The Commissioner Of Income Taxchennai v. Van Oord Acz Equipment Bvc/O.deshpande & Mahatmechartered Accountantsgambar Apts, Vasco-Da-Gamagoa – 403 802

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 14.11.2014 CORAM THE HON'BLE MR.JUSTICE R.SUDHAKARANDTHE HON'BLE MR.JUSTICE G.M.AKBAR ALI T.C.(A).No.1202 of 2007 The Commissioner of Income TaxChennai. ...Appellant Vs. Van Oord ACZ Equipment BVC/o.Deshpande & MahatmeChartered AccountantsGambar Apts, Vasco-Da-GamaGoa – 403 802. ...Respondent Appeal under Section 260A of the Income Tax Act, 1961 againstthe order of the Income Tax Appellate Tribunal Chennai 'A' Bench,dated 29.3.2007 made in ITA No.1894/Mds/2005 for the assessment year2003-2004 against the order of the Commissioner of Income Tax(Appeal) III, Chennai - 34, in ITA No. 380/Mds/04-05/A-III dated21.04.2005 against the Assessment order dated 17.08.2004 in PAN No.AX6-476 by the Deputy Commissioner of Income Tax, Company Circle I(1) Chennai - 34. For Appellant :Mr.T.RavikumarSenior Standing Counsel For Respondent :Mr.Porus KakaSenior Counselfor Mr.R.SivaramanJ U D G M E N T The appeal has been filed by the Revenue challenging the orderof the Income Tax Appellate Tribunal 'A' Bench, Chennai, dated29.3.2007 made in ITA No.1894/Mds/2005 for the assessment year 2003-2004. https://hcservices.ecourts.gov.in/hcservices/ 2.The brief facts of the case are as under: The assessee isa company incorporated in Netherlands and falls within the definitionof a foreign company under Section 2(23A) of the Income Tax Act (forbrevity, “the Act”). The management and control of the assesseecompany is situated in Netherlands. The assessee during the year2002-2003 let out dredging equipment to their Indian company, namely,Van Oord ACZ India P. Ltd. The assessee filed return of income alongwith a brief note elucidating the provisions of the Double TaxationAvoidance Agreement signed by the Government of India with theGovernment of Netherlands and stating that the income earned byletting out of industrial equipment would not be taxable in India.However, the Assessing Officer held that since the definition ofroyalty, as enumerated in Section 9 of the Act, means considerationfor use or right to use any industrial, commercial or scientificequipment, the consideration received by the assessee company fallswithin the definition of royalty in Section 9 of the Act andaccordingly, the same is liable to tax in India. 3. Assailing the assessment order, the assessee filed anappeal before the Commissioner of Income Tax (Appeals). TheCommissioner of Income Tax (Appeals) after taking note of:(i)the documents produced by the assessee from theIncome Tax Department of the Netherlands to theeffect that equipment rent is included in the totalincome of the appellant as per the laws of theNetherlands and tax has also been paid on the same,and(ii)the amended provisions of the Double TaxationAvoidance Agreement, held that the contracting country (in the present case – India)should not levy income tax on the said income. Accordingly, theCommissioner of Income Tax (Appeals) deleted the tax so imposed bythe Assessing Officer. 4. Aggrieved by the above said order, the Revenue preferredan appeal before the Tribunal. The Tribunal, while confirming theorder passed by the Commissioner of Income Tax (Appeals), observedthat when the assessee has no permanent establishment in India, thereis no charging provision in the Act to bring this income under theprovisions of the said Act for the purpose of bringing the same totax. 5. Challenging the above said order, the Revenue has filedthis appeal on the following substantial question of law:“Whether, in the facts and circumstances of the case,the Tribunal was right in holding that the amountreceived by the assessee for hiring out dredgers to anIndian Company of the same name for use in Indian portsis not taxable in India in terms of the Double Taxation Avoidance Agreement with the Netherlands?” 5. Challenging the above said order, the Revenue has filedthis appeal on the following substantial question of law:“Whether, in the facts and circumstances of the case,the Tribunal was right in holding that the amountreceived by the assessee for hiring out dredgers to anIndian Company of the same name for use in Indian portsis not taxable in India in terms of the Double Taxation Avoidance Agreement with the Netherlands?” 6. The main contention of the learned Senior Standing Counselappearing for the Revenue is that as per Clause (iva) to Explanation2 to Section 9(1) of the Act, the consideration received for the useor right to use, any industrial, commercial or scientific equipment,but not including the amounts referred to in section 44BB, is royaltyand since Section 44BB is not applicable to the case on hand, theincome is chargeable to tax in India. 