9911796707
TMI Blog2008 (7) TMI 444X X X X Extracts X X X X X X X X Extracts X X X X ..... ese are not covered by s. 44B of the Act. The appellant prays that the order of the learned CIT(A) on the above grounds be set aside and that of the AO restored." 2. Briefly stated the facts of the case are that the assessee is in the business of ship operation and is a non-resident company registered in Belgium. The assessee filed return declaring nil income. Copies of the tax residency certificate and also of Director of IT relief certificate were submitted. The total revenue as per the computation of income was shown by the assessee at Rs. 184,94,50,643 consisting of the following: Vessel collection Freight prepaid Rs. 1,07,69,93,989 Freight collection Rs. 55,25,02,538 Import freight Rs. 3,42,03,035 Other charges received Terminal handling charges Rs. 8,10,90,468 Inland haulage charges Rs. 9,64,17,844 Detention charges Rs. 82,42,769 ------------------ Total revenues Rs. 1,84,94,50,643 ------------------ 3. The assessee did not pay any tax on the total income in view of art. 8 of Double Taxation Avoidance Agreement between India and Belgium (hereinafter called "DTAA"). From the computation of income, the AO noted that the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expression "derived from the operation of the ship or aircraft" as employed in art. 8 for contending that it included the activities directly connected with the operation of ships and hence the IHC were not derived from the operation of ships in the international traffic. She further referred to Explanation inserted to s. 44B and placed on record a copy of Circular No. 763 [(1998) 145 CTR (St) 38], being the Explanatory Note to the Finance Act, 1997, which clarified the object of inserting this Explanation so as to curb the practice of reducing the income from shipping business in the case of non-residents by bifurcating the total receipts in different parts so that the receipts in respect of carriage of passengers, etc., were reduced and the receipts in respect of other charges such as demurrage or handling charges, etc., were inflated. She referred to some portion of the OECD Commentary on art. 8 and also to the Commentary by Klause Vogel on Double Taxation Conventions for contending that the income from transportation of cargo within India was not eligible to the benefit of art. 8. 5. On the other hand, the learned counsel for the assessee opened up his submissions by plead ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge, it would be relevant to consider the text of this Explanation, which is as under: "For the purposes of this sub-section, the amount referred to in cl. (i) or cl. (ii) shall include the amount paid payable or received or deemed to be received, as the case may be, by way of demurrage charges or handling charges or any other amount of similar nature." 7. A plain reading of the Explanation reveals that the demurrage charges or handling charges or any other amount of similar nature have been brought within the ambit of "business income" for applying the rate of 7-1/2 per cent. The very nature of items prescribed in the Explanation being demurrage charges or handling charges, which precede "any other amount of similar nature", shows that the latter category has to draw a colour from the items referred to in the earlier part. The expression "any other amount of similar nature" cannot be read in isolation by disregarding the nature of items preceding it. The meaning of the succeeding expression has to be understood in the context of the preceding words. The doctrine of noscitur a sociis mandates that a general word in the company of specific words has to be read in the context of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e DTAA is the main document and has to be considered for examining the taxability or otherwise of an item of income in the respective States. If the language of DTAA is clear and does not admit of any doubt, there is no need for referring to the OECD model and commentaries etc. The Hon'ble Supreme Court in CIT vs. P.V.A.L. Kulandagan Chettiar (Dead) Through LRs (2004) 189 CTR (SC) 193 : (2004) 267 ITR 654 (SC) has held in penultimate para that "taxation policy is within the power of the Government and s. 90 of the IT Act enables the Government to formulate its policy through treaties entered into by it and even such treaty treats the fiscal domicile in one State or the other and thus prevails over the other provisions of the IT Act. It would be unnecessary to refer to the terms addressed in the OECD or in any of the decisions of foreign jurisdiction or in any other agreements". The review petition filed against this judgment also stands dismissed in CIT vs. P.V.A.L. Kulandagan Chettiar (2008) 300 ITR 5 (SC). Under these circumstances, we are of the considered opinion that the commentary on the model convention can be taken assistance of only if the language of the treaty is dra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we will examine the applicability or otherwise of art. 8(2)(b)(ii) as per which income derived from the operation of ships in the international traffic has been defined to mean the income derived from the transportation by sea of goods carried on by the owners or lessees or charterers of the ships including "any other activity directly connected with such transportation". 