2008 (11) TMI 433 - AT - Income Tax

Double Taxation Avoidance Agreement (DTAA) - Taxability of income derived from operation of ships - Whether the assessee would be entitled to benefits of DTAA between India and France in respect of income received from use of ship on slot arrangement basis - CIT(A) held that the receipts from use of vessels on slot arrangement basis would also been entitled for relief under article 9 of DTAA. HELD THAT - From persual of AO's order, It is clear that the AO had applied the provisions of Article 9 of DTAA and had denied benefit only in respect of income pertaining to slot arrangements adopting a particular interpretation of the meaning of the phrase operation of ship . Therefore, we uphold the order of the CIT(A). In the result the appeal of the revenue is dismissed.

Summary

Issues involved:
Interpretation of Double Taxation Avoidance Agreement (DTAA) in relation to income from vessels used on slot arrangement basis.

Analysis:

Issue 1: Interpretation of DTAA provisions
The dispute in this case revolved around whether the assessee was entitled to relief under the DTAA between India and France for income derived from vessels used on slot arrangement basis, not owned or chartered by the assessee. The Assessing Officer initially denied the DTAA exemption for such income, citing the need for the assessee to own or charter the ships. However, the CIT(A) disagreed, referring to the Commentary of Dr. Klaus Vogel on Double Taxation Conventions, which stated that income from the operation of chartered ships falls under the DTAA, regardless of ownership. The Tribunal also considered a similar case under the Indo-UK Treaty and upheld the assessee's entitlement to relief under the DTAA.

Issue 2: Application of DTAA provisions
The Tribunal analyzed Article 9 of the DTAA between India and France, which states that profits from the operation of ships in international traffic shall be taxable only in the contracting state of residence. The Tribunal observed that the phrase "operation of ships" was not defined in the treaty, leading to the application of the OECD Model Convention for interpretation. The Tribunal cited a previous case involving the Indo-UK Treaty, where income from transportation through slot charter arrangements was deemed taxable only in the state of residence. The Tribunal found the provisions of Article 9 applicable to the present case, rejecting the revenue's argument that the Assessing Officer had not considered the DTAA provisions properly.

Conclusion:
The Tribunal upheld the CIT(A)'s decision, dismissing the appeal of the revenue. The Tribunal found that the assessee was entitled to relief under the DTAA for income derived from vessels used on slot arrangement basis, in alignment with the provisions of the DTAA between India and France and the interpretation of similar treaties. The Tribunal clarified that the Assessing Officer had indeed considered the DTAA provisions but had denied the benefit only for income related to slot arrangements, not for income from owned or chartered ships.