VAN OORD DREDGING AND MARINE CONTRACTORS BV,MUMBAI vs. DCIT (IT) 4(3)(1), MUMBAI

At the outset, Shri Nishant Thakkar, learned Authorised Representative submitted, grounds no.1, 2 and 3, being general in nature do not require adjudication. Accordingly, these grounds are dismissed.

In grounds no.5 and 6, the assessee has challenged the decision of the Departmental Authorities in rejecting the benchmarking done by the assessee with regard to the payment made to the Associated Enterprises (AE) towards charter hire of dredgers by applying Comparable Uncontrolled Price (CUP) method as the most appropriate method and selecting Transactional Net Margin Method (TNMM) as the most appropriate method.

Brief facts are, the assessee is a foreign company incorporated in Netherland. It has set–up a Project Office in India to execute dredging contracts in India. It is stated, the assessee is carrying on dredging activity in India for more than 20 years. In previous year relevant to the assessment year under dispute, the assessee undertook various international transactions with its overseas Associated Enterprise (AE) including charter hire of dredgers. In the year under consideration, the assessee paid charter hire / lease rental of ` 302,78,03,783. Out of the ten dredgers used for executing dredging contracts in India in the year under consideration, six dredgers were under hire by the assessee

Learned DRP, however, rejected the objections of the assessee by upholding the decision of the Transfer Pricing Officer.

The learned Authorised Representative submitted, the assessee is in the dredging business in India since the year 1994. He submitted, for executing the dredging contracts in India, assessee charter hires

The learned Authorised Representative submitted, the assessee generally uses two types of dredgers i.e., Trailer Suction dredgers and 7 Van Oord Dredging and Marine Contractor BV cutter suction dredgers. He submitted, out of the ten dredgers for which the assessee had paid charter hire / lease rental in the impugned assessment year, six dredgers were hired from assessment year 2010–11. He submitted, in assessment year 2010–11, the assessee had benchmarked the charter hire charges on the basis of valuation certificate from the independent valuation. However, the Transfer Pricing Officer noticing that the basis for valuation in the valuation certificate is CIRIA Norms 2005, called upon the assessee to do valuation as per CIRIA Norms 2009. The learned Authorised Representative drawing our attention to the valuation certificate of the independent valuer placed in the paper book submitted, the valuer has made the valuation as per CIRIA norms and made adjustments for inflation using appropriate indexation as of 1st January 2010 provided under CIRIA norms. He submitted, the valuer has applied the same formula on the basis of which the Transfer Pricing Officer in the earlier assessment years had directed the assessee to make the valuation. The learned Authorised Representative submitted, in case of assessee’s wholly owned subsidiary Van Oord India Pvt. Ltd., which also regularly hires dredgers from the AEs, the arm's length price of the charter hire charges is always benchmarked by using CIRIA norms and the Department has accepted it over the years. He submitted, even, in the impugned assessment year also in case of Van Oord India

Further, in support of his contention that determination of charter hire charges as per VG Bouw / CIRIA norms is a scientific

The learned Authorised Representative submitted, adoption of valuation certificate by independent valuation as a valid CUP is not contrary to the statutory provisions, as, rule 10D(3) contemplates reports by agencies. Thus, he submitted, benchmarking done by the assessee on the basis of valuation certificate of the independent valuer should be accepted.

The learned Departmental Representative submitted, in the preceding assessment years, the Transfer Pricing Officer might have accepted the valuation certificate by independent valuer as a CUP for determining the arm's length price of charter hire charges. However, that will not apply as res judicata since in the impugned assessment year the Transfer Pricing Officer has pointed out the factual differences on the basis of which the valuation certificate of the independent valuer cannot be accepted as CUP. Further elaborating, he submitted, the valuation report does not represent the actual rate as the valuer himself has stated that the rates are indicative. Further, drawing our

We have considered rival submissions and perused the material on record. As could be seen from the facts on record, in the year under consideration, the assessee has paid an amount of ` 302,78,03,783, to its AEs towards hire charges / lease rentals for charter hire of 10 dredgers. The assessee has benchmarked the aforesaid transactions with the AEs by selecting CUP method, wherein, the valuation certificate dated. 16th February 2010 obtained from an independent valuer viz. Van Woerkom, Nobels & Ten Veen, Netherland was applied as a CUP. On a perusal of the aforesaid valuation certificate, a copy of which is at Page–161 of the paper book, it is noticed that the valuer has valued the charter hire charges of the dredgers as per the norms prescribed by CIRIA with cost inflation indexation of 1st January 2010.

