribunal noted that the term 'royalty' under Article 12 of the India-Netherlands DTAA (and by extension, the India-Belgium DTAA, considering the context and cited cases) does not include payments for the use or right to use industrial equipment. The Tribunal referenced judgments in Van Oord ACZ Equipment BV, DDIT v. Nederlandsche Overzee Baggermaatsehappiji BV, and M/s International Seaport Dreding Ltd., which supported the argument that bareboat charter hire charges do not constitute 'royalty'. The Tribunal also acknowledged a typographical error in the India-Belgium DTAA where 'plant' was likely intended to be 'plan' in Article 12, as per a notification. Furthermore, the Tribunal found that the AO's reliance on survey statements was misplaced, as such statements are not conclusive evidence, especially when the deponents were not subjected to cross-examination by the assessee. The Tribunal concluded that the assessee had no business connection or PE in India, rendering the attribution of profits to a PE unnecessary. Therefore, the appeal of the assessee was allowed.

What were the issues?

1. Whether the lower authorities erred in concluding that the Appellant has a Permanent Establishment (PE) in India based on conjectures and surmises, and in failing to establish a business connection in India as per Section 9 of the Act, making the income not subject to tax under the Act (turning on Section 9 and Article 5 of the DTAA)? 2. Whether the lower authorities erred in relying on information and statements recorded during a survey conducted at ISDPL's premises as conclusive evidence, and in making references to functions performed by other entities while concluding the existence of a PE (turning on principles of evidence and Article 5 of the DTAA)? 3. Whether the lower authorities erred in not identifying the nature of the PE as per the relevant provisions of the DTAA and in adopting an arbitrary rate of 25% for profit attribution without considering the FAR analysis, thereby going beyond jurisdiction by contradicting the FAR analysis accepted in the TP order (turning on Article 5 and Article 7 of the DTAA)? Assessee's contentions: The AO took conflicting stands on the taxability of hire charges, classifying them as both 'Royalty' and 'Business Income'. The assessee argued that the transaction cannot be taxed as 'royalty' as per the DTAA, as payments for the use of industrial equipment are not royalty. The assessee also contended it had no place of business in India and that the survey statements were not conclusive evidence. The AO failed to establish a business connection or PE as per law and the DTAA. The assessee relied on the case of Poompuhar Shipping Corporation Ltd. and Tribunal orders in Van Oord ACZ Equipment BV, DDIT v. Nederlandsche Overzee Baggermaatsehappiji BV, and M/s International Seaport Dreding Ltd. Revenue's contentions: The revenue, through the AO and DRP, concluded that the assessee had a PE in India. The AO relied on the definition of 'plant' in Section 43(3) of the Act and the India-Belgium DTAA to classify dredgers as 'plant', and cited the Poompuhar Shipping Corporation Ltd. case. The AO also relied on survey statements from ISDPL, an organization chart showing a continuous business relationship, and the control and coordination of dredging operations by DEME Group.

Which sections of the Income-tax Act were involved?

Section 9,Section 143(3),Section 144C(1),Section 144C(13),Section 43(3),Section 133A,Section 92CA(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘D’ BENCH, CHENNAI

Before: HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM & HON’BLE SHRI MANU KUMAR GIRI, JM

Hearing: 11.12.2024Pronounced: 25.02.2025

PER MANU KUMAR GIRI (Judicial Member)

This appeal by the assessee is arising out of the final assessment order dated 26.10.2018, passed by the Deputy Commissioner of Income Tax, International Taxation 1(1), Chennai for the assessment year 2014-15 u/s.143(3) r.ws. 144C(13)

2 IT(TP)A No.69

The order continues below.

Read the full judgment

A free account opens 10 full judgments a month. Re-reading one you have already opened does not count again.

Create a free accountSign in

See plans and prices

The summary, the parties, the sections and the citations above are open to everyone and always will be. Only the text of the order and the PDF are metered.

More judgments on Section 9

All 523 judgments and leading authorities on Section 9 →

Recent GST High Court judgments

Search GST case law →