7. The next contention of the learned Senior Standing Counselappearing for the Revenue is that as per Article 12(1) of the DoubleTaxation Avoidance Agreement, royalty arising in a contracting Statemay be taxed in the other State and, therefore, there is norestriction on the Revenue to impose tax in India, solely because theassessee has paid tax in the Netherlands. 8. The learned counsel for the revenue would further submitthat the payment made towards chartering of the ship should beconsidered as business income and such business income would attractthe provisions of the Income tax under Article 7 of the DTAA. Healso placed reliance on Article 5 which defines permanentestablishment chargeable to tax in India. The learned counsel reliedon 2014 360 ITR 257 Madras (Poompuhar Shipping Corporation Ltd andanother vs Income Tax Officer, International taxation) and contendedthat the consideration paid for the use of equipment is liable to betreated as Royalty as defined in Explanation II to Sec.9(1)(i) of theIncome Tax act. 9.On the other hand, the contention of the learned Seniorcounsel for the respondent company is as follows:●the respondent company is incorporated in Netherlandsand the entire management and control is situatedoutside India. Therefore, there is no permanentestablishment in India.●the respondent company is incorporated in Netherlandsand the entire management and control is situatedoutside India. Therefore, there is no permanentestablishment in India. The Foreign company was engaged in the business ofhiring out of dredging equipment and had let out suchdredging equipment to its sister concern, which isincorporated in India and for such use of equipment, thecompany has raised invoices and the Indian Companydeducted income tax at source (TDS) for which theforeign company is not liable to, and made a claim forrefund.hiring out of dredging equipment and had let out suchdredging equipment to its sister concern, which isincorporated in India and for such use of equipment, thecompany has raised invoices and the Indian Companydeducted income tax at source (TDS) for which theforeign company is not liable to, and made a claim forrefund. The amount received by the foreign company is a paymentfor use of equipment and the foreign company is governedby the provisions of Double Taxation Avoidance Agreement(DTAA) and according to the amended DTAA, the incomefor use of equipment and the foreign company is governedby the provisions of Double Taxation Avoidance Agreement(DTAA) and according to the amended DTAA, the income earned from hiring of dredging equipment was nottaxable in India. ●The payment towards the hire of dredging equipment isnot a royalty as defined under Explanation II to clause(iva) to sec.9(1) of the Act. The amount received by the foreign company is a paymentfor use of equipment and the foreign company is governedby the provisions of Double Taxation Avoidance Agreement(DTAA) and according to the amended DTAA, the incomefor use of equipment and the foreign company is governedby the provisions of Double Taxation Avoidance Agreement(DTAA) and according to the amended DTAA, the income earned from hiring of dredging equipment was nottaxable in India. ●The payment towards the hire of dredging equipment isnot a royalty as defined under Explanation II to clause(iva) to sec.9(1) of the Act. ●The dredging equipment was leased out on bareboatunderstanding (i.e,) without Master and Crew andtherefore it is not a Ship as stated by the Department.Therefore, the decision rendered in Poompuhar ShippingCorporation Ltd vs Income Tax Officer, InternationalTaxation reported in 2014 360 ITR 257 Madras is notapplicable. ●As per the decision rendered in the case of Union ofIndia and another vs Azadi Bachao Andolan and reportedin 2003 263 ITR 706 SC , if a tax liability is imposedby the Income Tax Act, the provisions of the DTAAagreement would prevail over the provisions of theIncome Tax Act and therefore, there is no tax liabilityon the foreign company.●In similar cases involving Netherlands Companies doingbusiness in India, the High Court of Uttarkhand and theHigh Court of Calcutta had clearly held under Article 5of the DTAA agreement between India and Netherlands, theNetherlands companies are not permanent establishment inIndia and therefore, there is no tax liability.Reliance was also placed in the case of ABN AmroBank,N.V vs Commissioner of Income Tax reported in 2012343 ITR 0081 and also in the case of Commissioner ofIncome Tax vs BKI/HAM v.o.f reported in 2012 347 ITR0570. 10.Heard both sides and perused the materials available onrecord. 