4.1.6 Withholding Tax on charter hire charges In India payment towards in-chartering of foreign flag ships is being treated as use of ‘equipment’ under Section 9(1) (VI) the Income Tax Act making the charter hire charges taxable as a royalty and withholding tax is payable @10%. Clause (iva) of Explanation 2 to section 9 (1) (VI) defines royalty to include payment made inter alia for the use or hire of industrial, commercial or scientific equipment. Further section 43 (3) of the Income tax Act defines ‘plants’ to include ‘ships, vehicles, books, scientific apparatus and surgical equipment used for the purposes of the business or profession’. Thus it is not consistent with other provisions of the Income Tax Act to treat ships as equipment under section 9(1) (VI) of the Income Tax Act.
In the UK there is no withholding tax on charter hire paid to foreign ship owners. In Singapore charter fees paid to non-residents is subject to withholding tax @15% but following a ruling of the Comptroller of Income Tax withholding tax is being paid @ 0-3%. In Netherlands too no withholding tax is payable on charter hire charges payable to foreign ship owners. The same is the case in Ireland.
The Group was of the view that both from the point of view of consistent interpretation of law and providing ships with Indian flag with a level playing field on taxation matters no withholding tax should be levied on in-chartering of foreign ships.
