2013 (9) TMI 14 - AT - Income Tax

India-UK DTAA - income on account of slot chartering - taxable u/s 44 B OR 28 to 43 - Held that - . In so far as the business of the assessee is concerned, it is undisputed, that it is shipping business. If once, it is accepted it is shipping business then either the DTAA shall apply or section 44B shall apply. The AO has removed the receipts of four ships only because the details could not be produced in respect of less then .5% of receipts. The fact that complete details had been provided to the AO along with the return of income, which includes receipts on these ships also cannot be denied. AO has erred in not considering the receipts of the four ships only because details were not provided for, that itself can not be a ground, because, the AO, has, with him powers to call for third party details/evidence, which he chose to ignore. There is no dispute with regard to the operation of ships in international traffic in case of four ships, whose revenues were less than even .5% of the total revenues of the assessee, hence, in our opinion, the ratio laid down in the case of Balaji Shipping (2012 (8) TMI 681 - BOMBAY HIGH COURT), would fully applies on the assessee. - income from slot hire agreements fall within section 44B they must be held to be within the ambit of Article 9(1) Stock Exchange is providing the entire transaction on BOLT and for that complete service, the SE is charging from its members/brokers. But this is not the case of the assessee. Assessee only provides information regarding the whereabouts of cargo, to its agents/customers. In our opinion, the case of the assessee is different on facts. Also the case of Kotak Securities neither pertained to international taxation nor came under any treaty. Since the issue is already decided by the coordinate Benches in the assessee s own cases in preceding years.

Summary

Issues involved:
1. Denial of benefit under Article 9 of the Double Taxation Avoidance Agreement (DTAA) between India and Denmark for freight income.
2. Estimation of income at 10% of total freight receipts under Rule 10 of the Income-tax Rules, 1962.
3. Attribution of income despite the Indian agent being remunerated at arm's length.
4. Non-application of Section 44B of the Income-tax Act, 1961 for income from the operation of ships in international traffic.
5. Erroneous addition due to incorrect gross freight receipts for the vessel 'Orient Patriot.'
6. Taxability of amounts received from Maersk entities as 'fees for technical services' (FTS).
7. Levy of interest under Section 234B of the Income-tax Act, 1961.

Detailed Analysis:

1. Denial of Benefit under Article 9 of DTAA:
The assessee, a Danish shipping company, claimed the benefit of Article 9 of the DTAA between India and Denmark for freight income. The AO and DRP denied this benefit for four vessels, as complete documentation was not provided. The Tribunal noted that the assessee provided evidence for most voyages and accepted that the business was shipping. Since the receipts from the four ships were less than 0.5% of total receipts, the Tribunal held that the income from these ships falls under the DTAA and is not taxable in India.

2. Estimation of Income at 10% of Total Freight Receipts:
The AO estimated the income at 10% of total freight receipts under Rule 10, ignoring Section 44B. The Tribunal found this approach incorrect, emphasizing that the AO should have considered Section 44B, which pertains to shipping business. The Tribunal directed the AO to delete the addition of Rs. 1,85,00,032/-.

3. Attribution of Income Despite Arm's Length Remuneration:
The assessee argued that since its Indian agent was remunerated at arm's length, no further attribution of income should be made. The Tribunal agreed, referencing the decision in ANL Singapore Pte. Ltd. v DDIT, which held that if the agent is remunerated at arm's length, no further income attribution is required.

4. Non-application of Section 44B:
The Tribunal noted that the AO ignored Section 44B, which specifically deals with the shipping business. The Tribunal held that the AO's reliance on Rule 10 was misplaced and directed the AO to delete the addition.

5. Erroneous Addition for Vessel 'Orient Patriot':
The AO considered gross freight receipts for 'Orient Patriot' at Rs. 181,932,801/- instead of Rs. 154,566,657/-, leading to an erroneous addition. The Tribunal directed the AO to correct this error and delete the addition.

6. Taxability of Amounts Received from Maersk Entities as FTS:
The AO and DRP held that amounts received from Maersk entities for IT Global Portfolio tracking system costs were taxable as FTS. The Tribunal, referencing earlier decisions, held that these amounts were reimbursements for providing a facility and not FTS. The Tribunal directed the AO to delete the addition of Rs. 16,57,57,605/-.

7. Levy of Interest under Section 234B:
The Tribunal noted that the issue of interest under Section 234B was covered by the decision in DIT vs. NGC Network Ltd., which held that the assessee was not liable to pay advance tax. Consequently, the Tribunal directed the AO to delete the interest levied under Section 234B.

Conclusion:
The Tribunal allowed the appeals for both assessment years 2006-07 and 2007-08, directing the AO to delete the disputed additions and interest. The Tribunal emphasized the applicability of the DTAA, the correct application of Section 44B, and the nature of reimbursements not being FTS.