2020 (1) TMI 43 - AT - Income Tax

Taxability of Inland Haulage Charges (IHC) in India - HELD THAT - Respectfully following the decision of the Co ordinate Bench rendered in assessee s own case in the preceding assessment years, we hold that IHC, since, forms part of income from operation of ships in International Traffic, is covered under Article 9 of the India France Tax Treaty, accordingly, not taxable in India. These grounds are decided allowed. Taxability of service tax collected on IHC - HELD THAT - In assessee s own case, we hold that service tax cannot form part of the gross receipts for computing income for taxation purpose as per section 44B r/w section 172. Taxability of freight charges received from transportation of Cargo through Feeder Vessels - HELD THAT - Respectfully following the aforesaid decision of the Co ordinate Bench rendered in assessee s own case, we hold that freight charges received from transportation of cargo through feeder vessels being part of shipping income in International Traffic is covered under Article 9(1) of the India France Tax Treaty, hence, not taxable in India. In fact, the aforesaid view of the Tribunal was upheld by the Hon ble Jurisdictional High Court while dismissing Revenue s appeal in assessee s own case in Assessment Year 2002 03 Agency PE in India - Tribunal has held that if the Indian agent has been remunerated at arm s length, it cannot be considered as agency PE of the assessee. It is further relevant to observe, in the advance pricing agreement between the CMA CGM Agencies India Pvt. Ltd. and CBDT entered on 24th November 2015, it has been agreed that remuneration @ 18% between the assessee and its Indian agent has to be considered to be at arm s length. In the facts of the present case, it has been factually demonstrated before us that the payment made by the assessee to its Indian agent is at the arm s length price of 18%. That being the case, following the aforesaid decision of the Co ordinate Bench, we hold that the Indian Agent of the assessee cannot be considered as an agency PE. Thus, grounds are decided in favour of the assessee. Error in calculating tax on interest on External Commercial Borrowing (ECB) - as per section 115A of the Act, the applicable interest rate is 5% - assessee has raised the issue of non grant of TDS credit as appearing in Form no.26AS - assessee has challenged levy of interest under section 234A - HELD THAT - As could be seen, in respect of the issues raised in the aforesaid grounds, the assessee has already moved an application for rectification under section 154 of the Act before the Assessing Officer which, as stated before us, is still pending. Considering the nature of dispute, we direct the Assessing Officer to verify assessee s claim with regard to grounds no.18 to 21 along with the rectification application pending before him and decided as per law after providing reasonable opportunity of being heard to the assessee. Grounds are allowed for statistical purposes.

Issues Involved:
1. Taxability of Inland Haulage Charges (IHC) in India.
2. Taxability of service tax collected on IHC.
3. Taxability of freight charges received from transportation of cargo through Feeder Vessels.
4. Existence of an agency Permanent Establishment (PE) in India.
5. Error in calculating tax on interest on External Commercial Borrowing (ECB).
6. Non-grant of TDS credit as appearing in Form no.26AS.
7. Levy of interest under section 234A of the Act.
8. Levy of interest under section 234B of the Act.
9. Initiation of penalty proceedings under section 271(1)(c) of the Act.

Detailed Analysis:

1. Taxability of Inland Haulage Charges (IHC) in India:
The primary issue concerns the taxability of IHC in India. The assessee, a tax resident of France engaged in shipping business, claimed that IHC is part of the revenue earned from international shipping and is covered under Article 9 of the India-France Double Taxation Avoidance Agreement (DTAA). The Assessing Officer (AO) and the Dispute Resolution Panel (DRP) disagreed, stating that IHC pertains to domestic transportation and is taxable in India. However, the Tribunal, referencing previous decisions in the assessee's own case and other relevant judgments, held that IHC is part of the shipping business in international waters and is covered under Article 9 of the DTAA. Thus, IHC is not taxable in India.

2. Taxability of Service Tax Collected on IHC:
The AO included service tax collected on IHC in the gross receipts for computing income under section 44B of the Act. The Tribunal, following its earlier decisions and the judgment of the Delhi High Court in Mitchell Drilling International (P) Ltd., held that service tax cannot form part of gross receipts for taxation purposes under section 44B. Therefore, the service tax collected on IHC is not taxable.

3. Taxability of Freight Charges Received from Transportation of Cargo through Feeder Vessels:
The AO and DRP held that freight income from Feeder Vessels is taxable in India. The Tribunal, citing the Bombay High Court's decision in the assessee's own case and similar cases, concluded that freight charges from Feeder Vessels are part of shipping income in international traffic and are covered under Article 9(1) of the India-France DTAA. Hence, such income is not taxable in India.

4. Existence of an Agency Permanent Establishment (PE) in India:
The AO and DRP considered the assessee's Indian agent as an agency PE. The Tribunal, referencing its previous rulings, stated that if the Indian agent is remunerated at arm's length, it cannot be considered an agency PE. Given that the remuneration was at arm's length (18%), the Tribunal held that the Indian agent does not constitute an agency PE.

5. Error in Calculating Tax on Interest on External Commercial Borrowing (ECB):
The assessee claimed that the applicable interest rate under section 115A is 5%. The Tribunal directed the AO to verify this claim along with the pending rectification application and decide as per the law.

6. Non-grant of TDS Credit as Appearing in Form no.26AS:
The assessee raised the issue of non-grant of TDS credit. The Tribunal instructed the AO to verify this claim along with the rectification application and resolve it according to the law.

7. Levy of Interest under Section 234A of the Act:
The assessee challenged the levy of interest under section 234A. The Tribunal directed the AO to verify this issue along with the rectification application and decide as per the law.

8. Levy of Interest under Section 234B of the Act:
The issue of levy of interest under section 234B was deemed consequential and did not require adjudication at this stage.

9. Initiation of Penalty Proceedings under Section 271(1)(c) of the Act:
The ground concerning the initiation of penalty proceedings under section 271(1)(c) was dismissed as premature.

Conclusion:
The assessee's appeal was partly allowed. The Tribunal's decision primarily favored the assessee on major issues like the taxability of IHC, service tax, and freight charges from Feeder Vessels, and the existence of an agency PE, while directing the AO to verify and resolve other claims as per the law.

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