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2014 (7) TMI 686 - AT - Income TaxIndo-Malaysia Treaty expression used in Article- 8 - Freight income from operation of shipping business - assessee is not the owner , lessee or the charterer of the feeder vessels - Department has held that the chartering of some space or slot charter arrangement cannot be equated with chartering of a complete ship and just by issuing bill of lading for the entire voyage, the assessee cannot be said to be involved in operation of ships Held that - the operation of a ship can be done as charterer which does not mean to own or control the ship either as an owner or as a lessee - charterer is a hirer of a ship under an agreement or arrangement to acquire the right to use a vessel or a ship for the transportation of a good on a determined voyage, either the whole of the ship or part of the ship or some space of the ship in a charter party agreement - the word charterer includes a voyage charter of a part of a ship or a slot, as it is also arrangement or agreement to hire a space in a ship owned and leased by other persons. The facility of slot hire agreement with the feeder vessels to complete the voyage is not merely an auxiliary or incidental activity to the operation of ships, but inextricably linked. If the transportation of cargo by feeder vessels belonging to other enterprise is only a part of main voyage by the mother ship i.e., owned or leased by the assessee enterprise, then it has to be taken as a part and parcel of the operation, which is inextricably linked with the completion of the entire voyage - The linkage between the transportation by feeder vessels, mother vessels of the ship owned by the assessee has to be established - insofar as the issue of linkage between the voyage performed between the feeder vessels and mother vessels, the assessee has been able to establish before the AO which is evident from the observations of the AO - there is no ownership or control of entire ship because the risk under the charter party agreement or arrangement is upon the owner of the ship who generally assumes an operational risk for transporting the cargo of the person who has hired the ship and the hirer agrees to pay for conveyance of goods on a determined voyage - The risk of the assessee is towards its customers from whom he has agreed to transport the cargo/goods from the destination port of booking to the final destination port - such a strict interpretation of the word charterer as adopted by the Department cannot be sustained. Transportation of cargo in the container belonging to the assessee from Indian Port i.e., Port of booking to the Hub Port through feeder vessel by way of space charter/slot charter arrangement, falls within the ambit of the word charterer and, therefore, it cannot be segregated form the scope of operation of ships as defined in Article-8(2) of the Indo-Malaysian treaty - the voyage between the Indian Port to the Hub Port through feeder vessel and from Hub Port to final destination port through mother vessel owned/leased by the assessee are inextricably linked and there is complete linkage of the voyage and, therefore, the entire profits derived from the transportation of goods carried on by the assessee is to be treated as profits from operation of ships and, therefore, the benefit of Article-8, cannot be denied to the assessee on the part of the freight from voyage by the feeder vessels Decided in favour of Assessee. Levy of interest u/s 234B of the Act Held that - The decision in DIT(IT) v. NGC Network Asia LLC 2009 (1) TMI 174 - BOMBAY HIGH COURT followed - the assessee is not liable for levy of interest u/s 234B - the assessee was not liable to pay any advance tax on the basis of double income relief certificate issued by the Income-tax Department and the fact that the freight of the assessee was deductible at source having regard to the specific provisions of section 209(1)(d) and, therefore, the duty was cast upon the payer to deduct the tax at source and failure on the part of payer to do so, no interest can be imposed on the payee assessee under section 234B Decided partly in favour of Assessee. Treatment of interest income Income from other sources or not - nature of interest received on refund u/s 244A Held that - The decision in ACIT v. Clough Engineering Ltd., Asstt. CIT Versus Clough Engineering Ltd. followed - the tax on interest has to be at a beneficial rate under Article-11 of the Indo- Malaysian treaty Decided against Revenue.
Issues Involved:
1. Validity of reopening of assessment under section 147. 2. Denial of benefit of Article 8 of the Indo-Malaysia DTAA on freight income earned from shipping cargo through feeder vessels. 3. Denial of treaty benefit under Article 8(3) on freight income earned from shipping containers loaded on feeder vessels. 4. Treating M/s. Crescent Shipping Pvt. Ltd. as a Permanent Establishment (PE) in India under various paragraphs of Article 5. 5. Estimation of freight attributable to feeder vessels by applying a deemed rate of 10% instead of 7.5% under section 44B. 6. Charging of interest under section 234B. 7. Validity of the assessment order due to non-issuance/service of notice under section 143(2). Detailed Analysis: 1. Validity of Reopening of Assessment under Section 147: The assessee's counsel did not press the issue of the validity of reopening the assessment under section 147 for the assessment years 2004-05 to 2007-08. Consequently, this ground was treated as dismissed as "not pressed." 2. Denial of Benefit of Article 8 of Indo-Malaysia DTAA: The core issue was whether the freight income earned from transporting cargo through feeder vessels qualifies for the benefit under Article 8 of the Indo-Malaysia DTAA. The Tribunal concluded that transportation of cargo from Indian Port to Hub Port through feeder vessels by way of space charter/slot charter arrangement falls within the ambit of the word "charterer." Therefore, it cannot be segregated from the scope of "operation of ships" as defined in Article 8(2). The Tribunal emphasized the linkage between the voyage performed through feeder vessels and mother vessels owned/leased by the assessee. Consequently, the benefit of Article 8 was granted to the assessee for the freight income earned from the operation of ships, and the ground raised by the assessee was allowed. 3. Denial of Treaty Benefit under Article 8(3): Since the benefit of Article 8 was granted to the assessee on the freight income, the Tribunal did not adjudicate upon the plea for the benefit under Article 8(3). 4. Treating M/s. Crescent Shipping Pvt. Ltd. as a Permanent Establishment (PE): The issue of treating M/s. Crescent Shipping Pvt. Ltd. as a PE under various paragraphs of Article 5 was not adjudicated upon, as it would come into question only if the benefit under Article 8 was denied. Since the benefit under Article 8 was granted, this issue was treated as academic in nature. 5. Estimation of Freight Attributable to Feeder Vessels: The assessee challenged the estimation of freight attributable to feeder vessels by applying a deemed rate of 10% instead of 7.5% under section 44B. This ground became infructuous in view of the Tribunal's decision granting the benefit under Article 8, thereby holding that the profit derived from the assessee's shipping business is not taxable in India. 6. Charging of Interest under Section 234B: The issue of charging interest under section 234B was covered in favor of the assessee by the decision of the Hon'ble Jurisdictional High Court in DIT(IT) v. NGC Network Asia LLC. The Tribunal held that the assessee was not liable to pay any advance tax, and therefore, no interest could be imposed under section 234B. 7. Validity of the Assessment Order Due to Non-issuance/Service of Notice under Section 143(2): The issue of non-service of notice under section 143(2) was left open, as the Tribunal granted relief under Article 8 on merits. Thus, the Tribunal did not enter into the semantics of the dispute regarding the issuance and service of notice. Revenue's Appeal: 1. Deletion of Interest Levied under Section 234D: The Tribunal dismissed the Revenue's appeal regarding the deletion of interest levied under section 234D, following the decision of the Tribunal in various cases, which held that no interest under section 234D is leviable if the assessment has already been completed under section 143(3). 2. Treating of Interest Income as Income from Other Sources: The Tribunal affirmed the order of the learned Commissioner (Appeals) that the tax on interest income from income tax refund under section 244A should be at a beneficial rate under Article 11 of the Indo-Malaysian treaty. Conclusion: All the assessee's appeals were partly allowed, and all the Revenue's appeals were dismissed.
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