The Chennai Bench of the Income Tax Appellate Tribunal (ITAT) has deleted the disallowance of ocean freight charges paid to Korean-associated enterprises (AE).The bench of Mahavir Singh (Vice President) and Manoj Kumar Aggarwal (Accountant Member) has observed that as per Article 8 of the DTAA of India-Korea, the rentals of ships are in the nature of profit from the operation of ships or...
The Chennai Bench of the Income Tax Appellate Tribunal (ITAT) has deleted the disallowance of ocean freight charges paid to Korean-associated enterprises (AE).
The bench of Mahavir Singh (Vice President) and Manoj Kumar Aggarwal (Accountant Member) has observed that as per Article 8 of the DTAA of India-Korea, the rentals of ships are in the nature of profit from the operation of ships or aircraft in international traffic carried on by an enterprise of a contracting state. The amount can be taxable only in contracting states and not in India.
The appellant/assessee company is in the business of designing, building, installing, and maintaining engineering plants, with a specialization in thermal and coal power plants. The assessee company renders engineering services to its associated enterprises, Doosan Heavy Industries & Construction Co. Ltd.
The assessee was carrying out the business of execution of turnkey projects for steam generating equipment, supply of spares, and providing related services. In turn, the assessee paid ocean freight charges to its AE, M/s.Doosan Corporation Korea, but no TDS was deducted. The DRP directed the AO to disallow these ocean freight charges paid by the assessee to AE by invoking the provisions of Section 40(a)(i).
The AO disallowed the Ocean Freight charges paid by the assessee to M/s. Doosan Corporation Korea for non-deduction of TDS by invoking the provisions of Section 40(a)(i).
The assessee contended that ocean freight charges would not fall within the scope of fees for technical services, royalty, or under the India-Korea DTAA.
The assessee stated that the ocean freight services would be in the nature of business provided under Article 7 of the DTAA. Since M/s. Doosan Corporation Korea does not have any business activity in India, it would not be taxable in India.
The tribunal held that the assessee is not liable to deduct TDS and, therefore, there is no disallowance by invoking the provisions of Section 40(a)(i) of the Income Tax Act.
Case Title: Doosan Power Systems India Pvt. Ltd. Versus The JCIT / DCIT
Case No.: ITA Nos.: 1885/CHNY/2017 & 665/CHNY/2020
Date: 23.06.2023
Counsel For Appellant: Sandeep Bagmar
Counsel For Respondent: A. Sasikumar