It is relevant to observe, the assessee has been executing dredging contracts in India since long and it has determined the arm's length price of the hire charges / lease rentals of the dredgers hired from the AEs by applying the aforesaid methodology. As could be seen from the materials placed before us, in the assessment year 2002–03, the Assessing Officer while completing the assessment under section 143(3) of the Act had accepted the charter hire charges for dredger Sagar Manthan, which is also under hire in the impugned assessment year, by accepting the valuation as per VG Bouw norms to be a fair value. In the assessment year 2005–06, the Transfer Pricing Officer while accepting the valuation certificate obtained from the valuer on the basis of VG Bouw norms as a CUP had observed that the assessee had to furnish separate valuation certificates for dredging operation and mobilization and demobilization charges. Thus, the Transfer Pricing Officer had proceeded to make an adjustment of 15% on account of demobilization and mobilization period. Similarly, for the assessment year 2006–07, while completing the assessment under section 143(3) of the Act, the Assessing Officer, though, accepted the valuation as per VG Bouw norms, however, he made an adjustment on account of mobilization and de–mobilization period.

Interestingly, in the assessment year 2010–11, the assessee benchmarked the hire charges / lease rentals for charter hire of dredgers by applying the valuation certificate of the valuer as a CUP. However, in the course of proceedings before him, the Transfer Pricing Officer noticed that independent valuer has valued the hire charges by applying CIRIA norms of 2005. Therefore, the Transfer Pricing Officer vide letter dated 11th December 2013 called upon the assessee to value the charter hire charges of dredgers by applying the formula as per CIRIA Norms 2005. Ultimately, the Transfer Pricing Officer having found that charter hire charges paid by the assessee to the AEs is at arm's length as per CIRIA Norms 2009, made no further adjustment. It is relevant to observe, in case assessee’s Indian subsidiary, viz, Van Oord India Pvt. Ltd., the Transfer Pricing Officer has consistently accepted the benchmarking of charter hire charges as per valuation done on the basis of VG Bouw / CIRIA Norms, which is evident from the orders passed by the Transfer Pricing Officer for the assessment year 2011–12, a copy of which is placed in the paper book.

Interestingly enough, out of 10 dredgers hired by the assessee for the impugned assessment year, two dredgers were partly hired by the aforesaid Indian subsidiary and in the course of proceedings under section 92CA(3) of the Act, the Transfer Pricing Officer has accepted the valuation report of the independent value as a valid CUP and 13 Van Oord Dredging and Marine Contractor BV treated the international transaction relating to payment of charter hire charges to be at arm's length price. It is also relevant to observe, the Transfer Pricing Officer in both the cases is the same. Thus, from the aforesaid facts, it is evident that the valuation done by the independent valuer on the basis of VG Bouw / CIRIA Norms is accepted as valid CUP not only by the dredging industry but by the Department also.

It is further relevant to observe, in case of Boskalis International and Dredging International C.V. (supra), the Tribunal has accepted the computation of arm's length price of hire charges of dredgers by using VG Bouw valuation as a valid CUP. In the case of Ballast Nedam Dredging (supra), the Co–ordinate Bench has expressed similar view by holding that the valuation done by the valuer on the basis of VG Bouw norms can be accepted as a valid CUP. On a perusal of the valuation certificate issued by the independent valuer, it is noticed that the independent valuer has determined the value of charter hire charges by applying the standard formula prescribed under the CIRIA norms which was earlier known as VG Bouw norms. That being the case, the benchmarking done by the assessee applying the valuation certificate issued by the independent valuer as a CUP is valid. More so, when in the preceding assessment years, the Assessing Officer/Transfer Pricing Officer has accepted the valuation of charter

