2015 (12) TMI 401 - HC - Income Tax

Entitlement to benefit of Article 8 of India-Singapore DTAA - voyage of the vessel between two ports in India treated as international voyage - AO came to the conclusion that such transportation between Kandla to Visag cannot be considered as international traffic as defined in DTAA and between India and Singapore - ITAT allowed claim - Held that - The term international traffic , as noted, is defined to mean any transport by a ship or aircraft operated by an enterprise by a contracting state. This definition, however, has an exception clause which excludes the transport when the ship or aircraft is operated solely between the places in the other contracting state. Thus, any transaction by a ship or aircraft operated by enterprise or contracting state would be an international traffic. However, this would be not so if a ship or the aircraft is operated solely between the places in the other contracting state. If ships in question, therefore, were operated solely between Kandla and Visag, in the present case, such transport would be excluded from the definition of term international traffic . Here, the word solely is all important. It is not even the case of the revenue that the journey being undertaken by such vessels in question were confined between the two ports in India either routinely or even in individual isolated case. Admitted facts, as noted above, are that such transportation was undertaking during a larger journey of the vessels from Singapore to Dubai. Under such circumstances, the requirement of such journey being solely between places in the other contracting state is not satisfied. The exclusion clause of the definition of term international traffic , therefore, would not apply. In other words, the transport, which was otherwise in the nature of international traffic, would be so treated in terms of Clause (h) of Article 3 of the DTAA. We see no error in the view of the Tribunal. - Decided against revenue.

Summary

Issues:
Interpretation of term 'international traffic' under India-Singapore Double Taxation Avoidance Agreement (DTAA).

Analysis:
The High Court considered the appeal questioning the interpretation of the term 'international traffic' under the India-Singapore DTAA. The case involved a company acting as an agent for vessels transporting goods between Kandla Port and Visag, with the freight beneficiary claiming DTAA benefits. The Assessing Officer concluded that this transportation did not qualify as international traffic under the DTAA. However, the Tribunal ruled in favor of the assessee based on similar cases.

The term 'international traffic' was defined in Clause 3(h) of the DTAA, stating that it involves transport by a ship or aircraft operated by an enterprise of a Contracting State, excluding operations solely between places in the other Contracting State. Article 8 of the DTAA specifies that profits from ships or aircraft in international traffic are taxable only in the respective state. Therefore, the crucial aspect was determining if the transport between Kandla and Visag fell within the definition of 'international traffic' to grant the assessee the DTAA benefit.

The Court emphasized that any transport by a ship operated by an enterprise of a contracting state constitutes international traffic, except when the ship operates solely between places in the other contracting state. The key term 'solely' was highlighted, indicating that if the vessels' journey extended beyond the two Indian ports, such as from Singapore to Dubai in this case, the exclusion clause did not apply. As the vessels' journey was not confined only between Kandla and Visag but part of a larger trip, the Court upheld the Tribunal's decision, dismissing the Tax Appeals.

In conclusion, the judgment clarified the interpretation of 'international traffic' under the India-Singapore DTAA, highlighting the importance of the term 'solely' in determining whether a transport operation qualifies as international traffic. The Court's decision aligned with the Tribunal's ruling, emphasizing that journeys extending beyond two ports in one contracting state do not fall under the exclusion clause, thus entitling the assessee to the DTAA benefit.