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2008 (11) TMI 421 - AT - Income TaxDTAA - Entitled to to 75 per cent relief regarding payment of income-tax in view of Article 9(1) of DTAA - expression operation of ships - treatment of Inland Haulage Charges - Article 8 of the OECD Model Convention. Expression operation of ships - HELD THAT - The expression operation of ships has not been defined in the Article itself. The comparison made by the learned Departmental Representative between the provisions of Article 9 of DTAA and Article 8 of OECD Model Convention has no relevance. The word derived in para 1 of the above Article is followed by the words by an enterprise of Contracting State and not by the words from operation of ships . The provisions contained in Article 9(2) of the DTAA have nothing to do with the definition of the expression operation of ships . In the present case, the assessee could not furnish the relevant details before the Assessing Officer. However, it filed additional evidences before the CIT(A) to establish the linkage between the feeder vessel and the mother vessel on sample basis. That shows that the entire evidence was not furnished before the CIT(A) in this regard - the assessee would be at liberty to establish that the transportation of cargo was carried out by mother vessel either owned or leased or chartered by the assessee. The order of the CIT(A) is, therefore modified and the matter is restored to his file for fresh adjudication in the light of the observations made in the preceding paragraphs. Treatment of Inland Haulage Charges - HELD THAT - This issue stands covered by our decision in the case of Dy. Director of Income-tax v. Safmarine Container Lines N.V. 2008 (7) TMI 444 - ITAT BOMBAY-L held that such charges would fall within the scope of the expression profits from operation of ships if such amount is minor in comparison to freight relating to main voyage. Admittedly, the amount of haulage charges is negligible and, therefore, would fall under Article 9(1) itself. However, such treatment would depend on the treatment of freight relating to the voyage by feeder vessels. If the CIT(A) finds that freight attributable to feeder vessel falls under Article 9(1) then such charges would also fall under Article 9(1). Otherwise, such charges would be treated as business profits falling under Article 7 of the DTAA. Accordingly, the CIT(A) would pass appropriate order in this regard. Assessee had alternatively claimed before the CIT(A) that if the exemption is not allowable under Article 9, then such business profits falling under Article 5 would not be assessable in the hands of the assessee inasmuch as the assessee has no permanent establishment in India. It has also been contended before the CIT(A) that the rate of tax would have been 35 per cent instead of 48 per cent. If the CIT(A) finds that a portion of the profit earned by the assessee is not exempt under Article 9, then he would also adjudicate the above issues after giving adequate opportunity to the assessee. This would dispose of the grounds contained in the assessee s appeal. Hence, the appeal of the revenue is partly allowed while the appeal of the assessee is allowed for statistical purposes.
Issues Involved:
1. Entitlement to 75% relief regarding payment of income-tax under Article 9 of the DTAA between India and France. 2. Treatment of Inland Haulage Charges. 3. Alternative claims regarding business profits under Article 5 and applicable tax rate if exemption under Article 9 is not allowable. Issue 1: Entitlement to 75% Relief Regarding Payment of Income-Tax Under Article 9 of the DTAA Between India and France The primary issue in the revenue's appeal is whether the assessee, a non-resident company tax resident of France, engaged in the transportation of cargo by sea, is entitled to 75% relief on income-tax under Article 9 of the DTAA between India and France. The assessee declared gross receipts of Rs. 11,88,09,049 and computed tax on the declared income at Rs. 42,77,126, claiming relief of Rs. 32,07,845 under Article 9(2) of the DTAA. The Assessing Officer (AO) requested ship registration certificates and charter party agreements, which the assessee failed to provide. The AO concluded that the assessee did not operate the ships and denied relief under Article 9 of the DTAA. The CIT(A) admitted additional evidence and concluded that the assessee was engaged in international traffic and that incidental use of ships belonging to others did not constitute a separate business. The CIT(A) held that the assessee was entitled to relief under Article 9 of the DTAA. The Tribunal noted that Article 9 of the DTAA does not define "operation of ships" and agreed with the CIT(A) in using the OECD Commentary to interpret the term. The Tribunal held that the benefit under Article 9 would be available only if the transportation by feeder vessels is ancillary to the main transportation by mother vessels owned, leased, or chartered by the assessee. The Tribunal found merit in the revenue's contention that the CIT(A) erred in allowing relief without establishing a clear linkage between feeder vessels and mother vessels. The Tribunal remanded the matter to the CIT(A) for fresh adjudication, requiring the assessee to establish such linkage. Issue 2: Treatment of Inland Haulage Charges The Tribunal addressed the treatment of Inland Haulage Charges, representing local transport from the customer's place to the Indian port. The Tribunal referred to its decision in the case of Dy. Director of Income-tax v. Safmarine Container Lines N.V., where it was held that such charges fall within the scope of "profits from operation of ships" if minor compared to the freight for the main voyage. The Tribunal noted that the amount of haulage charges in this case was negligible and would fall under Article 9(1) if the freight attributable to feeder vessels falls under Article 9(1). Otherwise, such charges would be treated as business profits under Article 7 of the DTAA. The CIT(A) was directed to pass an appropriate order based on the treatment of freight relating to feeder vessels. Issue 3: Alternative Claims Regarding Business Profits Under Article 5 and Applicable Tax Rate The Tribunal noted the assessee's alternative claim that if exemption under Article 9 is not allowable, the business profits falling under Article 5 would not be assessable in India due to the absence of a permanent establishment. Additionally, the assessee contended that the applicable tax rate should be 35% instead of 48%. The Tribunal directed the CIT(A) to adjudicate these issues if it is found that a portion of the profit is not exempt under Article 9, after providing adequate opportunity to the assessee. Conclusion The Tribunal partly allowed the revenue's appeal and allowed the assessee's appeal for statistical purposes, remanding the matter to the CIT(A) for fresh adjudication in light of the observations made.
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