The same view has been expressed in other decisions as well. In case of the present assessee also, the material facts permeating through different assessment years are more or less identical as the terms and conditions on which the dredgers are hired have not changed. That being the case, applying the rule of consistency, a 15 Van Oord Dredging and Marine Contractor BV different view cannot be taken in the impugned assessment year with regard to the benchmarking of lease rentals paid for charter hire of dredgers by applying CUP method. For the aforesaid reasons, we allow the grounds raised by the assessee with a direction to the Assessing Officer / Transfer Pricing Officer to accept the benchmarking done by the assessee under CUP method after verifying the fact that the independent valuer has made the valuation as per CIRIA norms. Grounds are allowed.

Grounds no.6 to 13 are on the issue of transfer pricing adjustment in relation to the sub–contract charges paid to Van Oord India Pvt. Ltd.

In view of our decision in grounds no.4 and 5, the issue raised in these grounds has become academic, hence, do not require adjudication.

In grounds no.14 to 19, the assessee has challenged the addition made on account of transfer pricing adjustment to the arm's length price of management services paid to the AE.

Brief facts are, the assessee provides various services to group companies including the assessee, such as, general management, survey and engineering related functions, marketing and public

Learned DRP relying upon its own decision in assessment year 2009–10, held that the amount is taxable as royalty / fee for technical services.

The learned Authorised Representative submitted, while deciding identical issue in assessee’s own case in assessment year 2009–10, the Tribunal has held that the management fee received by the assessee is neither in the nature of royalty nor fee for technical services as per Article–12 of India–Netherland Tax Treaty. Thus, he submitted, the issue is covered by the decision of the Tribunal.

The learned Departmental Representative, though, agreed that the issue has been decided in favour of the assessee, however, he relied upon the observations of learned DRP and the Assessing Officer.

We have considered rival submissions and perused the material on record. It is evident from the order of learned DRP that they have decided the issue relying upon their decision in assessee’s own case for the assessment year 2009–10. Notably, while deciding assessee’s appeal for the assessment year 2009–10 in Mum./2012, dated 7th October 2016, the Tribunal has held that the amount received is neither in the nature of royalty nor fees for technical services under Article–12 of India–Netherland Tax Treaty. That being the case, respectfully following the decision of the Co–ordinate Bench referred to above, we delete the addition made by the Assessing Officer.

In grounds no.20, 21 and 23, the assessee has challenged the addition made on account of reimbursement of salary by treating it as fees for technical services.

The Assessing Officer in the course of assessment proceedings, held that the reimbursement of salary is in the nature of fees for technical services.

Learned DRP also concurred with the aforesaid view relying upon its own order for the assessment year 2009–10.

Having considered rival submissions, it is noticed that the Tribunal while deciding the issue in assessment year 2009–10 held that reimbursement of salary is not in the nature of fees for technical services as per Article–12(5) of India–Netherland Tax Treaty. Therefore, respectfully following the aforesaid decision of the Co– ordinate Bench, we delete the addition made by the Assessing Officer. These grounds are allowed.

Ground no.25, the assessee has challenged levy of interest under section 234B of the Act.

The learned Authorised Representative appearing for the parties have agreed that this issue is covered by the decision of the Hon'ble Supreme Court in assessee’s own case.

Having considered rival submissions, we find that in Balash Hamp Dredging B.V., as assessee was known earlier, the Hon'ble Supreme Court following the decision in NGC network LLC, has upheld the decision of the Hon’ble High Court and the Tribunal holding that interest under section 234B of the Act cannot be charged as the assessee is not liable to pay advance tax and the liability is on the payer to deduct tax at source. Following the aforesaid decision of the Hon'ble Supreme Court, we allow the ground raised by the assessee.

The additional grounds raised were not pressed at the time of hearing, hence dismissed.

In the result, appeal is partly allowed. Order pronounced in the open Court on 31.05.2019