Whether Charter hire payment is assessable as royalty, and obligation to deduct TDS arises and whether disallowance u/s 40(a)(i) can be made?

Last updated: 04 November 2014

Court :
ITAT Cochin

Brief :
The issue arises for consideration is non-deduction of tax for payment of ship charter hire charges. Assessee is engaged in the business of import and export of merchandise goods exporting goods mainly to Maldives. For purpose of export of goods the assessee hired a vessel from Dubai on the basis of a time charter agreement for a period of three months. Assessee has to pay hire charges of USD 725 per day. The charter agreement was also renewed for a further period of three months by another agreement. What was paid by the assesee is hire charges for hiring the vessel to run the same in the international waters. However, the assessing officer found that what was paid by the assessee is royalty. Therefore, the assessee had to deduct tax u/s 195 of the Act. A fully operational vessel with necessary permits and trained crew was hired by the assessee for use of the same for transportation of goods in the international waters. The owner of the vessel / recipient of the payment is a non-resident Indian (NRI) based in Dubai, UAE. Therefore, DTAA between the two sovereign countries, viz. Government of India and Government of UAE would come into operation.

Citation :
M/s Mathewsons Exports & Imports Pvt Ltd – Appellant – Versus – ACIT – Respondent