11.The following facts are not disputed: The respondent is a Company incorporated in Netherlands and hadlet out dredging equipments to one of its sister concerns which is acompany incorporated in India for the purpose of dredging as per thecontract awarded by Gujarat Adhani Port Limited. The respondentcompany raised invoices for the use of the equipment from 1.7.2001 to31.3.2003 amounting to Rs.18,87,40,695/-. The Indian Company deductedTDS of Rs.5,49,04,367/- under section 195(2) of the Act. Therespondent company filed its return claiming the entire TDS amount byway of refund stating that they are not liable for Tax under the provisions of DTAA agreement. However, the assessing officer foundthat w.e.f.1.4.2002, any consideration for the use or right to useany industrial, commercial or scientific equipment are included inthe term “Royalty” by the amending clause in Explanation to (iva) tosec.9(i) of the Act and held that the consideration received by theappellant was taxable and levied income tax at the rate of 10% on theamount of Royalty. 12.On appeal, the Commissioner of Income Tax (Appeals)considered the DTAA agreement and also the modified provisions ofArticle 12 of the DTAA agreement where the definition to Royalty wasmodified and the words “payments of any kind received asconsideration for the use of or the right to use industrial,commercial or scientific equipment” were deleted from the definition.Therefore, the appellate authority deleted the levy of tax at 10% onequipment rent earned by the respondent company. 13.On further appeal by the Department, the Tribunal has alsoaccepted that the respondent Company is not liable for Tax as per theprovisions of the DTAA Agreement and also held that there is nopermanent establishment in India to bring the income under theprovisions of the Income Tax Act. 13.On further appeal by the Department, the Tribunal has alsoaccepted that the respondent Company is not liable for Tax as per theprovisions of the DTAA Agreement and also held that there is nopermanent establishment in India to bring the income under theprovisions of the Income Tax Act. 14.Before adverting to the merits of the case it is necessaryto deal with the Double Taxation Avoidance Agreement which is knownas DTAA. Under a Notification No.GSR 382(E) DATED 27.3.1989, theconvention, between the Government of Republic of India and theKingdom of Netherlands for the Avoidance of Double Taxation and theprevention of fiscal evasion with respect to taxes on income and oncapital, came into force w.e.f. 21.1.1989. Both Governments haveagreed and the DTAA agreement with seven chapters and 30 Articles wassigned. A protocol with additional article was also signed. Thedefinitions under Article 3 (a) defines the “State” and “States”,which read as follows: “ (a) the term “State” means theNetherlands or India, as the contextrequires, the term “States” means theNetherlands and India; 15.Article 5 deals with permanent establishment sub clauses 1and 2 are as follows:“ 1. For the purposes of this Convention,the term “permanent establishment” means afixed place of business through which thebusiness of the enterprise is wholly orpartly carried on. 2. The term “permanent establishment”includes especially: https://hcservices.ecourts.gov.in/hcservices/ (a) a place of management;(b) a branch;(c) an office;(d)a factory;(e)a workshop;(f) a mine, an oil or gas well, a quarryor any other place of extraction ofnatural resources;(g)a warehouse in relation to a personproviding storage facilities for others;(h) a premises used as a sales outlet;(i)an installation or structure used forthe exploration of natural resourcesprovided that the activities continue formore than 183 days.”16.Article 7 deals with business profits. Article 12 dealswith Royalties, fees for technical service and payments for the useof equipment. Originally, sub clause (1) to (4) of Article 12 stoodas follows:“ 1. Royalties, fees for technicalservices and payments for the use ofequipment arising in one of the States andpaid to a resident of the other State maybe taxed in that other State.2. However, such royalties, fees andpayments may also be taxed in the state inwhich they arise and according to the lawsof that State, but if the recipient is thebeneficial owner of these categories ofincome, the tax so charged shall notexceed 20 per cent of the gross amount ofthe royalties, of the fees and payments. 3. The competent authorities of the Statesshall by mutual agreement settle the modeof application of paragraph 2 4. The term “royalties” as used in thisArticle means payments of any kindreceived as a consideration for the useof, or the right to use, any copyright ofliterary, artistic or scientific work,including motion picture films and workson film or video tape for use inconnection with television, any patent,trade mark, design or model, plan, secretformula or process, or for informationconcerning industrial, commercial or scientific experience.” (emphasis supplied) 17.Subsequently, there was an amendment w.e.f.1.4.1991 and subclauses (1), (2) and (4) of Article 12 were modified as follows:1. Royalties and fees for technical servicesarising in a Contracting State and paid to aresident of the other Contracting State may betaxed in that other State. 