2008 (11) TMI 683 - AT - Income Tax

Summary

Issues involved:
The issue involves the interpretation of Article 8 of the Double Taxation Avoidance Agreement (DTAA) between India and Australia regarding the taxation of income on freight pertaining to slot arrangements received on account of vessels neither owned nor chartered by the assessee.

Summary:

Issue 1: Interpretation of DTAA provisions
The assessee, a non-resident and tax-resident of Australia engaged in shipping business, claimed exemption from tax under Article 8 of the DTAA between India and Australia. The Assessing Officer initially rejected the claim due to lack of evidence, but the CIT(A) admitted additional evidence and allowed the claim based on findings that the assessee was engaged in shipping business and cargo was transported through ships belonging to partners.

Issue 2: Scope of "operation of ships"
The ITAT Mumbai bench referred to the case of Balaji Shipping Co. (U.K.) Ltd. and held that transportation of cargo through feeder vessels with slot charter arrangements falls within the scope of "operation of ships" under Article 8 of the DTAA. However, it emphasized that the benefit under Article 8 is available only if cargo is transported by ships owned/chartered by the assessee, and transportation by feeder vessels must be ancillary to the main transportation by mother vessel.

Issue 3: Verification of evidence
The ITAT found that while some evidence supported the claim that transportation by feeder vessels was ancillary to the main activity, further verification was needed for 125 consignments. The matter was restored to the Assessing Officer for verification, with the assessee directed to provide necessary evidence linking cargo transported through feeder vessels to the mother vessel for transportation to Australia.

Conclusion:
The ITAT partly allowed the appeal for statistical purposes, modifying the CIT(A) order and directing verification of evidence for 125 consignments to establish the linkage between feeder vessels and mother vessels for tax exemption under Article 8 of the DTAA.

Judges: K.C. Singhal, Vice President and Rajendra Singh, Accountant Member