2022 (6) TMI 1370 - AT - Income Tax

Income taxable in India u/s 44B with respect to its shipping income - freight collections derived from operation of ships in international traffic - HELD THAT - As decided in own case 2021 (8) TMI 1355 - ITAT MUMBAI after examining the facts and the decision rendered in the case of CIT vs. Balaji Shipping (UK) Ltd 2012 (8) TMI 681 - BOMBAY HIGH COURT uphold the plea of the assessee and direct that benefit of article 8 must be extended to entire freight receipts-irrespective of whether the earnings are relating to feeder vessels or by the ships in international traffic. The assessee gets the relief accordingly Benefit of Article 8 of the India - UAE Tax Treaty on Inland Haulage Charges - Denial of benefit and taxing the same at 10% as per Rule 10 of the Income-tax Rules 1962 - HELD THAT - Though Article-8 of India -UAE DTAA does not spell out explicitly that rental of containers include trailers and related equipment for the transport of container as has been mentioned in India-Belgium DTAA Article 8(2)(c) or India-Denmark DTAA Article-9(4)(b) nevertheless considering the nature of activity and the services provided by the assessee to its customers vide a composite Bill of Lading it can be safely inferred that the activity of Inland Haulage is directly connected with transportation of goods in international traffic. The leg of transportation of containers from Inland to Port for further transportation in International traffic is a composite activity for which single Bill of Lading is issued by the assessee. No hesitation in holding that Inland Haulage Charges earned by the assessee are inextricably linked to shipping business in international traffic. The activity of shipping container from inland to the Port for further shipping it to international traffic is an integral part of operation of ships. Hence IHC cannot be disintegrated from profit derived from shipping business as envisaged under Article -8 of India-UAE DTAA. Ergo IHC are not taxable as business profit in India. The ground No.5 of appeal is allowed.

Summary

Issues Involved:
1. Denial of benefit under Article 8 of the India-UAE DTAA for shipping income.
2. Taxation of Inland Haulage Charges (IHC).
3. Charging of interest under section 234B of the Income Tax Act.
4. Initiation of penalty proceedings under section 270A of the Income Tax Act.

Detailed Analysis:

1. Denial of Benefit under Article 8 of the India-UAE DTAA for Shipping Income:
The primary issue was whether the assessee, a UAE-incorporated company engaged in the operation of ships in international traffic, was entitled to the benefit of Article 8 of the India-UAE DTAA for its shipping income. The assessee earned substantial income from freight handling and other related charges in India, claiming exemption under Article 8. The Assessing Officer denied this benefit, citing the presence of a Permanent Establishment (PE) in India, and made an addition of Rs.12,39,99,720/- to the assessee's income. The DRP upheld this view, leading to the present appeal.

The Tribunal found that the facts of the case were identical to those in the previous assessment year (2016-17), where the issue had been decided in favor of the assessee by the Tribunal, following the Bombay High Court's judgment in the case of Balaji Shipping (UK) Ltd. The Tribunal reiterated that the pending appeal before the Supreme Court did not affect the binding nature of the High Court's judgment. Consequently, the Tribunal allowed the assessee's appeal on this ground, granting the benefit of Article 8 to the entire freight receipts.

2. Taxation of Inland Haulage Charges (IHC):
The second issue pertained to the addition of Rs.3,12,71,900/- on account of IHC. The assessee argued that IHC were part of the international shipping income and covered under Article 8 of the India-UAE DTAA. The assessee issued a single Bill of Lading covering inland transportation, which was inextricably linked to the international voyage.

The Tribunal referred to Article 8 of the DTAA, which includes profits from the rental of containers and related equipment used in connection with the operation of ships in international traffic. It also considered precedents, including the Bombay High Court's decision in Safmarine Container Line NV and the Tribunal's decision in A.P.Moller Maersk A/S, which supported the view that IHC are part of the international shipping income. The Tribunal concluded that IHC are integral to the operation of ships in international traffic and thus covered under Article 8, exempting them from taxation in India.

3. Charging of Interest under Section 234B:
The assessee challenged the charging of interest under section 234B of the Income Tax Act. The Tribunal noted that charging of interest under this section is mandatory and consequential. Therefore, this ground of appeal was dismissed.

4. Initiation of Penalty Proceedings under Section 270A:
The assessee also contested the initiation of penalty proceedings under section 270A of the Income Tax Act. The Tribunal held that the challenge to penalty proceedings at this stage was premature and dismissed this ground of appeal as well.

Conclusion:
The appeal by the assessee was partly allowed. The Tribunal granted relief under Article 8 of the India-UAE DTAA for both the shipping income and the IHC, while dismissing the grounds related to interest under section 234B and penalty proceedings under section 270A. The decision was pronounced on June 16, 2022.