2. However, such royalties and fees fortechnical services may also be taxed in theContracting State in which they arise andaccording to the laws of that State; but if thebeneficial owner of the royalties or fees fortechnical services is a resident of the otherContracting State, the tax so charged shall notexceed. scientific experience.” (emphasis supplied) 17.Subsequently, there was an amendment w.e.f.1.4.1991 and subclauses (1), (2) and (4) of Article 12 were modified as follows:1. Royalties and fees for technical servicesarising in a Contracting State and paid to aresident of the other Contracting State may betaxed in that other State. 2. However, such royalties and fees fortechnical services may also be taxed in theContracting State in which they arise andaccording to the laws of that State; but if thebeneficial owner of the royalties or fees fortechnical services is a resident of the otherContracting State, the tax so charged shall notexceed. (a) in the case of royalties referred to in sub-paragraph (1) of paragraph 4 and fees fortechnical services as defined in this Article(other than services described in sub-paragraph (b) of this paragraph); (A) 15 percent of the gross amount of theroyalties or fees for technical services asdefined in this Article, where the payer of theroyalties or fees is the Government of thatContracting State, a Political sub-division or apublic sector company; and(B) 20 per cent of gross amount of the royaltiesor fees for technical services in all othercases; and(ii) during the subsequent years, 15 percent ofthe gross amount of royalties or fees fortechnical services; and (b) in the case of royalties referred to in sub-paragraph(b) of paragraph 4 and fees fortechnical services as defined in this Articlethat are ancillary and subsidiary to theenjoyment of the property for which payment isreceived under paragraph 4(b) of this Article,10 percent of the gross amount of the royaltiesor fees for technical services. 4. The term “royalties” as used in this Articlemeans:(a) payments of any kind received as a consideration for the use of, or the right touse, any copyright to literary, artistic orscientific work including motion picture filmsand works or videotape for use in connectionwith television, any patent, trade mark, designor model, plan, secret formula or process, orforinformationconcerningindustrial,commercial or scientific experience; and (b) payments of any kind received asconsideration for the use of, for the right touse industrial, commercial or scientificequipment, other than payments derived by anenterprise described in paragraph 1 of Articles8 and 8A (Shipping and Air Transport) fromactivities described in paragraph 2(a) ofArticle 8 or paragraph 4(b) of Article 8A. 18.In a further modification w.e.f.1.4.1997, sub clause 2 wasmodified as follows:“2. However, such royalties and fees fortechnical services may also be taxed in theContracting State in which they arise andaccording to the laws of that State, but if therecipient is the beneficial owner of theroyalties, or fees for technical services, thetax so charged shall not exceed 10 percent ofthe gross amount of the royalties or the feesfor technical services.” 19.W.e.f.1.4.1998, sub clause 4 of Article 12 was alsomodified as follows: 4) “The term “royalties” as used in thisArticle means payment of any kind received as aconsideration for the use of, or the right touse, any copyright to literary, artistic orscientific work including cinematograpy films,any patent, trade mark, design or model, plan,secret formula or process, or for informationconcerning industrial, commercial or scientificexpression. 20.Clause (1) of Article 12 originally covered 'Royalties','fees for technical services' and 'payments for the use ofequipments'. A plain reading would show that if any one of the abovecategory arises in one of the “States” viz., Netherlands and Indiaand paid to a resident of the other “State” i.e., Netherlands orIndia, the same may be taxed in that other “state” i.e., Netherlandsor India. 4) “The term “royalties” as used in thisArticle means payment of any kind received as aconsideration for the use of, or the right touse, any copyright to literary, artistic orscientific work including cinematograpy films,any patent, trade mark, design or model, plan,secret formula or process, or for informationconcerning industrial, commercial or scientificexpression. 