2013 (11) TMI 1325 - AT - Income Tax

Eligibility for claiming any advantage under Article 8 of the India-Singapore Treaty - Assessee is in the business of sea faring cargo business having base, and tax base at Singapore. The assessee operates its ships/vessels round the world - In so far as business of the assessee with India is concerned, it operates its vessels in Singapore Chennai Sector, which is known as Madras Service Route in maritime parlance Held that - When two treaties between India- Brazil and between India-Singapore are compared, it is seen that article 8 is worded differently and on comparison of clause (4) of Article 8, India Brazil Treaty talks of business as such but India Singapore Treaty talks of profits from the operation . Another difference is that India Singapore DTAA Treaty extends its arms to embrace, any other activity directly connected with such transportation , which is not extended in the India Brazil Treaty. Taking note of this major difference in the Treaty language and taking into consideration the ratio laid down in the case of UOI v. Azadi Bachao Andolan, reported in 2003 (10) TMI 5 - SUPREME Court , wherein the Hon ble Apex Court held that the provisions of the Treaty have to be applied and interpreted in a liberal manner so that the benefit contemplated for avoiding double taxation of the same income can be appropriately granted to the party . Taking into consideration the decision of Hon ble Bombay High Court in the case of Balaji Shipping 2012 (8) TMI 681 - BOMBAY HIGH COURT , it is found that slot charter have been held to be charter per se. Even if observation is diluted that slot charter is different from charter, then the ratio of Azadi Bacho Andolan 2003 (10) TMI 5 - SUPREME Court , i.e., expressions should be construed in the manner in which the contracting partners understood at the time of execution of treaty , prompts to hold that slot charter is charter - This lends force to observation that the inclusion of sub clauses (b), (c) and (d) to Article 8.4 is profit specified, generated from the operation of ships, aircrafts in international traffic by owner, lessess a charter ... which is directly connected with such transportation - Difference of the use of expression business used in India Brazil Treaty and the use of expression transportation in India Singapore Treaty to be noted, because as observed, the business or economy of Singapore being contracting state is founded on tourism and cargo hub connecting the entire world. Definition of the expression operation of ship or aircraft in international traffic in Article 3, i.e. General Definitions , it is found that international traffic means any transport by a ship or aircraft operated solely between places in the other contracting state . From the agreements, the two contracting states are India and Singapore - According to the agreements, cargo is lifted by the feeder vessel from Chennai (Madras) or an Indian port, to be taken to its mother feeder hub, either at Singapore or Srilanka, from where it is taken to its onward and final destination - On these basic facts, emerging from the agreements, the claim of the assessee comes within the precinct of Article 8 of India Singapore DTAA Treaty Decided in favor of Assessee.

Issues Involved:
1. Applicability of Article 8 of India Singapore DTAA on the revenue generated by the assessee company.
2. Classification of the assessee as an owner, lessee, charterer, or slot charterer.
3. Interpretation of terms within the DTAA and reliance on external sources for definitions.
4. Taxation of profits from international traffic under the DTAA.
5. Application of Section 44B of the Income Tax Act, 1961, in the absence of supporting documents.

Issue-wise Detailed Analysis:

1. Applicability of Article 8 of India Singapore DTAA:
The primary issue is whether the revenue generated by the assessee company from its shipping operations qualifies for tax relief under Article 8 of the India Singapore Double Taxation Avoidance Agreement (DTAA). The Tribunal examined the scope of Article 8, which states that profits derived by an enterprise of a contracting state from the operation of ships or aircraft in international traffic shall be taxable only in that state. The Tribunal noted that the relevant clause, Article 8.4(d), includes "any other activity directly connected with such transportation," which is broader than similar clauses in other treaties.

2. Classification of the Assessee:
The Tribunal had to determine whether the assessee, who operates as a slot charterer, qualifies as an owner, lessee, or charterer under Article 8. The Department argued that the assessee, being a slot charterer, does not meet the criteria for tax relief under Article 8. The Department cited various legal definitions and maritime glossaries to differentiate between an owner, lessee, charterer, and slot charterer. The Tribunal, however, referred to the Maritime & Shipping Dictionary 2012 and the British Court's decision in the case of Tychy, which recognized slot charterers as charterers. The Tribunal concluded that slot chartering could be considered as chartering under the DTAA.

3. Interpretation of Terms within the DTAA:
The Tribunal emphasized that the interpretation of terms within the DTAA should be based on the treaty itself rather than external sources. The Tribunal referred to the decision in Azadi Bachao Andolan, which advocated for a liberal interpretation of treaty provisions to avoid double taxation. The Tribunal found that the language of Article 8.4(d) of the India Singapore DTAA was clear and did not require external interpretation.

4. Taxation of Profits from International Traffic:
The Tribunal examined the nature of the assessee's operations, which involved transporting cargo from Indian ports to hubs in Singapore or Sri Lanka, and then onwards to final destinations. The Tribunal noted that the assessee's operations fell within the definition of "international traffic" as per Article 3.1(h) of the DTAA. The Tribunal concluded that the assessee's profits from these operations were eligible for tax relief under Article 8 of the DTAA.

5. Application of Section 44B of the Income Tax Act, 1961:
For voyages for which the assessee could not provide supporting documents, the Tribunal directed the Assessing Officer (AO) to apply the provisions of Section 44B of the Income Tax Act, 1961. This section pertains to the taxation of profits from shipping business in the absence of supporting documents. The Tribunal referred to the case of A.P. Moller, Maersk Agency India P. Ltd., which allowed for the application of Section 44B when the DTAA is silent on specific aspects of profit taxation.

Conclusion:
The Tribunal directed the AO to examine the evidence produced by the assessee in light of Article 8.4 and the definition of "operation of ship or aircraft in international traffic" as per Article 3.1(h) for the disputed voyages. For voyages without supporting documents, the AO was instructed to apply Section 44B. The appeals filed by both the assessee and the department were allowed for statistical purposes.

← Previous Next →