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TMI Blog2008 (11) TMI 421X X X X Extracts X X X X X X X X Extracts X X X X ..... it filed additional evidences before the CIT(A) to establish the linkage between the feeder vessel and the mother vessel on sample basis. That shows that the entire evidence was not furnished before the CIT(A) in this regard - the assessee would be at liberty to establish that the transportation of cargo was carried out by mother vessel either owned or leased or chartered by the assessee. The order of the CIT(A) is, therefore modified and the matter is restored to his file for fresh adjudication in the light of the observations made in the preceding paragraphs. Treatment of Inland Haulage Charges - HELD THAT:- This issue stands covered by our decision in the case of Dy. Director of Income-tax v. Safmarine Container Lines N.V. [ 2008 (7) TMI 444 - ITAT BOMBAY-L] held that such charges would fall within the scope of the expression profits from operation of ships if such amount is minor in comparison to freight relating to main voyage. Admittedly, the amount of haulage charges is negligible and, therefore, would fall under Article 9(1) itself. However, such treatment would depend on the treatment of freight relating to the voyage by feeder vessels. If the CIT(A) finds that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asked the assessee to file copies of the ship registration certificates and the charter party agreements of all the ships operated by it from India. Despite various opportunities given, the assessee could not file the same. However, the assessee vide letter dated 17-2-2004 stated - (1) that none of the ships owned/chartered by it called at Indian ports and (2) that all the vessels shown in the freight statement were feeder vessels which were owned by other shipping lines with whom the assessee had slot arrangements. In view of the above reply, the Assessing Officer asked the assessee to link the feeder vessels with the mother vessels in respect of all the voyages to establish that the particular feeder vessel was linked with particular mother vessel. The assessee was also asked to file copies of the ship registration certificates and charter party agreements of all the mother vessels. In response to the same, a list of feeder vessels and mother vessels was furnished before the Assessing Officer. It was noted by the Assessing Officer that the assessee had shown 111 voyages from Mumbai Port, 17 from Tuticorin, 27 from Chennai and 5 from Cochin. However, it had filed the ship regis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and mother vessel. 5. After considering the additional evidence and the material produced before the Assessing Officer, the CIT(A) noted that the assessee had been able to file the ship registration certificate in respect of four ships, namely, Caroline Delmas, Blandine Delmas, Adeline Delmas and Therese Delmas to establish that the assessee is the owner of the ships. Further, it was noted that the assessee had filed ship registration certificates before the Assessing Officer in respect of three vessels, namely, Roland Delmas, Veronique Delmas and Saint Roch. Accordingly, it was held by him that the Assessing Officer was not justified in observing that the assessee had not been able to produce the ship registration certificates. Thereafter, the CIT(A) examined the provisions of Article 9 of the said DTAA in the light of the OECD Commentary by Klaus Vogel and accordingly opined - ( i ) that paragraph (1) of Article 9 only requires that the enterprise should be engaged in international traffic; ( ii ) that the totality of shipping business is to be examined; ( iii ) that all the activities which are incidental and closely related with the operations of ships would be treated as p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e word derived is not there. Secondly the provisions contained in Article 9(2) of the DTAA are missing from Article 8 of the OECD Model Convention. Similarly, the provisions contained in Article 9(3) of the DTAA are missing from Article 8 of the OECD Model Convention. We are unable to accept the above contention of the learned Departmental Representative for the reasons given hereafter. It would be appropriate to reproduce Article 9 of the DTAA which reads as under: ARTICLE 9: SHIPPING: " 1. Profits derived by an enterprise of a Contracting State from the operation of ships in international traffic shall be taxable only in that Contracting State. 2. Notwithstanding the provisions of paragraph 1, such profits may be taxed in the other Contracting State from which they are derived, provided the tax so charged shall not exceed: ( a )During the subsequent five fiscal years, 25 per cent, ( b )During the subsequent five fiscal years, 25 per cent of the tax otherwise imposed buy the internal law of that Contracting State. Subsequently, only the provisions of paragraph 1 shall be applicable. 3. The provisions of paragraphs 1 and 2 shall also apply to profits from the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not justified in holding - ( i ) that benefit of Article 9 would be available if it is shown that the assessee is engaged in the business of transportation in the international traffic; ( ii ) that benefit would be available with reference to the entire voyage if use of the feeder vessel is incidental to the main business; ( iii ) that each and every activity of the business need not be directly linked with the main business of the assessee and ( iv ) that it was not necessary to link the transportation of cargo by the feeder vessel with the transportation of the same by mother vessel. It has been strongly contended by her that if the claim of the assessee is to be allowed without establishing such nexus then it would amount to allowing the claim of the assessee even in a case where the entire transportation from Indian Port to the ultimate destination in the world is by a ship which is neither owned or leased or chartered by the assessee. Such is not the intention either under the agreement or as per the OECD Commentary. According to her, transportation of cargo by ships belonging to other enterprises cannot be brought within the scope of the expression "operation of ships". On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would be considered by such expression. The relevant portion of the commentary by Klaus Vogel has been reproduced by us in the case of Balaji Shipping (UK) Ltd. ( supra ) in para 22 of the order. It provides that in the first place, it would cover profits directly obtained by the enterprise from the transportation of passengers or cargo by ships or aircraft (whether owned, leased or otherwise at the disposal of the enterprise). Thereafter, it says that this would also cover profits from activities not directly connected with such operation as long as they are ancillary to such operation. Therefore, CIT(A) is not justified in holding that there is no need to link the transportation of cargo by feeder vessel with transportation by the mother vessel owned/leased/chartered by the assessee. Transportation of cargo by feeder vessel can be said to be ancillary activity only if it can be linked with the main voyage by mother ship. If the proposition of CIT(A) is accepted then it would cover the entire voyage undertaken by the ship belonging to other shipping companies. For example, assessee may transport the goods by one ship from Mumbai to Singapore belonging to other enterprises and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the relevant details before the Assessing Officer. However, it filed additional evidences before the CIT(A) to establish the linkage between the feeder vessel and the mother vessel on sample basis. That shows that the entire evidence was not furnished before the CIT(A) in this regard. In our opinion, the relief cannot be allowed on the basis of sample evidence. If relief is allowed on sample basis then it would give the absurd results as benefit could be obtained even when the cargo is transported by mother vessels belonging to other enterprises. Hence, the approach of the CIT(A) for granting relief on the basis of sample evidence has to be rejected. The interest of justice would be met if one more opportunity is provided to the assessee to establish such linkage. 14. It may also be mentioned that the CIT(A) has referred to certain ships namely, Caroline Delmas, Blandine Delmas, Adeline Delmas and Therese Delmas which are stated to be owned by the assessee but these ships do not find place in the list furnished before the Assessing Officer (page 2 of the assessment order) which carried the cargo. Therefore, the ownership of such ships would not be relevant in adjudicating thi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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