20.Clause (1) of Article 12 originally covered 'Royalties','fees for technical services' and 'payments for the use ofequipments'. A plain reading would show that if any one of the abovecategory arises in one of the “States” viz., Netherlands and Indiaand paid to a resident of the other “State” i.e., Netherlands orIndia, the same may be taxed in that other “state” i.e., Netherlandsor India. 21.Clause (2) however stated that such royalties, fees,payments may also be taxed in the State in which they arise andaccording to the laws of the State. But the tax so charged shall notexceed 20% of the gross amount. 22.Sub clause (4) defines royalties which will include anyconsideration received for the use of any copy right of literary,artistic or scientific work including motion picture films and workson film or video tape for use in connection with television, anypatent, trade mark, design or model, plan, secret formula or process,or for information concerning industrial, commercial or scientificexperience. 23.Clause 5 defines 'fees for technical services' and clause(6) defines the term “payments for the use of equipment” and meanspayment of any kind received as a consideration for the use of or theright to use industrial, commercial or scientific equipment. 24.However, clause (1) of Article 12 as modifiedw.e.f.1.4.1991 would show that the 'Royalties' and 'fees fortechnical services' arising in a Contracting State and paid to theresident of the other Contracting State may be taxed in that otherState. In this modification, the category “payments for the use ofequipment” does not figure. 25.Coming to the modification to clause 2, the first partof Clause 2 is similar to the earlier clause 2, however, the methodof tax so charged is divided into two categories with reference tothe modified (a) and (b) of clause 4. However, clause(2) was againmodified w.e.f.1.4.1997 to its original position with a slight changeof “tax so charged shall not exceed 10%” as against the original20%. Similarly, w.e.f. 1.4.1998, clause 4 was also restored itsoriginal position deleting sub clause (a) and (b). 26.In the modification w.e.f.1.4.1991, clause 6 the definitionfor payments for the use of equipments did not figure. Clause 5defines fees for technical services and clause 6 defines the amountwhich does not include for fees for technical services. The abovesaid clause 6 was further modified w.e.f. 1.4.1995. 27.Sub clause (b) of clause 4 as modified w.e.f.1.4.1991defined payments of any kind received as consideration for the useof, for the right to use industrial, commercial and scientificequipment, thereby literally including the category “payments for theuse of equipment” into the category of “Royalties”. However, clause 4to Article 12 was restored to original position w.ef.1.4.1998. 28.The above would show that for all practical purposes, the'payments for the use of equipment' originally found in clause (1) of https://hcservices.ecourts.gov.in/hcservices/ Article 12 as defined in clause (6) was incorporated in thedefinition of the term “Royalties” in clause 4 w.e.f.1.4.1991 andsubsequently deleted w.e.f.1.4.1998 and thereby completely taken outfrom clause (1) and (2) of Article 12. This means that the paymentfor the use of equipment or any consideration for the use of , forthe right to use industrial, commercial or scientific equipment isdeleted and it is not taxable in the contracting State in which theyarise viz., in the given case India. 28.The above would show that for all practical purposes, the'payments for the use of equipment' originally found in clause (1) of https://hcservices.ecourts.gov.in/hcservices/ Article 12 as defined in clause (6) was incorporated in thedefinition of the term “Royalties” in clause 4 w.e.f.1.4.1991 andsubsequently deleted w.e.f.1.4.1998 and thereby completely taken outfrom clause (1) and (2) of Article 12. This means that the paymentfor the use of equipment or any consideration for the use of , forthe right to use industrial, commercial or scientific equipment isdeleted and it is not taxable in the contracting State in which theyarise viz., in the given case India. 29.Sec.90 of the Income Tax Act 1961 enables and empowers theCentral Government to issue Notification for implementation of theterms of Double Taxation Avoidance Agreement. In Union of India andanother vs Azadi Bachao Andolan and reported in 2003 263 ITR 706 SC ,the Hon'ble Supreme Court considered Sec.90 of the Act and held asfollows: “No provision of the Double Taxation AvoidanceAgreement can possibly fasten a tax liabilitywhere the liability is not imposed by the Act.If a tax liability is imposed by the Act, theAgreement may be resorted to for negativing orreducing it; and, in case of differencebetween the provisions of the Act and theAgreement, the provisions of the Agreementwould prevail over the provisions of the Actand can be enforced by the appellateauthorities and the court.Section 90 is specifically intended