13. The learned Departmental Representative has contended that the expression "any other activity directly connected with such transportation" would include the activities such as loading and unloading, etc. She submitted that the inland transportation of the cargo in India is a distinct source of income and has no relation whatsoever with the income from the operation of ships in the international traffic. Elaborating her point further, it was submitted that art. 8 was included in the treaty so as to overcome the difficulty in bifurcating the income from operation of ships from one country to another as it has to pass through various countries on its way from the country of source to the country of destination and hence it becomes a tedious task to find out the income accruing in each country with exactitude. Ke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t been further elaborated in the DTAA inasmuch as such other activities have not been exhaustively spelt out. Under these circumstances, it is imperative to go by the commentaries for ascertaining the true purport of this expression. At this stage, it would not be out of place to take stock of the overall activity of the assessee company. Its business is to collect the cargo from the station of the exporter then bring it to Mumbai port from where its vessels carry it to the destination station out of India. Page 7 of the paper book is a copy of bill of lading for the combined transport of the cycle parts from Ludhiana to Nairobi. The assessee is carrying the Hero Cycles parts, etc., in its containers from Ludhiana, bringing the same to Mumbai and then shipping them to Nairobi. Insofar as the assessee's income from Mumbai to the Nairobi is concerned, the AO has accepted the applicability of art. 8 on it and held it to be not taxable in India. The dispute centres around the transportation charges received by it for carrying the cargo from Ludhiana to Mumbai. Now, we have to determine as to whether such inland transportation charges can be brought within the ambit of "an activity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Nairobi. Unless the goods are carried upto the Mumbai port, they cannot be shipped to Nairobi. Hence the activity of bringing the goods from Ludhiana is an activity which is directly connected with the transportation of goods from Mumbai to Nairobi. It is wholly unrealistic to segregate this composite activity into two parts and contend that the transportation upto Mumbai port is a distinct activity de hors the further transportation by ship from Mumbai to Nairobi or other countries. The situation would have been otherwise if the assessee had only collected cargo from Ludhiana and dropped it at Mumbai without any further obligation of shipping it from Mumbai to Nairobi. In such an eventuality, the IHC would obviously have been outside the purview of any other activity directly connected with such transportation. Since the assessee in the present case is itself trans-shipping the goods to other destination countries, this small portion of its total receipts, which hardly accounts for 5 per cent. cannot be detached from the main activity of transportation by the operation of ships in the international traffic. It is not the case of the Revenue that the assessee earned freight for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e from Indian port to the foreign country, would be construed as the 'activity directly connected with such transportation'. Hence, the case would squarely fall under art. 8(2)(b)(ii). We appreciate that in some treaties the income from journey between States connected with the Contracting States has been kept outside the purview of income from the operation of ships in the international traffic. For example, cl. 2 of art. 9 of DTAA between India and UK specifically provides that the provisions of para 1 of this article shall not apply to income from journeys between places situated in a Contracting State. In the absence of any similar clause in the DTAA between India and Belgium, we are of the considered opinion that the inland transportation would be covered within art. 8(2)(b)(ii). 17. The learned Authorised Representative has argued that his case is also covered under art. 8(2)(c). He submitted that the assessee was having its own containers in which the goods were stuffed at Ludhiana and then transported by rail or road to Mumbai port. He stated that such income was covered under cl. (c) also. In the opposition, the learned Departmental Representative stated that this ..... X X X X Extracts X X X X X X X X Extracts X X X X
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