1997 (1) TMI 482 - AT - Income Tax

Summary

Issues Involved:

1. Whether the ship in question was a "ship" or a specially designed vessel within the meaning of Article 9 of the Double Taxation Avoidance Agreement (DTAA).
2. Applicability of Article 9 of the DTAA between India and the U.K. regarding the taxability of hire charges.
3. Whether there was a mistake apparent from the record within the meaning of Section 254(2) of the Income-tax Act, 1961, in the Tribunal's order.
4. Whether the Tribunal's order should be recalled for a hearing de novo.

Issue-wise Detailed Analysis:

1. Whether the ship in question was a "ship" or a specially designed vessel within the meaning of Article 9 of the DTAA:

The Department contended that the ship hired by the non-resident was a "ship" and thus fell under Article 9 of the DTAA, which exempts income from the operation of ships in international traffic from Indian taxation. The Tribunal, however, found that the ship was not a "ship" but a specially designed vessel assisting in the construction of offshore platforms for oil exploration. This finding was crucial as it determined the applicability of Article 9 of the DTAA.

2. Applicability of Article 9 of the DTAA between India and the U.K. regarding the taxability of hire charges:

The Department argued that Article 9 was inapplicable because the ship did not operate in international traffic. The Tribunal accepted the alternative contention of the assessee that if Article 9 did not apply, then Article 7, which deals with business income, would be applicable. Since the non-resident had no permanent establishment in India, the hire charges were taxable in the U.K. and not in India. The Tribunal upheld the Commissioner of Income-tax (Appeals)'s order, which had exempted the hire charges from Indian taxation under Article 7 of the DTAA.

3. Whether there was a mistake apparent from the record within the meaning of Section 254(2) of the Income-tax Act, 1961, in the Tribunal's order:

The Department filed a miscellaneous application under Section 254(2), claiming that the Tribunal made a new case by finding that the ship was not a "ship" and that this finding was vital for deciding the appeal. The Judicial Member agreed with the Department, stating that there was a mistake apparent from the record, as the issue of whether the ship was a "ship" was not raised by either party. The Accountant Member disagreed, asserting that the Tribunal's order contained no mistake apparent from the record and that the decision would remain unchanged even if the Department's contention was accepted.

4. Whether the Tribunal's order should be recalled for a hearing de novo:

The Judicial Member believed that the order should be recalled to allow the Department to present its arguments on whether the ship was a "ship". The Accountant Member, however, held that recalling the order was unnecessary since the final outcome would not change. The Third Member, upon reviewing the case, agreed with the Accountant Member, concluding that the order contained no mistake apparent from the record and that the Department's application was essentially seeking a review on the merits, which is beyond the scope of Section 254(2).

Separate Judgments Delivered:

The Judicial Member and the Accountant Member delivered separate judgments, leading to a difference of opinion. The Third Member was brought in to resolve this difference and ultimately sided with the Accountant Member, resulting in the dismissal of the Department's miscellaneous application.