toenable and empower the Central Government, toissue notification for implementation of theterms of a Double Taxation AvoidanceAgreement. The provisions of such anAgreement, with respect to cases to which theyapply, would operate even if inconsistent withthe provisions of the Income-Tax Act. If itwas not the intention of the Legislature tomake a departure from the general principlesof chargeability to tax under section 4 andthe general principle of ascertainment oftaxable income under section 5, then there wasno purpose in making those sections “subjectto the provisions of the Act”.Section 90 was brought into the statutebook precisely to enable the executive tonegotiate a Double Taxation AvoidanceAgreement and quickly implement it. Evenaccepting that the powers exercised by theCentral Government under section 90 aredelegated powers of legislation, there is noreason why a delegatee of legislative power, in all cases, has no power to grant exemption.The delegate of a legislative power canexercise the power of exemption in a fiscalstatute.When the requisite notification has beenissued under section 90, the provisions ofsub-section (2) of section 90 spring intooperation and an assessee who is covered bythe provisions of the Double TaxationAvoidance Agreement is entitled to seek thebenefits thereunder, even if the provisions ofthe Double Taxation Avoidance Agreement areinconsistent with those of the Act. “Therefore, a Notification No.S4693(E) dated 30.8.1999 was issuedunder Sec.90 of the Income Tax Act bringing in the above saidmodification, as India and Netherlands are members of theOrganisation for Economic Co-operation and Development (OECD) tolimit the taxation in line with the conventions between India andother countries. Therefore the provisions of the Agreement wouldprevail over the provisions of the Act. 30.Clause (iva) of Sec.9(1) of Income Tax Act defines“Royalties”. w.e.f.1.4.2002. But, in our considered view, Clause(iva) of Sec.9(1) is not applicable for the simple reason that thepayments for the use of equipment was no longer taxable in theContracting State viz., India after the modification dated 1.4.1998in the DTAA. 30.Clause (iva) of Sec.9(1) of Income Tax Act defines“Royalties”. w.e.f.1.4.2002. But, in our considered view, Clause(iva) of Sec.9(1) is not applicable for the simple reason that thepayments for the use of equipment was no longer taxable in theContracting State viz., India after the modification dated 1.4.1998in the DTAA. 31.The learned Standing counsel for the department would relyupon the judgment rendered in the case of Poompuhar Shippingcorporation Ltd and another vs Income Tax Officer (InternationalTaxation) reported in 2014 360 ITR 257 (Mad) . The main questionbefore the Division Bench in the above decision was whether thepayment made for taking ship on time charted basis would constituteRoyalty as defined under Sec.9(1)(vi)(b) of the Income Tax Act. 32.The DTAA of Australia, USA, France, Germany, Norway,Singapore and Switzerland were considered and particularly, Art.12(3) which defined the term “Royalties” was under consideration. Thesaid Art. 12(3) is pari materia to Art.12(4) as modifiedw.e.f.1.4.1991 of DTAA with Netherlands. 33.For better appreciation, paragraphs 88 to 92 in the case ofPoompuhar Shipping corporation case (cited supra) are reproducedhereunder:88. This takes us to the consideration on Article12 under DTAA. Article 12 of the Australian DTAAdeals with the jurisdiction of and the State onthe taxability of royalty. It states that Article https://hcservices.ecourts.gov.in/hcservices/ 8 – Ships and aircraft – 1. Profits from theoperation of ships or aircraft, includinginterest on funds connected with that operation,derived by a resident of one of the ContractingStates shall be taxable only in that State. Thedefinition of “royalty” as given under article 12(3) of the DTAA with Australia is the same as inthe definition in the DTAA with France in Article13, with Germany in Article 12; with Norway inArticle 13; with Singapore in Article 12; withSwitzerland in Article 12 and with U.S.A inArticle 12. 89. The U.S.A DTAA specifically reads that“royalty” would mean payments of any kind, asfollows: “12. Royalties and fees for included services:_(1) Royalties and fees for included servicesarising in a Contracting State and paid to aresident of the other Contracting State may betaxed in that other State.... (3) The term “royalties” as used in this articlemeans(a) payments of any kind received as aconsideration for the use of, or the right touse, any copyright of a literary, artistic, orscientific work, including cinematography filmsor work on film, tape or other means ofreproduction for use in connection with radio ortelevision broadcasting, any patent, trade mark,design or model, plan, secret formula or process,or for information concerning industrial,commercial or scientific experience, includinggains derived from the alienation of any suchright or property which are contingent on theproductivity, use, or disposition thereof; and(b) payments of any kind received asconsideration for the use of, or the right touse, any industrial, commercial, or scientificequipment, other than payments derived by anenterprise described in paragraph (1) of Article8 (Shipping and Air Transport) from activitiesdescribed in paragraph 2(c) or 3 of Article 8”. 90.Thus, while some of the DTAAs includepayment for use of or right to use of industrial,commercial and scientific experience as a heading https://hcservices.ecourts.gov.in/hcservices/ under royalty, invariably, in all the DTAAspayment for use of or right to use of industrial,commercial and scientific equipment, is includedin the meaning of “royalty”. The provisioncontained in section 9(1)(vi), Explanation 2(iva) is modelled after U.N. Model and isdifferent from what one has in the OECD model atpresent. 90.Thus, while some of the DTAAs includepayment for use of or right to use of industrial,commercial and scientific experience as a heading https://hcservices.ecourts.gov.in/hcservices/ under royalty, invariably, in all the DTAAspayment for use of or right to use of industrial,commercial and scientific equipment, is includedin the meaning of “royalty”. The provisioncontained in section 9(1)(vi), Explanation 2(iva) is modelled after U.N. Model and isdifferent from what one has in the OECD model atpresent. 91.Thus, while the OECD Model got amended tobring payment for use of or right to use of theindustrial, commercial scientific experience as“royalty”, all the DTAA s under considerationcontain the clauses on consideration for use ofor right to use of industrial, commercial andscientific equipment as well as experience as“royalty” 92. Thus, when the use or right to use the shipfor an economic benefit is given to the assessee,the consideration for the use of the industrial,commercial and scientific equipment is “royalty”,assessable under Explanation 2(iva) to section 9(1)(vi) of the Income Tax Act. Thus, for thepurposes of Income Tax Act, under the timecharter, the payment made being for the use ofthe ship, the same comes within the meaning ofthe word “royalty”. 34. While considering the DTAA that is applicable to the presentcase and the DTAA that was considered in Poompuhar Shipping case,referred supra, we find that the amendment to Clause 4 of Article 12with effect from 1.4.1998 by deleting the term “payments for the useof the equipment” from the definition of “royalties” makes thepresent case distinguishable on facts. In Poompuhar Shipping case,referred supra, it was a case of hiring of ship on time-charterbasis, whereas in the present case, dredging equipment is leased outon bareboat basis, namely, without Master and Crew. Therefore, onfacts, the decision in Poompuhar Shipping case, referred supra, isdistinguishable. 35. The learned Standing Counsel for the department referring toparagraph (2) of Article 5 which states that an installation orstructure used for the exploration of natural resources is apermanent establishment, provided that the activities continue formore than 183 days, pleaded that the stand of the department isjustified. 36. We are not inclined to accept such a plea, as in the case on hand the dredging equipment was leased out on bareboat basis viz.,without Master and Crew. Therefore, it will not come under thepermanent establishment and the entire control over the equipment wasnot with the Foreign company, but with the Indian Company. Therefore,the above said plea is not accepted. 37.For the foregoing reasons, the appellate authority belowhas rightly considered Article 12(4) of the DTAA agreement betweenNetherlands and India and is right in holding that the amountreceived by the assessee for hiring out Dredgers to an Indian Companyof the same name for use in Indian Ports is not taxable in India andthe substantial question of law is answered against theRevenue/appellant. 38.In the result, the appeal is dismissed and order of theIncome Tax Appellate Tribunal Chennai 'A' Bench, dated 29.3.2007 madein ITA No.1894/Mds/2005 for the assessment year 2003-2004 isconfirmed. No costs. Sd/-Assistant Registrar(CS-II) //True Copy// Sub Assistant Registrarsr/sasiTo 1. The Assisant Registrar,Income Tax Appellate Tribunal,Chennai 'A' Bench, Sastri Bhavan, Chennai. 2. The Commissioner of Income Tax (Appeal)Chennai -34. 3. The Deputy Commissioner of Income Tax,Company Circle I (1) Chennai - 34. 4. The Commissioner of Income Tax,Chennai.1 CC to Mr.R.Sura Raman, Advocate SR.No. 55032 1 CC to Mr.T.Ravikumar, Advocate SR.No. 54588 TEJ (CO)PSI (26.11.2014) https://hcservices.ecourts.gov.in/hcservices/